RSF RiverNorth Capital and Income Fund Trading

 

As filed with the Securities and Exchange Commission on October 22, 2024

 

Securities Act File No. 333-281399

1940 Act File No. 811-23067

 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM N-2

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933	[X]
Pre-Effective Amendment No. 1	[X]
Post-Effective Amendment No.

 

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940	[X]
Amendment No. 25	[X]

 

RiverNorth Capital and Income Fund, Inc. 

(Exact Name of Registrant as Specified in Charter)

 

360 South Rosemary Avenue, Suite 1420 

West Palm Beach, FL 33401 

(Address of Principal Executive Offices) 

 

(312) 832-1440 

(Registrant’s Telephone Number)

 

Marcus L. Collins, Esq. 

RiverNorth Capital Management, LLC 

360 South Rosemary Avenue, Suite 1420 

West Palm Beach, FL 33401 

(Name and Address of Agent for Service)

 

Copy to: 

Joshua B. Deringer, Esq. 

Faegre Drinker Biddle & Reath LLP 

One Logan Square, Ste. 2000 

Philadelphia, PA 19103-6996 

215-988-2700

 

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: 

AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE
OF THIS REGISTRATION STATEMENT.

 

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, check the following 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 (the “Securities Act”), other than securities offered in connection with dividend or interest reinvestment plans, check the following box [X]

If this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto, check the following box [X]

 

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 the following 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, check the following box [ ]

 

It is proposed that this filing will become effective (check appropriate box):

 

[ ] when declared effective pursuant to section 8(c)

 

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 (the “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.

 

[X] 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).

 

[X] 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 and Exchange Act of 1934).

 

[ ] 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 the Securities Act.

 

[ ] New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing).

 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS 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 SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, Dated October 22, 2024

 

BASE PROSPECTUS

 

$150,000,000

 

RiverNorth Capital and Income Fund, Inc.
Common Stock
Preferred Stock
Subscription Rights for Common Stock

Subscription Rights for Preferred Stock
Subscription Rights for Common and Preferred Stock

 

The Fund. RiverNorth Capital and Income Fund, Inc. (the “Fund”) is a diversified, closed-end management investment company that has registered as an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), and is operated as an interval fund under Rule 23c-3 of the 1940 Act.

 

Investment Objective. The investment objective of the Fund is to seek a high level of current income. There can be no assurance that the Fund’s investment objective will be achieved.

 

Principal Investment Strategies. Under normal market conditions, the Fund seeks to achieve its investment objective by investing, directly or indirectly, in credit instruments, including a portfolio of securities of specialty finance and other financial companies that the Fund’s Adviser (as defined below) believes offer attractive opportunities for income. These companies may include, but are not limited to, banks, thrifts, finance companies, lending platforms, business development companies, real estate investment trusts, special purpose acquisition companies, private investment funds (private funds that are exempt from registration under Sections 3(c)(1) and 3(c)(7) of the 1940 Act), registered closed-end investment companies, brokerage and advisory firms, insurance companies and financial holding companies. Together, these types of companies are referred to as “financial institutions.” The Fund’s investments in hedge funds and private equity funds that are exempt from registration under Sections 3(c)(1) and 3(c)(7) of the 1940 Act will be limited to no more than 15% of the Fund’s assets. The Fund may also invest in common equity, preferred equity, convertible securities and warrants of these institutions. “Managed Assets” means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing leverage and any preferred stock that may be outstanding).

 

The Fund may invest in income-producing securities of any maturity and credit quality, including below investment grade, and equity securities, including exchange-traded funds and registered closed-end funds. Below investment grade securities are commonly referred to as “junk” or “high yield” securities and are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. Such income-producing securities in which the Fund may invest may include, without limitation, corporate debt securities, U.S. government debt securities, short-term debt securities, asset backed securities, exchange-traded notes, loans, including secured and unsecured senior loans, Alternative Credit Instruments (as defined below), collateralized loan obligations and other structured finance securities, and cash and cash equivalents.

The Fund’s alternative credit investments may be made through a combination of: (i) investing in loans to small- and mid-sized companies (“SMEs”); (ii) investing in notes or other pass-through obligations issued by an alternative credit platform (or an affiliate) representing the right to receive the principal and interest payments on an Alternative Credit investment (or fractional portions thereof) originated through the platform (“Pass-Through Notes”); (iii) purchasing asset-backed securities representing ownership in a pool of Alternative Credit; (iv) investing in private investment funds that purchase Alternative Credit; (v) acquiring an equity interest in an alternative credit platform (or an affiliate); and (vi) providing loans, credit lines or other extensions of credit to an alternative credit platform (or an affiliate) (the foregoing listed investments are collectively referred to herein as the “Alternative Credit Instruments” or “Alternative Credit”). Subject to the limitations in this prospectus and SAI, the Fund may invest without limit in any of the foregoing types of Alternative Credit Instruments and the Fund’s investments in private investment funds will be limited to no more than 10% of the Fund’s Managed Assets. See “Risks-Investment Strategy Risks.” The Alternative Credit in which the Fund typically invests are newly issued and/or current as to interest and principal payments at the time of investment. As a fundamental policy (which cannot be changed without the approval of the holders of a majority of the outstanding voting securities of the Fund), the Fund does not invest in Alternative Credit that are of subprime quality at the time of investment. The Fund considers an SME loan to be of “subprime quality” if the likelihood of repayment on such loan is determined by the Adviser based on its due diligence and the credit underwriting policies of the originating platform to be similar to that of consumer loans that are of subprime quality. The Fund does not currently have any intention to invest in Alternative Credit originated from lending platforms based outside the United States or made to non-U.S. borrowers. However, the Fund may in the future invest in such Alternative Credit and will provide updated disclosures prior to making such investments. For a general discussion of Alternative Credit and Alternative Credit Instruments, see “Investment Objective, Strategies and Policies-Alternative Credit”. Unless the context suggests otherwise, all references to loans generally in this prospectus refer to Alternative Credit.

 

Alternative Credit Instruments are generally not rated by the nationally recognized statistical rating organizations (“NRSROs”). Such unrated instruments, however, may be considered by such NRSROs to be comparable in quality to securities falling into any of the ratings categories used by such NRSROs to classify “junk” bonds. Accordingly, the Fund’s unrated Alternative Credit Instrument investments constitute highly risky and speculative investments, notwithstanding that the Fund is not permitted to invest in loans that are of subprime quality at the time of investment. See “Risks-Investment Strategy Risks.” The Alternative Credit Instruments in which the Fund may invest may have varying degrees of credit risk. There can be no assurance that payments due on underlying Alternative Credit investments will be made. At any given time, the Fund’s portfolio may be substantially illiquid and subject to increased credit and default risk. If a borrower is unable to make its payments on a loan, the Fund may be greatly limited in its ability to recover any outstanding principal and interest under such loan. The Securities (as defined below) therefore should be purchased only by investors who could afford the loss of the entire amount of their investment. See “Risks-Investment Strategy Risks.”

 

Percentage limitations described within this prospectus regarding the Fund’s investment strategies and policies are as of the time of investment by the Fund and may be exceeded on a going-forward basis as a result of market value fluctuations of the Fund’s portfolio investments; however, the Fund’s investments in hedge funds and private equity funds that are exempt from registration under Sections 3(c)(1) and 3(c)(7) of the 1940 Act are limited to no more than 15% of the Fund’s assets at all times (including as a result of market value fluctuations).

 

The Fund may offer, from time to time, up to $150,000,000 aggregate initial offering price of (i) shares of its common stock, $0.0001 par value per share (“Common Shares”), (ii) shares of its preferred stock (“Preferred Shares”) and/or (iii) subscription rights to purchase Common Shares, Preferred Shares or both (“Rights” and together with the Common Shares and Preferred Shares, “Securities”), in one or more offerings in amounts, at prices and on terms set forth in a supplement to this Prospectus. See “Description of the Fund’s Securities” beginning on page 29.

The Fund may offer Securities directly to one or more purchasers, including existing common shareholders and/or preferred shareholders in a Rights offering, through agents that the Fund or the purchasers designate from time to time, or to or through underwriters or dealers. The prospectus supplement relating to the particular offering will identify any agents or underwriters involved in the sale of the Fund’s Securities, and will set forth any applicable purchase price, fee, commission or discount arrangement between the Fund and such agents or underwriters or among the underwriters or the basis upon which such amount may be calculated. The prospectus supplement relating to any sale of preferred stock will set forth the liquidation preference and information about the dividend period, dividend rate, any call protection or non-call period and other matters, including the terms, if any, on which the preferred stock may be exchanged for or converted into shares of common stock or any other security and, if applicable, the conversion or exchange price, or how it will be calculated, and the conversion or exchange period. A supplement to this Prospectus relating to any offering of subscription rights will set forth the number of shares (common or preferred) issuable upon the exercise of each right and the other terms of such rights offering, including whether the Preferred Shares issuable upon the exercise of such rights are convertible into Common Shares. The Fund may not sell Securities through agents, underwriters or dealers without delivery of this Prospectus and a prospectus supplement. For more information about the manner in which the Fund may offer shares of its common stock, see “Plan of Distribution.”

 

The currently outstanding shares of the Fund’s common stock are, and the shares of the Fund’s common stock offered in this Prospectus will be, subject to notice of issuance, listed on the New York Stock Exchange (“NYSE”) under the trading or “ticker” symbol “RSF.” The net asset value (“NAV”) of the Fund's common stock on August 31, 2024 was $16.52 per share, and the last sale price of the Fund's common stock on the NYSE on such date was $15.22. In addition, as of August 31, 2024, the Fund had outstanding 1,656,000 shares of 5.875% Series A Term Preferred Stock Due 2024 (“Series A Preferred Stock”). The Series A Preferred Stock is listed on the NYSE under the ticker symbol “RMPL.” “See “Risks-Structural and Market-Related Risks-Leverage Risks.” Any future Preferred Shares issued by the Fund may rank senior on parity with the Fund’s outstanding Series A Preferred Stock and other future Preferred Shares in right of payment to the Fund’s common stock, and will be subordinated in right of payment to any senior indebtedness, including the Fund’s borrowings pursuant to an existing credit agreement, which permits the Fund to borrow funds that are collateralized by assets held in a special custody account held at State Street Bank & Trust, Co. pursuant to a Special Custody and Pledge Agreement. Borrowings under this arrangement bears interest at the overnight bank funding rate plus 75 basis points for an overnight time. See “Use of Leverage.”

 

Shares of common stock of closed-end funds, like the Fund, frequently trade at discounts to their NAVs. If the shares of the Fund’s common stock trade at a discount to NAV, the risk of loss may increase for purchasers in an offering under this prospectus, especially for those investors who expect to sell their shares in a relatively short period after purchasing shares in such an offering. Following a Rights offering, a shareholder may experience dilution in NAV per share of stock if the subscription price per share is below the NAV per share on the expiration date.

 

The applicable prospectus supplement will set forth whether or not the Preferred Shares offered in this Prospectus will be listed or traded on any securities exchange. If the Fund’s Preferred Shares are not listed on a securities exchange, there may be no active secondary trading market for such shares and an investment in such shares may be illiquid.

 

Investment Adviser. RiverNorth Capital Management, LLC, a registered investment adviser (the “Adviser” or “RiverNorth”), is the Fund’s investment adviser and is responsible for the day-to-day management of the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services. The Adviser is also responsible for determining the Fund’s overall investment strategy and overseeing its implementation. As of August 31, 2024, the Adviser managed approximately $5.02 billion in assets across registered investment companies and private investment vehicles. See “Management of the Fund.”

Interval Fund; Repurchase Policy. As an interval fund, the Fund has adopted a fundamental policy to conduct, subject to certain conditions, quarterly repurchase offers for at least 5% and up to 25% of its outstanding common shares, at NAV (the “repurchase policy”). See “Repurchase Policy for the Common Shares.” As an interval fund, the Fund also may redeem preferred shares as may be necessary from time to time, either in whole or in part, without penalty or premium, to permit it to repurchase its common shares in such amount as the board of directors of the Fund (the “Board of Directors”) may determine pursuant to the Fund’s repurchase policy in compliance with the Fund’s asset coverage requirements under the 1940 Act. The Fund currently expects to offer to repurchase 5% of the Fund’s outstanding shares of common shares on a quarterly basis pursuant to such repurchase policy, subject to approval of the Board of Directors.

 

Dividends and Distributions. The Fund has adopted a distribution policy to provide holders of its common shares with a relatively stable cash flow. Under this policy, the Fund intends to declare and pay regular quarterly distributions to holders of the common shares at a level rate. However, the amount of actual distributions that the Fund may pay, if any, is uncertain. The distributions will be paid from net investment income (including excess gains taxable as ordinary income), if any, and net capital gains, if any, with the balance (which may comprise the entire distribution) representing return of capital. The Fund’s common shares are junior in priority of payment of dividends to the Fund’s Series A Preferred Stock and, accordingly, distributions on common shares will be prohibited at any time dividends on the Fund’s preferred stock are in arrears.

 

Any return of capital should not be considered by shareholders as yield or total return on their investment in the Fund. The Fund may pay distributions in significant part from sources that may not be available in the future and that are unrelated to the Fund’s performance, such as the net proceeds from the sale of common shares (representing a return of capital originally invested in the Fund by holders of the common shares) and Fund borrowings. Shareholders who periodically receive a distribution consisting of a return of capital may be under the impression that they are receiving net profits when they are not. Shareholders should not assume that the source of a distribution from the Fund is net profit. A return of capital would reduce a common shareholder’s tax basis in its common shares, which could result in higher taxes when the common shareholder sells such common shares. This may cause the common shareholder to owe taxes even if it sells common shares for less than the original purchase price of such common shares.

 

If the Fund’s investments do not generate sufficient income, the Fund may be required to liquidate a portion of its portfolio to fund these distributions, and therefore there payments may represent a reduction of a shareholder’s principal investment. If the Fund distributes amounts in excess of its net investment income and realized net capital gains, such distributions will decrease the Fund’s capital and, therefore, have the potential effect of increasing the Fund’s expense ratio. To make such distributions, the Fund may have to sell a portion of its investment portfolio at a time when it would otherwise not do so. See “Dividends and Distributions.”

 

Leverage. The Fund may use leverage to the extent permitted by the 1940 Act, including through the issuance of preferred stock and/or through borrowings and/or the issuance of notes or debt securities. On November 30, 2020, the Fund entered into a prime brokerage agreement for margin financing with Pershing LLC as lender (the “Credit Agreement”). The Credit Agreement permits the Fund to borrow funds that are collateralized by assets held in a special custody account held at State Street Bank pursuant to a Special Custody and Pledge Agreement. Borrowings under this arrangement bears interest at the overnight bank funding rate plus 75 basis points for an overnight time. At June 30, 2024, there was no borrowing outstanding on the Credit Agreement. At June 30, 2024, the Fund had $7,500,000 of borrowings outstanding.

At June 30, 2024, there were borrowings outstanding of $7,500,000 at an interest rate of 6.32%. The Fund currently utilizes leverage through its outstanding Series A Preferred Stock. As of June 30, 2024, the aggregate dollar amount (i.e., liquidation preference) of the Fund's outstanding Series A Preferred Stock was $41,400,000, which then represented approximately 35.57% of the Fund's Managed Assets.

 

While the Fund is using leverage, the amount of the fees paid to the Adviser for investment advisory and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on the Fund’s Managed Assets, which include assets purchased with leverage. Therefore, the Adviser has a financial incentive to leverage the Fund, which creates a conflict of interest between the Adviser on the one hand and the shareholders of the Fund on the other.

 

Leverage involves special risks. There can be no assurances that a leveraging strategy will be successful. See “Risks-Structural and Market-Related Risks-Leverage Risks.”

 

The Prospectus sets forth concisely the information about the Fund and the Securities that a prospective investor ought to know before investing in the Fund. You should read this Prospectus and the related prospectus supplement, which contain important information about the Fund, before deciding whether to invest in the Fund’s Securities, and retain them for future reference. A Statement of Additional Information, dated [ ], 2024 (the “SAI”), containing additional information about the Fund, has been filed with the Securities and Exchange Commission (the “SEC”) and is incorporated by reference in its entirety into this Prospectus. You may request a free copy of the Prospectus, the SAI, annual and semi-annual reports to shareholders and other information about the Fund, or make shareholder inquiries, by calling (844) 569-4750 or by writing to the Fund at P.O. Box 219184, Kansas City, Missouri, 64121-9184, or from the Fund’s website at rivernorth.com. The information contained in, or that can be accessed through, the Fund’s website is not part of this prospectus. You also may obtain a copy of the SAI (and other information regarding the Fund) from the SEC’s website at sec.gov.

 

Investing in the Fund involves certain risks. See “Risks” beginning on page 24 of this Prospectus.

 

Neither the SEC 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 Fund’s Securities do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depositary institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.

 

Prospectus dated [ ], 2024

 TABLE OF CONTENTS

 

Prospectus Summary	1
Summary Of Fund Expenses	13
Financial Highlights	13
Senior Securities	15
Market and Net Asset Value Information	16
The Fund	16
The Offering	16
Use Of Proceeds	17
Investment Objective, Strategies and Policies	17
Investment Philosophy and Process	17
Repurchase Policy For The Common Shares	19
Use Of Leverage	23
Risks	24
Management Of The Fund	24
Net Asset Value	26
Dividend Reinvestment Plan	29
Description Of The Fund’s Securities	29
Certain Provisions Of The Fund’s Charter and Bylaws And Of Maryland Law	33
Rights Offerings	41
U.S. Federal Income Tax Matters	41
Plan Of Distribution	47
Administrator, Fund Accountant, Transfer Agent, Dividend Disbursing Agent and Custodians	51
Legal Matters	51
Control Persons	51
Additional Information	51
The Fund’s Privacy Policy	52
Incorporation By Reference	53

 

You should rely only on the information contained or incorporated by reference in this Prospectus and any related prospectus supplement. The Fund has not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The Fund is not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information provided by this Prospectus and any related prospectus supplement is accurate as of any date other than the respective dates on the front covers. The Fund’s business, financial condition and results of operations may have changed since that date.

Prospectus Summary

 

This is only a summary of information contained elsewhere in this Prospectus. This summary does not contain all of the information that you should consider before investing in the Fund’s securities offered by this Prospectus. You should review the more detailed information contained in this Prospectus, and any related prospectus supplement and the SAI, including the documents incorporated by reference. In particular, you should carefully read the section entitled “Risks” in this Prospectus.

 

The Fund	The Fund is a diversified, closed-end management investment company that has registered as an investment company under the 1940 Act, and is operated as an interval fund. As an interval fund, the Fund has adopted a fundamental policy to conduct, subject to certain conditions, quarterly repurchase offers for at least 5% and up to 25% of the outstanding shares of its common stock, $0.0001 par value per share, at NAV. See “Repurchase Policy for the Common Shares.” The Fund lists such common shares on the NYSE under the ticker symbol “RSF.” The common shares began trading on the NYSE on June 12, 2019 and may be purchased and sold in the secondary market. As of August 31, 2024, the Fund had 3,862,917 common shares outstanding and net assets applicable to such common shares of $63,796,237. The shares of the Fund’s common stock offered by this Prospectus are called “Common Shares” and the holders of Common Shares are called “Common Shareholders.” As used hereinafter in this Prospectus, unless the context otherwise requires, “common shares” refer to the shares of the Fund’s common stock currently outstanding as well as those Common Shares offered by this Prospectus and the holders of common shares are called “common shareholders.”   In addition, as of August 31, 2024, the Fund had outstanding 1,656,000 shares of Series A Preferred Stock. As of August 31, 2024, the aggregate dollar amount (i.e., liquidation preference) of the Fund's outstanding Series A Preferred Stock was $41,400,000, which then represented approximately 36.74% of the Fund's total assets (including assets attributable to the Fund's leverage). The Series A Preferred Stock is listed on the NYSE under the ticker symbol “RMPL.” The shares of the Fund’s preferred stock offered by this Prospectus are called “Preferred Shares” and the holders of Preferred Shares are called “Preferred Shareholders.” As used hereinafter in this Prospectus, unless the context otherwise requires, “preferred shares” refer to the shares of the Fund’s Series A Preferred Stock currently outstanding as well as those Preferred Shares offered by this Prospectus and the holders of preferred shares are called “preferred shareholders.”   The Fund commenced investment operations on August 19, 2016. An investment in the Fund may not be appropriate for all investors.
Investment Adviser	The Adviser is the Fund’s investment adviser and is responsible for the day-to-day management of the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services. The Adviser is also responsible for determining the Fund’s overall investment strategy and overseeing its implementation. As of August 31, 2024, the Adviser managed approximately $5.02 billion in assets across registered investment companies and private investment vehicles. See “Management of the Fund.”
The Offering	The Fund may offer Securities directly to one or more purchasers, including existing common shareholders and/or preferred shareholders in a Rights offering, through agents that the Fund or the purchasers designate from time to time, or to or through underwriters or dealers. The prospectus supplement relating to the offering will identify any agents or underwriters involved in the sale of the Securities, and will set forth any applicable purchase price, fee, commission or discount arrangement between the Fund and such agents or underwriters or among underwriters or the basis upon which such amount may be calculated. The prospectus supplement relating to any sale of preferred stock will set forth the liquidation preference and information about the dividend period, dividend rate, any call protection or non-call period and other matters, including the terms, if any, on which the preferred stock may be exchanged for or converted into shares of common stock or any other security and, if applicable, the conversion or exchange price, or how it will be calculated, and the conversion or exchange period. A supplement to this Prospectus relating to any offering of subscription rights will set forth the number of shares (common or preferred) issuable upon the exercise of each right and the other terms of such rights offering, including whether the Preferred Shares issuable upon the exercise of such right are convertible into Common Shares. The Fund may not sell Securities through agents, underwriters or dealers without delivery of this Prospectus and a prospectus supplement describing the method and terms of the offering of the Securities. See “Plan of Distribution.”

	Offerings of shares will be subject to the provisions of the 1940 Act, which generally require that the public offering price of common shares of a closed-end investment company (exclusive of distribution commissions and discounts) must equal the NAV per share of the company’s common stock (calculated within 48 hours of pricing), absent shareholder approval or under certain other circumstances. The Fund may, however, issue Common Shares pursuant to exercises of Rights at prices below NAV.
Investment Objective	The investment objective of the Fund is to seek a high level of current income. There can be no assurance that the Fund’s investment objective will be achieved.
Principal Investment Strategies and Policies	Under normal market conditions, the Fund seeks to achieve its investment objective by investing, directly or indirectly, in credit instruments, including a portfolio of securities of specialty finance and other financial companies that the Adviser believes offer attractive opportunities for income. These companies may include, but are not limited to, banks, thrifts, finance companies, lending platforms, business development companies (“BDCs”), real estate investment trusts (“REITs”), special purpose acquisition companies (“SPACs”), private investment funds (private funds that are exempt from registration under Sections 3(c)(1) and 3(c)(7) of the 1940 Act), registered closed-end investment companies, brokerage and advisory firms, insurance companies and financial holding companies. Together, these types of companies are referred to as “financial institutions.” The Fund’s investments in hedge funds and private equity funds that are exempt from registration under Sections 3(c)(1) and 3(c)(7) of the 1940 Act will be limited to no more than 15% of the Fund’s assets. The Fund may also invest in common equity, preferred equity, convertible securities and warrants of these institutions. “Managed Assets” means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing leverage and any preferred stock that may be outstanding).

The Fund may invest in income-producing securities of any maturity and credit quality, including below investment grade, and equity securities, including exchange-traded funds and registered closed-end funds. Below investment grade securities are commonly referred to as “junk” or “high yield” securities and are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. Such income-producing securities in which the Fund may invest may include, without limitation, corporate debt securities, U.S. government debt securities, short-term debt securities, asset backed securities, exchange-traded notes, loans, including secured and unsecured senior loans, Alternative Credit (as defined below), collateralized loan obligations (“CLOs”) and other structured finance securities, and cash and cash equivalents.   The Fund’s alternative credit investments may be made through a combination of: (i) investing in loans to SMEs; (ii) investing in Pass-Through Notes; (iii) purchasing asset-backed securities representing ownership in a pool of Alternative Credit; (iv) investing in private investment funds that purchase Alternative Credit; (v) acquiring an equity interest in an alternative credit platform (or an affiliate); and (vi) providing loans, credit lines or other extensions of credit to an alternative credit platform (or an affiliate). Subject to the limitations in this prospectus and SAI, the Fund may invest without limit in any of the foregoing types of Alternative Credit Instruments and the Fund’s investments in private investment funds will be limited to no more than 10% of the Fund’s Managed Assets. See “Risks-Investment Strategy Risks.” The Alternative Credit in which the Fund typically invests are newly issued and/or current as to interest and principal payments at the time of investment. As a fundamental policy (which cannot be changed without the approval of the holders of a majority of the outstanding voting securities of the Fund), the Fund does not invest in Alternative Credit that are of subprime quality at the time of investment. The Fund considers an SME loan to be of “subprime quality” if the likelihood of repayment on such loan is determined by the Adviser based on its due diligence and the credit underwriting policies of the originating platform to be similar to that of consumer loans that are of subprime quality. The Fund does not currently have any intention to invest in Alternative Credit originated from lending platforms based outside the United States or made to non-U.S. borrowers. However, the Fund may in the future invest in such Alternative Credit and will provide updated disclosures prior to making such investments. For a general discussion of Alternative Credit and Alternative Credit Instruments, see “-Alternative Credit” below. Unless the context suggests otherwise, all references to loans generally in this prospectus refer to Alternative Credit.   Alternative Credit Instruments are generally not rated by NRSROs. Such unrated instruments, however, may be considered by such NRSROs to be comparable in quality to securities falling into any of the ratings categories used by such NRSROs to classify “junk” bonds. Accordingly, the Fund’s unrated Alternative Credit Instrument investments constitute highly risky and speculative investments, notwithstanding that the Fund is not permitted to invest in loans that are of subprime quality at the time of investment. The Alternative Credit Instruments in which the Fund may invest may have varying degrees of credit risk. There can be no assurance that payments due on underlying Alternative Credit investments will be made. At any given time, the Fund’s portfolio may be substantially illiquid and subject to increased credit and default risk. If a borrower is unable to make its payments on a loan, the Fund may be greatly limited in its ability to recover any outstanding principal and interest under such loan. The Securities therefore should be purchased only by investors who could afford the loss of the entire amount of their investment.

Percentage limitations described within this prospectus regarding the Fund’s investment strategies and policies are as of the time of investment by the Fund and may be exceeded on a going-forward basis as a result of market value fluctuations of the Fund’s portfolio investments to the extent the Fund’s investments in hedge funds and private equity funds that are exempt from registration under Sections 3(c)(1) and 3(c)(7) of the 1940 Act are limited to no more than 15% of the Fund’s assets.   To the extent any affiliate of the Adviser or the Fund (“Affiliated Broker”) receives any fee, payment, commission or other financial incentive of any type (“Broker Fees”) in connection with the purchase and sale of securities by the Fund, such Broker Fees will be subject to policies and procedures adopted by the Board of Directors pursuant to Section 17(e) and Rule 17e-1 of the 1940 Act. These policies and procedures include quarterly review by the Board of Directors of any such payments. Among other things, Section 17(e) and those procedures provide that, when acting as broker for the Fund in connection with the purchase or sale of securities to or by the Fund, an affiliated broker may not receive any compensation exceeding the following limits: (1) if the transaction is effected on a securities exchange, the compensation may not exceed the “usual and customary broker’s commission” (as defined in Rule 17e-1 under the 1940 Act); (2) in the case of the purchase of securities by the Fund in connection with a secondary distribution, the compensation cannot exceed 2% of the sale price; and (3) the compensation for transactions otherwise effected cannot exceed 1% of the purchase or sale price. Rule 17e-1 defines a “usual and customary broker’s commission” as one that is fair compared to the commission received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on an exchange during a comparable period of time. Notwithstanding the foregoing, no Affiliated Broker will receive any undisclosed fees from the Fund in connection with any transaction involving the Fund and such Affiliated Broker, and to the extent any transactions involving the Fund are effected by an Affiliated Broker, such Affiliated Broker’s Broker Fees for such transactions shall be limited in accordance with Section 17(e)(2) of the 1940 Act and the Fund’s policies and procedures concerning Affiliated Brokers.   See “Investment Objective, Strategies and Policies” for a description of the types of credit instruments in which the Fund may invest.   Unless otherwise specified, the investment policies and limitations of the Fund are not considered to be fundamental by the Fund and can be changed without a vote of the common shareholders. The Fund’s repurchase policy for the common shares and certain investment restrictions specifically identified as such in the SAI are considered fundamental and may not be changed without the approval of the holders of a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act, which includes common shares and preferred shares, if any, voting together as a single class, and the holders of the outstanding preferred shares, if any, voting as a single class. See “Repurchase Policy for the Common Shares” in this Prospectus and “Investment Restrictions” in the SAI.

Investment Philosophy and Process

The Adviser believes that the recent and continuing growth of the online and mobile alternative credit industry has created a relatively untapped and attractive investment opportunity, with the potential for large returns. The Adviser seeks to capitalize on this opportunity by participating in the evolution of this industry, which has served as an alternative to, and has begun to take market share from, the more traditional lending operations of large commercial banks. The ability of borrowers to obtain loans through alternative credit with interest rates that may be lower than those otherwise available to them (or to obtain loans that would otherwise be unavailable to them) has contributed to the significant rise of the use of Alternative Credit. At the same time, alternative credit has also enabled investors to purchase or invest in loans with interest rates and credit characteristics that can offer attractive returns.   In selecting the Fund’s Alternative Credit investments, the Adviser employs a bottom-up approach to evaluate the expected returns of loans by loan segment (e.g., consumer, SME and student loans) and by platform origination (as discussed below), as well as a top-down approach to seek to identify investment opportunities across the various segments of the alternative credit industry. In doing so, the Adviser conducts an analysis of each segment’s anticipated returns relative to its associated risks, which takes into consideration for each segment duration, scheduled amortization, seniority of the claim of the loan, prepayment terms and prepayment expectations, current coupons and trends in coupon pricing, origination fees, servicing fees and anticipated losses based on historical performance of similar credit instruments. The Adviser then seeks to allocate Fund assets to the segments identified as being the most attractive on a risk-adjusted return basis.   Within each segment, the Adviser conducts a platform-specific analysis, as opposed to a loan-specific analysis, and, as such, the Adviser’s investment process does not result in a review of each individual Alternative Credit investment to which the Fund has investment exposure. Instead, the Adviser generally seeks loans that have originated from platforms that have met the Adviser’s minimum requirements related to, among other things, loan default history and overall borrower credit quality. In this regard, the Adviser engages in a thorough and ongoing due diligence process of each platform to assess, among other things, the viability of the platform to sustain its business for the foreseeable future; whether the platform has the appropriate expertise, ability and operational systems to conduct its business; the financial condition and outlook of the platform; and the platform’s ability to manage regulatory, business and operational risk. In addition, the Adviser’s due diligence efforts include reviews of the servicing and underwriting functions of a platform (as further described below) and/or funding bank (as applicable), the ability of a platform to attract borrowers and the volume of loan originations, and loan performance relative to model expectations, among other things. In conducting such due diligence, the Adviser has access to, and reviews, the platform’s credit models as well. Moreover, the Adviser visits each platform from time to time for on-site reviews of the platform, including discussions with each of the significant business units within the platform (e.g., credit underwriting, customer acquisition and marketing, information technology, communications, servicing and operations).   As part of the foregoing due diligence efforts, the Adviser monitors on an ongoing basis the underwriting quality of each platform through which it invests in Alternative Credit, including (i) an analysis of the historical and ongoing “loan tapes” that includes loan underwriting data and actual payment experience for all individual loans originated by the platform since inception that are comparable to the loans purchased, or to be purchased, by the Fund, (ii) reviews of the credit model used in the platform’s underwriting processes, including with respect to the assignment of credit grades by the platform to its Alternative Credit and the reconciliation of the underlying data used in the model, (iii) an assessment of any issues identified in the underwriting of the Alternative Credit and the resulting remediation efforts of the platform to address such issues, and (iv) a validation process to confirm that loans purchased by the Fund conform with the terms and conditions of any applicable purchase agreement entered into with the platform.

Although the Adviser does not review each individual Alternative Credit investment prior to investment, it is able to impose minimum quantitative and qualitative criteria on the loans in which it will invest by limiting the Fund’s loans to the loan segments and platforms selected by the Adviser, as noted above. In effect, the Adviser adopts the minimum investment criteria inherent in a loan segment or imposed by a platform that it has identified as having the appropriate characteristics for investment. Furthermore, each platform assigns the Alternative Credit it originates a platform-specific credit grade reflecting the potential risk-adjusted return of the loan, which may be based on various factors such as: (i) the term, interest rate and other characteristics of the loans; (ii) the location of the borrowers; (iii) if applicable, the purpose of the loans within the platform (e.g., consumer, SME or student loans); and (iv) the credit and risk profile of the borrowers, including, without limitation (to the extent applicable based on the type of loan), the borrower’s annual income, debt-to-income ratio, credit score (e.g., FICO score), delinquency rate and liens. In purchasing Alternative Credit from a platform, the Fund provides the applicable platform with instructions as to which platform credit grades are eligible for purchase (or, conversely, which platform credit grades are ineligible for Fund purchase). The Adviser performs an ongoing analysis of each of the criteria within a platform’s credit grades to determine historical and predicted prepayment, charge-off, delinquency and recovery rates acceptable to the Adviser. While, under normal circumstances, the Adviser does not provide instructions to the platforms as to any individual criterion used to determine platform-specific grades prior to purchasing Alternative Credit (except as noted below), the Adviser does retain the flexibility to provide more specific instructions (e.g., term; interest rate; geographic location of borrower) if the Adviser believes that investment circumstances dictate any such further instructions. Specifically, the Adviser instructs platforms that the Fund will not purchase any Alternative Credit that are of “subprime quality” (as determined at the time of investment). Although there is no specific legal or market definition of subprime quality, it is generally understood in the industry to signify that there is a material likelihood that the loan will not be repaid in full. The Fund considers an SME loan to be of “subprime quality” if the likelihood of repayment on such loan is determined by the Adviser based on its due diligence and the credit underwriting policies of the originating platform to be similar to that of consumer loans that are of subprime quality. In determining whether an SME loan is of subprime quality, the Adviser generally looks to a number of borrower-specific factors, which will include the payment history of the borrower and, as available, financial statements, tax returns and sales data.

The Adviser will not invest the Fund’s assets in loans originated by platforms for which the Adviser cannot evaluate to its satisfaction the completeness and accuracy of the individual Alternative Credit investment data provided by such platform relevant to determining the existence and valuation of such Alternative Credit investment and utilized in the accounting of the loans (i.e., in order to select a platform, the Adviser must assess that it believes all relevant loan data for all loans purchased from the platform is included and correct).   The Adviser significantly relies on borrower credit information provided by the platforms through which they make the Fund’s investments. The Adviser receives updates of such borrower credit information provided by independent third party service providers to the platforms and therefore is able to monitor the credit profile of its investments on an ongoing basis. See “Net Asset Value.”   The Adviser invests in Alternative Credit through the use of a web-based service that provides direct access to platforms and facilitates the loan acquisition process by retrieving for the Adviser data such as bidding and listing information. Given the increased reliance on the use of information technology in alternative credit, the Adviser conducts due diligence on the platforms through which it seeks its Alternative Credit investments, including a review of each platform’s information technology security, fraud protection capabilities and business continuity plan. The Adviser generally requires a platform to have, among other things, industry standard data backup protections, including off-site backup datacenters and state of the art data encryption, and appropriate cybersecurity measures. In addition, the Adviser has adopted various protections for itself, including a business continuity plan which provides procedures related to the recovery and restoration of its business, particularly with respect to any critical functions and systems of the Adviser, following an interruption in service or disaster.

Use of Leverage

The Fund seeks to use leverage for investment and other purposes, such as for financing the repurchase of its common shares or to otherwise provide the Fund with liquidity.   Under the 1940 Act, the Fund may utilize leverage through the issuance of preferred stock in an amount up to 50% of its total assets and/or through borrowings and/or the issuance of notes or debt securities (collectively, “Borrowings”) in an aggregate amount of up to 33-1/3% of its total assets. The Fund anticipates that its leverage will vary from time to time, based upon changes in market conditions and variations in the value of the portfolio’s holdings; however, the Fund’s leverage will not exceed the limitations set forth under the 1940 Act. As a result of the continuous offering of Common Shares and the quarterly repurchases of common shares pursuant to the Fund’s repurchase policy, the Fund’s leverage ratio will increase or decrease as a result of the changes in net assets attributable to common shares. On November 11, 2020, the Fund entered into a prime brokerage agreement for margin financing. The Credit Agreement permits the Fund to borrow funds that are collateralized by assets held in a special custody account held at State Street Bank pursuant to a Special Custody and Pledge Agreement. Borrowings under this arrangement bears interest at the overnight bank funding rate plus 75 basis points for an overnight time. During the Fund’s utilization period during the fiscal year ended June 30, 2024, the Fund’s average borrowing and interest rate under the Credit Agreement were $1,000,000 and 6.05%, respectively. At June 30, 2024, there was no borrowing outstanding on the Credit Agreement. As of August 31, 2024, the Fund had outstanding 1,656,000 shares of Series A Preferred Stock. As of August 31, 2024, the aggregate dollar amount (i.e., liquidation preference) of the Fund's outstanding Series A Preferred Stock was $41,400,000, which then represented approximately 36.74% of the Fund's total assets (including assets attributable to the Fund's leverage).

On March 9, 2023, the Fund entered into an additional credit agreement with BNP Paribas (“BNP Credit Agreement”). The BNP Credit Agreement permits the Fund to borrow funds that are collateralized by assets held at BNP Paribas pursuant to the BNP Credit Agreement. Under the terms of the BNP Credit Agreement, the Fund may borrow up to $15,000,000 bearing an interest rate of the Overnight Bank Funding Rate plus a fixed rate determined by the securities pledged as collateral. Any unused portion of the BNP Credit Agreement is subject to a commitment fee of 0.50% of the unused portion of the facility until a utilization of 80% or greater is met. During the Fund’s utilization period during the fiscal year ended June 30, 2024, the Fund’s average borrowings and interest rate under the BNP Credit Agreement were $7,224,880 and 5.70%, respectively. At June 30, 2024, there was $7,500,000 outstanding on the credit facility.   There is no assurance that the Fund will increase the amount of its leverage or that, if additional leverage is utilized, it will be successful in enhancing the level of the Fund’s current distributions. It is also possible that the Fund will be unable to obtain additional leverage. If the Fund is unable to increase its leverage after the issuance of additional Shares, there could be an adverse impact on the return to shareholders.   Under the 1940 Act, the Fund generally is not permitted to incur Borrowings unless immediately after the Borrowing the value of the Fund’s total assets less liabilities other than the principal amount represented by Borrowings is at least 300% of such principal amount. Also, under the 1940 Act and as noted above, the Fund is not permitted to issue preferred stock unless immediately after such issuance the value of the Fund’s asset coverage is at least 200% of the liquidation value of the outstanding preferred stock (i.e., such liquidation value may not exceed 50% of the Fund’s asset coverage). Upon the issuance of preferred stock, the Fund intends, to the extent possible, to purchase or redeem its preferred stock from time to time to the extent necessary in order to maintain coverage of any preferred stock of at least 200%. In addition, as a condition to obtaining ratings on the preferred stock, the terms of any preferred stock issued are expected to include asset coverage maintenance provisions which will require the redemption of the preferred stock in the event of non-compliance by the Fund and also may prohibit dividends and other distributions on the common shares in such circumstances. In order to meet redemption requirements, the Fund may have to liquidate portfolio securities. Such liquidations and redemptions would cause the Fund to incur related transaction costs and could result in capital losses to the Fund.   Furthermore, the Fund is not permitted to declare any cash dividend or other distribution on its common shares, or repurchase its common shares, unless, at the time of such declaration or repurchase, the Borrowings have an asset coverage of at least 300% and the preferred stock has an asset coverage of at least 200% after deducting the amount of such dividend, distribution or purchase price (as the case may be). Any prohibitions on dividends and other distributions on the common shares could impair the Fund’s ability to qualify as a regulated investment company under the Internal Revenue Code (the “Code”). The Fund intends, to the extent possible, to prepay all or a portion of the principal amount of any outstanding Borrowing or purchase or redeem any outstanding shares of preferred stock to the extent necessary in order to maintain the required asset coverage. Holders of shares of preferred stock, including Series A Preferred Stock, voting separately, are entitled to elect two of the Fund’s directors. The remaining directors of the Fund are elected by common shareholders and preferred shareholders voting together as a single class. In the event the Fund would fail to pay dividends on its preferred stock for two years, the preferred shareholders would be entitled to elect a majority of the directors of the Fund.

In addition to the requirements under the 1940 Act, the Fund is subject to various requirements and restrictions under its Series A Preferred Stock. The requirements and restrictions with respect to the Fund’s preferred stock may be more stringent than those imposed by the 1940 Act, which may include certain restrictions imposed by guidelines of one or more rating agencies which issue ratings for the Fund’s preferred stock; however, it is not anticipated that they will impede the Adviser from managing the Fund’s portfolio and repurchase policy in accordance with the Fund’s investment objective and policies. Nonetheless, in order to adhere to such requirements and restrictions, the Fund may be required to take certain actions, such as reducing its Borrowings and/or redeeming shares of its preferred stock, with the proceeds from portfolio transactions at what might be an in opportune time in the market. Such actions could incur transaction costs as well as reduce the net earnings or returns to shareholders over time. In addition to other considerations, to the extent that the Fund believes that these requirements and restrictions would impede its ability to meet its investment objective or its ability to qualify as a regulated investment company, the Fund will not incur additional Borrowings or issue additional preferred stock.   In general, Borrowings may be at a fixed or floating rate and are typically based upon short-term rates. The Borrowings in which the Fund may incur from time to time may be secured by mortgaging, pledging or otherwise subjecting as security the assets of the Fund. Certain types of Borrowings may result in the Fund being subject to covenants in credit agreements relating to asset coverage and portfolio composition requirements. Generally, covenants to which the Fund may be subject include affirmative covenants, negative covenants, financial covenants, and investment covenants. An example of an affirmative covenant would be one that requires the Fund to send its annual audited financial report to the lender. An example of a negative covenant would be one that prohibits the Fund from making any amendments to its fundamental policies. An example of a financial covenant is one that would require the Fund to maintain a 3:1 asset coverage ratio. An example of an investment covenant is one that would require the Fund to limit its investment in a particular asset class. As noted above, the Fund may need to liquidate its investments when it may not be advantageous to do so in order to satisfy such obligations or to meet any asset coverage requirements (pursuant to the 1940 Act or otherwise). As the Fund’s portfolio will be substantially illiquid, any such disposition or liquidation could result in substantial losses to the Fund.   The terms of the Fund’s Borrowings may also contain provisions which limit certain activities of the Fund, including the payment of dividends to shareholders in certain circumstances, and the Fund may be required to maintain minimum average balances with the lender or to pay a commitment or other fee to maintain a line of credit.

In addition, certain types of Borrowings may involve the rehypothecation of the Fund’s securities. Furthermore, the Fund may be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies, which may issue ratings for the short-term corporate debt securities issued by the Fund. Any Borrowing will likely be ranked senior or equal to all other Borrowings of the Fund and the rights of lenders to the Fund to receive interest on and repayment of principal of any Borrowings will likely be senior to those of the shareholders. Further, the 1940 Act grants, in certain circumstances, to the lenders to the Fund certain voting rights in the event of default in the payment of interest on or repayment of principal. In the event that such provisions would impair the Fund’s status as a regulated investment company under the Code, the Fund, subject to its ability to liquidate its portfolio, intends to repay the Borrowings.   The Fund also may borrow money 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.   Due to the Fund’s issuance of Series A Preferred Stock, for tax purposes, the Fund is required to allocate net capital gain and other taxable income, if any, between the common shares and shares of the Series A Preferred Stock in proportion to total dividends paid to each class for the year in which the net capital gain or other taxable income was realized.   So long as the rate of return, net of applicable Fund expenses, on the Fund’s portfolio investments purchased with Borrowings or the proceeds from the issuance of preferred stock exceeds the then-current interest or payment rate and other costs on such Borrowings or preferred stock, the Fund will generate more return or income than will be needed to pay such interest or dividend payments and other costs. In this event, the excess will be available to pay higher dividends to shareholders. If the net rate of return on the Fund’s investments purchased with Borrowings or the proceeds from the issuance of preferred stock does not exceed the costs of such Borrowings or preferred stock, the return to shareholders will be less than if leverage had not been used. In such case, the Adviser, in its best judgment, nevertheless may determine to maintain the Fund’s leveraged position if it expects that the benefits to the shareholders of maintaining the leveraged position will outweigh the current reduced return. Under normal market conditions, the Fund anticipates that it will be able to invest the proceeds from leverage at a higher rate of return than the costs of leverage, which would enhance returns to shareholders. In addition, the cost associated with any issuance and use of leverage is borne by the shareholders and results in a reduction of the NAV of the common shares. Such costs may include legal fees, audit fees, structuring fees, commitment fees and a usage (borrowing) fee.   The use of leverage is a speculative technique and investors should note that there are special risks and costs associated with the leveraging of the common shares. There can be no assurance that a leveraging strategy will be successful during any period in which it is employed. When leverage is employed, the NAV and the yield to shareholders will be more volatile. Leverage creates a greater risk of loss, as well as potential for more gain, for Fund shares than if leverage is not used. In addition, the Adviser is paid more if the Fund uses leverage, which creates a conflict of interest for the Adviser.

Dividends and Distributions	The Fund currently intends to make distributions to common shareholders on a monthly basis in an amount equal to 10% annually of the Fund’s NAV per Common Share. The rate disclosed is as of the date of this Prospectus. These fixed distributions are not related to the amount of the Fund’s net investment income or net realized capital gains. If, for any monthly distribution, net investment income and net realized capital gains were less than the amount of the distribution, the difference would be distributed from the Fund’s assets. The Fund’s distribution rate is not a prediction of what the Fund’s actual total returns will be over any specific future period.   A portion or all of any distribution of the Fund may consist of a return of capital. A return of capital represents the return of a shareholder’s original investment in the Common Shares and should not be confused with a dividend from profits and earnings. Such distributions are generally not treated as taxable income for the investor. Instead, shareholders will experience a reduction in the basis of their Common Shares, which may increase the taxable capital gain, or reduce capital loss, realized upon the sale of such Common Shares. Upon a sale of their Common Shares, shareholders generally will recognize capital gain or loss measured by the difference between the sale proceeds received by the shareholder and the shareholder’s federal income tax basis in the Common Shares sold, as adjusted to reflect return of capital. It is possible that a return of capital could cause a shareholder to pay a tax on capital gains with respect to Common Shares that are sold for an amount less than the price originally paid for them. Shareholders are advised to consult with their own tax advisers with respect to the tax consequences of their investment in the Fund. The Fund’s distribution policy may result in the Fund making a significant distribution in December of each year in order to maintain the Fund’s status as a regulated investment company. Depending upon the income of the Fund, such a year-end distribution may be taxed as ordinary income to investors. See “Dividends and Distributions.”
Dividend Reinvestment Plan	The Fund has an automatic dividend reinvestment plan (the “Plan”) commonly referred to as an “opt-out” plan. Each Common Shareholder who participates in the Plan will have all distributions of dividends and capital gains automatically reinvested in additional Common Shares. The automatic reinvestment of dividends and distributions in Common Shares will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends and distributions, even though such participants have not received any cash with which to pay the resulting tax.   Common Shareholders who elect not to participate in the Plan will receive all distributions in cash. All correspondence or questions concerning the Plan, including how a Common Shareholder may opt out of the Plan, should be directed to DST Systems, Inc., (844) 569-4750 (the “Plan Administrator”). Beneficial owners of Common Shares who hold their Common Shares in the name of a broker or nominee should contact the broker or nominee to determine whether and how they may participate in, or opt out of, the Plan. See “Dividend Reinvestment Plan” and “U.S. Federal Income Tax Matters.”

Listing of Common Shares	The Fund’s currently outstanding common shares are, and the Common Shares offered in this Prospectus and any applicable prospectus supplement will be, subject to notice of issuance, listed on the NYSE under the trading or “ticker” symbol “RSF.” The NAV of the Fund’s common shares at the close of business on August 31, 2024 was $16.52, and the last sale price of the common shares on the NYSE on such date was $15.22.
Risk Considerations	Risk is inherent in all investing. Investing in any investment company security involves risks, including the risk that you may receive little or no return on your investment or even that you may lose part or all of your investment. Therefore, before investing in the Fund, you should consider the risks more fully set forth under “Risks” beginning on page 24 (as well as the other information in this Prospectus and the SAI), which provides a discussion of the principal risk factors associated with an investment in the Fund specifically, as well as those factors generally associated with an investment in a company with investment objectives, investment policies, capital structure or trading markets similar to the Fund. Given the nature of the Fund’s investment strategies, these principal risks include risks associated with investments in Alternative Credit Instruments, closed-end investment companies, corporate debt securities, fixed income securities, specialty finance and other financial companies, SPACS, other investment companies and below investment grade-rated securities; risks associated with platform concentration; risks associated with the use of leverage; and risks related to interest rates and tax matters.
Administrator, Fund Accountant, Transfer Agent, Dividend Disbursing Agent and Custodians	ALPS Fund Services, Inc. (“AFS”) is the Fund’s administrator. Under an Administration, Bookkeeping and Pricing Services Agreement (the “Administration Agreement”), AFS is responsible for calculating NAVs, providing additional fund accounting and tax services, and providing fund administration and compliance-related services. Millennium Trust Company, LLC and State Street Bank & Trust Co. serve as the Fund’s custodians. DST Systems, Inc. serves as the Fund’s transfer agent, registrar, Plan Administrator and dividend disbursing agent. See “Administrator, Fund Accountant, Transfer Agent, Dividend Disbursing Agent and Custodians.”

Summary Of Fund Expenses

 

The information in “Summary of Fund Expenses” is set forth in the Fund’s most recent annual report on Form N-CSR for the year ended June 30, 2024 in the section entitled “Summary of Fund Expenses”, which is incorporated by reference into this Prospectus, and in any future filings we may file with the SEC that are incorporated by reference into this Prospectus. See “Incorporation by Reference” below for more information.

 

Financial Highlights

 

The information in the following table shows selected data for a share outstanding throughout the periods listed below. The information for the fiscal years ended June 30, 2024, June 30, 2023, June 30, 2022, June 30, 2021 and June 30, 2020 is derived from the Fund’s financial statements audited by KPMG LLP, whose report on the financial statements and the financial highlights is contained in the Fund’s annual report (“Annual Report”) for the year ended June 30, 2024 contained in the Fund’s Form N-CSR filed with the SEC on September 6, 2024. The Annual Report is incorporated by reference into this Prospectus and is available from the Fund upon request.

 

RiverNorth Capital and Income Fund, Inc. 

Financial Highlights

 

		For the Year Ended June 30, 2024				For the Year Ended June 30, 2023				For the Year Ended June 30, 2022				For the Year Ended June 30, 2021				For the Year Ended June 30, 2020				For the Year Ended June 30, 2019				For the Year Ended June 30, 2018				Period from September 22, 2016(k) through June 30, 2017
Net asset value - beginning of period		$	16.67			$	18.01			$	20.05			$	17.45			$	21.45			$	23.29			$	25.15			$	25.00
Income/(loss) from investment operations:
Net investment income(a)			1.74				1.52				1.35				1.32				1.56				2.69				3.12				2.32
Net realized and unrealized gain/(loss)			0.22				(0.53	)			(1.48	)			3.07				(3.22	)			(2.54	)			(2.46	)			(0.93	)
Total income/(loss) from investment operations			1.96				0.99				(0.13	)			4.39				(1.66	)			0.15				0.66				1.39
Less distributions:
From net investment income			(1.69	)			(1.48	)			(1.54	)			(0.98	)			–				(1.22	)			(2.52	)			(1.24	)
From tax return of capital			–				(0.37	)			(0.37	)			(0.81	)			(2.34	)			(0.77	)			–				–
Total distributions			(1.69	)			(1.85	)			(1.91	)			(1.79	)			(2.34	)			(1.99	)			(2.52	)			(1.24	)
Capital share transactions:
Dilutive effect of rights offering			(0.43	)(b)			(0.48	)(b)			–				–				–				–				–				–
Total capital share transactions			(0.43	)			(0.48	)			–				–				–				–				–				–
Net increase/(decrease) in net asset value			(0.16	)			(1.34	)			(2.04	)			2.60				(4.00	)			(1.84	)			(1.86	)			0.15
Net asset value - end of period		$	16.51			$	16.67			$	18.01			$	20.05			$	17.45			$	21.45			$	23.29			$	25.15
Market price - end of period		$	15.36			$	15.42			$	18.03			$	19.90			$	14.85			$	20.40			$	–			$	–
Total Return(c)			9.62	%			3.02	%			-0.86	%			27.87	%			-8.43	%			0.66	%			2.72	%			5.67	%(d)
Total Return - Market Price(c)			10.97	%			-4.45	%			–%				49.13	%			-16.84	%			-4.26	%			2.72	%(e)			5.67	%(d)(e)
Supplemental Data:
Net assets, end of period (in thousands)		$	67,140			$	66,777			$	66,861			$	91,378			$	100,749			$	178,286			$	260,320			$	98,111
Ratio of expenses to average net assets excluding fee waivers, reimbursements and recoupments			10.19	%			9.09	%			7.72	%			6.54	%			6.74	%			5.60	%			5.06	%			6.98	%(f)
Ratio of expenses to average net assets including fee waivers, reimbursements and recoupments(g)			9.71	%			8.91	%			7.74	%			6.65	%			6.37	%			5.65	%			4.96	%			2.97	%(f)
Ratio of net investment income to average net assets excluding fee waivers, reimbursements and recoupments			9.98	%			8.64	%			6.89	%			7.34	%			7.50	%			11.93	%			12.34	%			7.86	%(f)
Ratio of net investment income to average net assets including fee waivers, reimbursements and recoupments			10.45	%			8.82	%			6.87	%			7.24	%			7.86	%			11.99	%			12.85	%			11.87	%(f)
Portfolio turnover rate			136	%			172	%			130	%			138	%			66	%			47	%			62	%			63	%(d)
Payable for preferred stock, end of period (in thousands)		$	41,400			$	41,400			$	41,400			$	41,400			$	41,400			$	41,400			$	41,400			$	–
Loan payable (in thousands)		$	7,500			$	1,000			$	–			$	11,500			$	–			$	–			$	35,000			$	–
Asset coverage per $1,000 of preferred stock(h)			2,635				2,643				2,640				3,214				3,411				5,306				4,407				–
Asset coverage per $1,000 of loan payable(i)			15,430				109,177				–				12,546				–				–				9,621				–
Asset coverage of Cumulative Perpetual Preferred Stock(j)			66				65				65				80				86				133				182				–
Involuntary liquidating preference per unit of Series A Cumulative Preferred Stock			25.00				25.00				25.00				25.00				25.00				25.00				25.00				–
Average market value per unit of Series A Cumulative Preferred Stock			25.00				25.00				25.42				25.25				25.18				25.22				25.24				–

 

(a)

Based on average shares outstanding during the period.

(b)

Represents the impact of the Fund's rights offering of 1,047,000 shares in January 2023 at a subscription price per share based on a formula.

(c)

Total investment return is calculated assuming a purchase of common shares at the opening on the first day and a sale at closing on the last day of each period reported. For purposes of this calculation, dividends and distributions, if any, are assumed to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment returns do not reflect brokerage commissions, if any. Periods less than one year are not annualized.

(d)

Not annualized

(e)

For periods prior to the Fund's listing on the New York Stock Exchange, NAV returns are disclosed.

(f)

Annualized

(g)

Ratio includes leverage expenses and loan service fees of 6.28%, 5.65%, 4.69%, 3.75%, 3.80%, 3.26%, 2.65% and 1.02%, respectively, that are outside the expense limit.

(h)

Represents value of total assets less all liabilities and indebtedness not represented by credit facility borrowings and preferred stock at the end of the period divided by credit facility borrowings and preferred stock outstanding at the end of the period.

(i)

Calculated by subtracting the Fund's total liabilities (excluding the debt balance and accumulated unpaid interest) from the Fund's total assets and dividing by the outstanding debt balance.

(j)

The asset coverage ratio for a class of senior securities representing stock is calculated as the Fund's total assets, less all liabilities and indebtedness not represented by the Fund's senior securities, divided by secured senior securities representing indebtedness plus the aggregate of the involuntary liquidation preference of secured senior securities which are stock. With respect to the Preferred Stock, the asset coverage per unit figure is expressed in terms of dollar amounts per share of outstanding Preferred Stock (based on a liquidation preference of $25).

(k)

Commencement of operations.

 

Senior Securities

 

The information in "Senior Securities" and the report of the Fund's independent registered public accounting firm, KPMG LLP, thereon, contained in the following document filed by the Fund with the SEC, is hereby incorporated by reference into this Prospectus: the annual report for the year ended June 30, 2024 contained in the Fund's Form N-CSR filed with the SEC on September 6, 2024.

 

 

 

Market and Net Asset Value Information

 

The information in “Market and Net Asset Value Information” is set forth in the Fund’s most recent annual report on Form N-CSR for the year ended June 30, 2024 in the section entitled “Market and Net Asset Value Information”, which is incorporated by reference into this Prospectus, and in any future filings we may file with the SEC that are incorporated by reference into this Prospectus. See “Incorporation by Reference” below for more information.

 

The Fund

 

The Fund is a diversified, closed-end management investment company that has registered as an investment company under the 1940 Act, and is operated as an interval fund pursuant to Rule 23c-3 under the 1940 Act. As an interval fund, the Fund has adopted a fundamental policy to conduct, subject to certain conditions, quarterly repurchase offers for at least 5% and up to 25% of the outstanding shares of its common stock, $0.0001 par value per share, at NAV. See “Repurchase Policy for the Common Shares.”

 

The Fund was organized as a Maryland corporation on June 9, 2015, pursuant to the Articles of Incorporation of the Fund and governed by the laws of the State of Maryland. The Fund lists its common shares on the NYSE under the ticker symbol “RSF.” The common shares began trading on the NYSE on June 12, 2019 and may be purchased and sold in the secondary market. As of August 31, 2024, the Fund had 3,862,917 common shares outstanding and net assets applicable to such common shares of $63,796,237. In addition, as of August 31, 2024, the Fund had outstanding 1,656,000 shares of Series A Preferred Stock. The Series A Preferred Stock is listed on the NYSE under the ticker symbol “RMPL.”

 

The Fund’s principal office is located at 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401, and its telephone number is (312) 832-1440. See “Management of the Fund.”

 

The following table provides information about the Fund’s outstanding securities as of August 31, 2024:

 

Title of Class	Amount Authorized	Amount Held by the Fund or for its Account	Amount Outstanding
Common Shares	38,344,000	0	3,862,917
Series A Preferred Stock	1,656,000	0	1,656,000

 

The Offering

 

The Fund may offer, from time to time, up to $150,000,000 aggregate initial offering price of (i) Common Shares, (ii) shares of its preferred stock (“Preferred Shares”), and/or (iii) subscription rights to purchase Common Shares, Preferred Shares or both (“Rights” and, together with the Common Shares and the Preferred Shares, “Securities). See “Description of the Fund’s Securities.”

 

The Fund may offer Securities directly to one or more purchasers, including existing common shareholders and/or preferred shareholders in a Rights offering, through agents that the Fund or the purchasers designate from time to time, or to or through underwriters or dealers. The prospectus supplement relating to the offering will identify any agents or underwriters involved in the sale of the Securities, and will set forth any applicable purchase price, fee, commission or discount arrangement between the Fund and such agents or underwriters or among underwriters or the basis upon which such amount may be calculated. The prospectus supplement relating to any sale of preferred stock will set forth the liquidation preference and information about the dividend period, dividend rate, any call protection or non-call period and other matters, including the terms, if any, on which the preferred stock may be exchanged for or converted into shares of common stock or any other security and, if applicable, the conversion or exchange price, or how it will be calculated, and the conversion or exchange period. A supplement to this Prospectus relating to any offering of subscription rights will set forth the number of shares (common or preferred) issuable upon the exercise of each right and the other terms of such Rights offering, including whether the Preferred Shares issuable upon the exercise of such right are convertible into Common Shares. The Fund may not sell Securities through agents, underwriters or dealers without delivery of this Prospectus and a prospectus supplement describing the method and terms of the offering of the Securities. See “Plan of Distribution.”

The Fund may offer Common Shares or Preferred Shares on an immediate, continuous or delayed basis. Offerings of shares will be subject to the provisions of the 1940 Act, which generally require that the public offering price of common shares of a closed-end investment company (exclusive of distribution commissions and discounts) must equal or exceed the NAV per share of the company’s common stock (calculated within 48 hours of pricing), absent shareholder approval or under certain other circumstances. The Fund may, however, issue Common Shares pursuant to exercises of Rights at prices below NAV.

 

Use Of Proceeds

 

Unless otherwise specified in a prospectus supplement, the Fund expects to invest the net proceeds from any sales of Securities in accordance with the Fund’s investment objective and policies as stated below, or use such proceeds for other general corporate purposes within approximately three months of receipt of such proceeds. Pending any such use, the proceeds may be invested in cash, cash equivalents, short-term debt securities or U.S. government securities. A delay in the anticipated use of proceeds could lower returns and reduce the Fund’s distributions to common shareholders.

 

Investment Objective, Strategies and Policies

 

The information in “Investment Objective, Strategies and Policies” is set forth in the Fund’s annual report on Form N-CSR for the year ended June 30, 2024 in the section entitled “Summary of Updated Information Regarding the Fund,” which is incorporated by reference into this Prospectus, and in any future filings we may file with the SEC that are incorporated by reference into this Prospectus. See “Incorporation by Reference” below for more information.

 

Investment Philosophy and Process

 

The Adviser believes that the recent and continuing growth of the online and mobile alternative credit industry has created a relatively untapped and attractive investment opportunity, with the potential for large returns. The Adviser seeks to capitalize on this opportunity by participating in the evolution of this industry, which has served as an alternative to, and has begun to take market share from, the more traditional lending operations of large commercial banks. The ability of borrowers to obtain loans through alternative credit with interest rates that may be lower than those otherwise available to them (or to obtain loans that would otherwise be unavailable to them) has contributed to the significant rise of the use of Alternative Credit. At the same time, alternative credit has also enabled investors to purchase or invest in loans with interest rates and credit characteristics that can offer attractive returns.

 17

 

 

In selecting the Fund’s Alternative Credit investments, the Adviser employs a bottom-up approach to evaluate the expected returns of loans by loan segment (e.g., consumer, SME and student loans) and by platform origination (as discussed below), as well as a top-down approach to seek to identify investment opportunities across the various segments of the alternative credit industry. In doing so, the Adviser conducts an analysis of each segment’s anticipated returns relative to its associated risks, which takes into consideration for each segment duration, scheduled amortization, seniority of the claim of the loan, prepayment terms and prepayment expectations, current coupons and trends in coupon pricing, origination fees, servicing fees and anticipated losses based on historical performance of similar credit instruments. The Adviser then seeks to allocate Fund assets to the segments identified as being the most attractive on a risk-adjusted return basis.

 

Within each segment, the Adviser conducts a platform-specific analysis, as opposed to a loan-specific analysis, and, as such, the Adviser’s investment process does not result in a review of each individual Alternative Credit investment to which the Fund has investment exposure. Instead, the Adviser generally seeks loans that have originated from platforms that have met the Adviser’s minimum requirements related to, among other things, loan default history and overall borrower credit quality. In this regard, the Adviser engages in a thorough and ongoing due diligence process of each platform to assess, among other things, the viability of the platform to sustain its business for the foreseeable future; whether the platform has the appropriate expertise, ability and operational systems to conduct its business; the financial condition and outlook of the platform; and the platform’s ability to manage regulatory, business and operational risk. In addition, the Adviser’s due diligence efforts include reviews of the servicing and underwriting functions of a platform (as further described below) and/or funding bank (as applicable), the ability of a platform to attract borrowers and the volume of loan originations, and loan performance relative to model expectations, among other things. In conducting such due diligence, the Adviser has access to, and reviews, the platform’s credit models as well. Moreover, the Adviser visits each platform from time to time for on-site reviews of the platform, including discussions with each of the significant business units within the platform (e.g., credit underwriting, customer acquisition and marketing, information technology, communications, servicing and operations).

 

As part of the foregoing due diligence efforts, the Adviser monitors on an ongoing basis the underwriting quality of each platform through which it invests in Alternative Credit, including (i) an analysis of the historical and ongoing “loan tapes” that includes loan underwriting data and actual payment experience for all individual loans originated by the platform since inception that are comparable to the loans purchased, or to be purchased, by the Fund, (ii) reviews of the credit model used in the platform’s underwriting processes, including with respect to the assignment of credit grades by the platform to its Alternative Credit and the reconciliation of the underlying data used in the model, (iii) an assessment of any issues identified in the underwriting of the Alternative Credit and the resulting remediation efforts of the platform to address such issues, and (iv) a validation process to confirm that loans purchased by the Fund conform with the terms and conditions of any applicable purchase agreement entered into with the platform.

 

Although the Adviser does not review each individual Alternative Credit investment prior to investment, it is able to impose minimum quantitative and qualitative criteria on the loans in which it will invest by limiting the Fund’s loans to the loan segments and platforms selected by the Adviser, as noted above. In effect, the Adviser adopts the minimum investment criteria inherent in a loan segment or imposed by a platform that it has identified as having the appropriate characteristics for investment. Furthermore, each platform assigns the Alternative Credit it originates a platform-specific credit grade reflecting the potential risk-adjusted return of the loan, which may be based on various factors such as: (i) the term, interest rate and other characteristics of the loans; (ii) the location of the borrowers; (iii) if applicable, the purpose of the loans within the platform (e.g., consumer, SME or student loans); and (iv) the credit and risk profile of the borrowers, including, without limitation (to the extent applicable based on the type of loan), the borrower’s annual income, debt-to-income ratio, credit score (e.g., FICO score), delinquency rate and liens. In purchasing Alternative Credit from a platform, the Fund provides the applicable platform with instructions as to which platform credit grades are eligible for purchase (or, conversely, which platform credit grades are ineligible for Fund purchase). The Adviser performs an ongoing analysis of each of the criteria within a platform’s credit grades to determine historical and predicted prepayment, charge-off, delinquency and recovery rates acceptable to the Adviser. While, under normal circumstances, the Adviser does not provide instructions to the platforms as to any individual criterion used to determine platform-specific grades prior to purchasing Alternative Credit (except as noted below), the Adviser does retain the flexibility to provide more specific instructions (e.g., term; interest rate; geographic location of borrower) if the Adviser believes that investment circumstances dictate any such further instructions. Specifically, the Adviser instructs platforms that the Fund will not purchase any Alternative Credit that are of “subprime quality” (as determined at the time of investment). Although there is no specific legal or market definition of subprime quality, it is generally understood in the industry to signify that there is a material likelihood that the loan will not be repaid in full. The Fund considers an SME loan to be of “subprime quality” if the likelihood of repayment on such loan is determined by the Adviser based on its due diligence and the credit underwriting policies of the originating platform to be similar to that of consumer loans that are of subprime quality. In determining whether an SME loan is of subprime quality, the Adviser generally looks to a number of borrower-specific factors, which will include the payment history of the borrower and, as available, financial statements, tax returns and sales data.

 18

 

 

The Adviser will not invest the Fund’s assets in loans originated by platforms for which the Adviser cannot evaluate to its satisfaction the completeness and accuracy of the individual Alternative Credit investment data provided by such platform relevant to determining the existence and valuation of such Alternative Credit investment and utilized in the accounting of the loans (i.e., in order to select a platform, the Adviser must assess that it believes all relevant loan data for all loans purchased from the platform is included and correct).

 

The Adviser significantly relies on borrower credit information provided by the platforms through which they make the Fund’s investments. The Adviser receives updates of such borrower credit information provided by independent third party service providers to the platforms and therefore is able to monitor the credit profile of its investments on an ongoing basis. See “Net Asset Value.”

 

The Adviser invests in Alternative Credit through the use of a web-based service that provides direct access to platforms and facilitates the loan acquisition process by retrieving for the Adviser data such as bidding and listing information. Given the increased reliance on the use of information technology in alternative credit, the Adviser conducts due diligence on the platforms through which it seeks its Alternative Credit investments, including a review of each platform’s information technology security, fraud protection capabilities and business continuity plan. The Adviser generally requires a platform to have, among other things, industry standard data backup protections, including off-site backup datacenters and state of the art data encryption, and appropriate cybersecurity measures. In addition, the Adviser has adopted various protections for itself, including a business continuity plan which provides procedures related to the recovery and restoration of its business, particularly with respect to any critical functions and systems of the Adviser, following an interruption in service or disaster.

 

Repurchase Policy For The Common Shares

 

The Fund is operated as an interval fund under Rule 23c-3 of the 1940 Act. As an interval fund, the Fund has adopted a fundamental policy to conduct quarterly repurchase offers for at least 5% and up to 25% of the outstanding common shares at NAV, subject to certain conditions described herein, unless such offer is suspended or postponed in accordance with regulatory requirements (as discussed below). The Fund will not otherwise be required to repurchase or redeem common shares at the option of a common shareholder. It is possible that a repurchase offer may be oversubscribed, in which case common shareholders may only have a portion of their common shares repurchased. If the number of common shares tendered for repurchase in any repurchase offer exceeds the number of common shares that the Fund has offered to repurchase, the Fund will repurchase common shares on a pro-rata basis or may, subject to the approval of the Board of Directors, increase the number of common shares to be repurchased subject to the limitations described below. The Fund will maintain cash, liquid securities or access to borrowings in amounts sufficient to meet its quarterly repurchase requirements (as further described below). The Fund reserves the right to conduct a special or additional repurchase offer that is not made pursuant to the repurchase policy under certain circumstances. As a fundamental policy of the Fund, the repurchase policy may not be changed without the vote of the holders of a majority of the Fund’s outstanding voting securities. See “Risks-Structural and Market-Related Risks-Repurchase Policy Risks” in this Prospectus and “Investment Restrictions” in the SAI.

Common shareholders will be notified in writing of each repurchase offer under the repurchase policy, how they may request that the Fund repurchase their common shares and the Repurchase Request Deadline. The Repurchase Request Deadline will be determined by the Board of Directors and will be based on factors such as market conditions, liquidity of the Fund’s assets and shareholder servicing considerations. The time between the notification to common shareholders and the Repurchase Request Deadline may vary from no more than 42 days to no less than 21 days, and is expected to be approximately 30 days. Common shares will be repurchased at the NAV per common share determined as of the close of regular trading on the NYSE typically as of the Repurchase Request Deadline, but no later than the 14th day after such date, or the next business day if the 14th day is not a business day (each, a “Repurchase Pricing Date”). Payment pursuant to the repurchase will be distributed to common shareholders or financial intermediaries for distribution to their customers no later than seven days after the Repurchase Pricing Date (the “Repurchase Payment Deadline”). The Board of Directors may establish other policies for repurchases of common shares that are consistent with the 1940 Act, the regulations promulgated thereunder and other pertinent laws. Common shares tendered for repurchase by common shareholders prior to any Repurchase Request Deadline will be repurchased subject to the aggregate repurchase amounts established for that Repurchase Request Deadline. Repurchase proceeds will be paid to common shareholders prior to the Repurchase Payment Deadline.

 

The Repurchase Request Deadline will be strictly observed. If a common shareholder or its financial intermediary fails to submit a shareholder’s repurchase request in good order by the Repurchase Request Deadline, the shareholder will be unable to liquidate the common shares until a subsequent repurchase offer, and the shareholder will have to resubmit the request in that subsequent offer. Common shareholders should advise their financial intermediaries of their intentions in a timely manner.

 

Repurchase Amounts

 

The Board of Directors, or a committee thereof, in its sole discretion, will determine the number of common shares that the Fund will offer to repurchase (the “Repurchase Offer Amount”) for a given Repurchase Request Deadline. Rule 23c-3 of the 1940 Act permits repurchases between 5% and 25% of the Fund’s outstanding common shares at NAV. In connection with any given repurchase offer and pursuant to one of its fundamental policies, the Fund will offer to repurchase at least 5% of the total number of its common shares outstanding on the Repurchase Request Deadline. Although the repurchase policy permits repurchases of between 5% and 25% of the Fund’s outstanding common shares, for each quarterly repurchase offer, the Fund currently expects to offer to repurchase 5% of the Fund’s outstanding common shares at NAV, subject to approval of the Board of Directors.

 

If common shareholders tender more than the Repurchase Offer Amount, the Fund may, but is not required to, repurchase an additional amount of common shares not to exceed 2% of the outstanding common shares of the Fund on the Repurchase Request Deadline. If common shareholders tender for repurchase more than the Repurchase Offer Amount for a given repurchase offer, the Fund will repurchase the common shares on a pro rata basis (subject to the exceptions discussed below). In the event there is an oversubscription of a repurchase offer, common shareholders may be unable to liquidate all or a given percentage of their investment in the Fund during the repurchase offer. In addition, because of the potential for such proration, common shareholders may tender more common shares than they may wish to have repurchased in order to ensure the repurchase of a specific number of their common shares, increasing the likelihood that other shareholders may be unable to liquidate all or a given percentage of their investment in the Fund. However, pursuant to Rule 23c-3(b)(5)(i) of the 1940 Act, the Fund may accept all common shares tendered for repurchase by common shareholders who own fewer than 100 common shares and who tender all of their common shares, before prorating other amounts tendered. In such cases, the Fund will confirm with such shareholder or the shareholder’s financial intermediary that the beneficial holder of such common shares actually owns fewer than 100 common shares. If common shareholders tender less than the Repurchase Offer Amount, the Fund will repurchase only those common shares offered for repurchase and shall not redeem any other common shares.

Notification to Shareholders

 

Notice of each repurchase offer will be given to each beneficial owner of common shares approximately 30 days (but no less than 21 and no more than 42 days) before each Repurchase Request Deadline. A common shareholder or its financial intermediary may require additional time to mail the repurchase offer to the shareholder, to process the request and to credit the account with the proceeds of any repurchased common shares. The notice will:

 

●

contain information common shareholders should consider in deciding whether to tender their common shares for repurchase;

 

●

state the Repurchase Offer Amount;

 

●

identify the dates of the Repurchase Request Deadline, the scheduled Repurchase Pricing Date and the scheduled Repurchase Payment Deadline;

 

●

describe the risk of fluctuation in the NAV between the Repurchase Request Deadline and the Repurchase Pricing Date, if such dates do not coincide, and the possibility that the Fund may use an earlier Repurchase Pricing Date than the scheduled Repurchase Pricing Date (if the scheduled Repurchase Pricing Date is not the Repurchase Request Deadline);

 

●

describe (i) the procedures for common shareholders to tender their common shares for repurchase, (ii) the procedures for the Fund to repurchase common shares on a pro rata basis, (iii) the circumstances in which the Fund may suspend or postpone a repurchase offer, and (iv) the procedures that will enable common shareholders to withdraw or modify their tenders of common shares for repurchase until the Repurchase Request Deadline; and

 

●

set forth the NAV that has been computed no more than seven days before the date of notification, and how shareholders may ascertain the NAV after the notification date.

 

Repurchase Price

 

The repurchase price of the common shares will be the NAV as of the close of regular trading on the NYSE on the Repurchase Pricing Date. You may visit the Fund’s website (rivernorth.com) to learn the NAV. The notice of the repurchase offer will also provide information concerning the NAV, such as the NAV as of a recent date or a sampling of recent NAVs, and a toll-free number for information regarding the repurchase offer. The Fund does not currently charge a repurchase fee.

The Fund’s NAV per common share may change substantially in a short time as a result of developments with respect to the Fund’s investments. In that regard, the Fund’s NAV per common share may change materially between the date of notification of a repurchase offer and the Repurchase Request Deadline, and it may also change materially shortly after a Repurchase Request Deadline and the Repurchase Pricing Date, subjecting participating common shareholders to market risk. Nevertheless, the repurchase price will not be adjusted after the Repurchase Pricing Date. See “Net Asset Value.”

 

Suspension or Postponement of Repurchase Offer

 

The Fund may suspend or postpone a repurchase offer only: (a) if making or effecting the repurchase offer would cause the Fund to lose its status as a regulated investment company under the Code; (b) for any period during which any market on which securities owned by the Fund are principally traded is closed, other than customary weekend and holiday closings, or during which trading in such market is restricted; (c) for any period during which an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable, or during which it is not reasonably practicable for the Fund fairly to determine the value of its net assets; or (d) for such other periods as the SEC may by order permit for the protection of shareholders. Any such suspension would require the approval of a majority of the Board of Directors (including a majority of the directors who are not “interested persons” (as defined in the 1940 Act) of the Fund) in accordance with Rule 23c-3 of the 1940 Act and would further reduce the ability of common shareholders to redeem their common shares. The Fund does not presently expect any of the foregoing conditions to occur in its normal fund operations.

 

In addition to the foregoing, under Maryland law, the Fund would be prohibited from redeeming any shares if the distribution to fund such repurchase would cause either the Fund to be unable to pay its indebtedness as such indebtedness becomes due in the usual course of business or the corporation’s assets would be less than the sum of the corporation’s total liabilities plus, unless the Charter provides otherwise, the amount that would be needed, if the Fund were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights in dissolution are superior to those receiving the distribution.

 

Liquidity Requirements

 

The Fund must maintain cash or other liquid assets equal to the Repurchase Offer Amount from the time that the notice is sent to common shareholders until the Repurchase Pricing Date. As a result, the Fund may find it necessary to hold a portion of its net assets in cash or other liquid assets, sell a portion of its portfolio investments or borrow money in order to finance any repurchases of its common shares. The Fund may accumulate cash by holding back (i.e., not reinvesting or distributing to common shareholders) payments received in connection with the Fund’s investments. The Fund believes payments received in connection with the Fund’s investments and any cash or liquid assets held by the Fund will be sufficient to meet the Fund’s repurchase offer obligations each quarter. If at any time cash and other liquid assets held by the Fund are not sufficient to meet the Fund’s repurchase offer obligations, the Fund may sell its other investments. Although most, if not all, of the Fund’s investments are expected to be illiquid and the secondary market for such investments is likely to be limited, the Fund believes it would be able to find willing purchasers of its investments if such sales were ever necessary to supplement such cash generated by payments received in connection with the Fund’s investments. The Fund may also borrow money in order to meet its repurchase obligations. There can be no assurance that the Fund will be able to obtain such financing for its repurchase offers. See “-Consequences of Repurchase Offers” below. The Fund will ensure that a percentage of its net assets equal to at least 100% of the Repurchase Offer Amount consists of assets that can be sold or disposed of in the ordinary course of business at approximately the price at which the Fund has valued the investment within the time period between the Repurchase Request Deadline and the Repurchase Payment Deadline.

The Board of Directors has adopted procedures that are reasonably designed to ensure that the Fund’s assets are sufficiently liquid so that the Fund can comply with the repurchase offer and the liquidity requirements described in the previous paragraph. If, at any time, the Fund does not comply with these liquidity requirements, the Board of Directors will take whatever action it deems appropriate to ensure compliance.

 

Consequences of Repurchase Offers

 

Payment for repurchased common shares may require the Fund to liquidate its investments, and earlier than the Adviser otherwise would, thus increasing the Fund’s portfolio turnover and potentially causing the Fund to realize losses. The Adviser intends to take measures to attempt to avoid or minimize such potential losses and turnover, and instead of liquidating portfolio holdings, may borrow money to finance repurchases of common shares. If the Fund borrows to finance repurchases, interest on that borrowing will negatively affect common shareholders who do not tender their common shares in a repurchase offer by increasing the Fund’s expenses (subject to the reimbursement of expenses by the Adviser) and reducing any net investment income. To the extent the Fund finances repurchase amounts by selling Fund investments, the Fund may hold a larger proportion of its assets in less liquid securities. Also, the sale of the Fund’s investments to fund repurchases could reduce the market price of those underlying investments, which in turn would reduce the Fund’s NAV. See “Risks-Structural and Market-Related Risks-Leverage Risks.”

 

Repurchase of the Fund’s common shares will reduce the amount of outstanding common shares and, depending upon the Fund’s investment performance, its net assets. A reduction in the Fund’s net assets would increase the Fund’s expense ratio (subject to the reimbursement of expenses by the Adviser), to the extent that additional common shares are not sold and expenses otherwise remain the same (or increase). In addition, the repurchase of common shares by the Fund may be a taxable event to common shareholders. The Fund is intended as a long-term investment. The Fund’s quarterly repurchase offers are a common shareholder’s only means of liquidity with respect to their common shares. Common shareholders have no rights to redeem or transfer their common shares, other than limited rights of a shareholder’s descendants to redeem common shares in the event of such shareholder’s death pursuant to certain conditions and restrictions. See “Risks-Structural and Market-Related Risks-Repurchase Policy Risks” and “Risks-Structural and Market-Related Risks-Liquidity Risks.”

 

As an interval fund, the Fund may redeem preferred shares as may be necessary from time to time, either in whole or in part, without penalty or premium, to permit it to repurchase its common shares in such amount as the Board of Directors may determine pursuant to the Fund’s repurchase policy in compliance with the Fund’s asset coverage requirements under the 1940 Act. The Fund currently expects to offer to repurchase 5% of the Fund’s outstanding shares of common stock on a quarterly basis pursuant to such repurchase policy, subject to approval of the Board of Directors.

 

Use Of Leverage

 

The information in “Use of Leverage” is set forth in the Fund’s most recent annual report on Form N-CSR for the year ended June 30, 2024 in the section entitled “Summary of Updated Information Regarding the Fund,” which is incorporated by reference into this Prospectus, and in any future filings we may file with the SEC that are incorporated by reference into this Prospectus. See “Incorporation by Reference” below for more information.

 23

 

Risks

 

The information in “Risks” is set forth in the Fund’s most recent annual report on Form N-CSR for the year ended June 30, 2024 in the section entitled “Summary of Updated Information Regarding the Fund – Risk Factors”, which is incorporated by reference into this Prospectus, and in any future filings we may file with the SEC that are incorporated by reference into this Prospectus. See “Incorporation by Reference” below for more information.

 

Management Of The Fund

 

Board of Directors

 

The Fund’s Board of Directors has overall responsibility for management of the Fund. The Board of Directors decides upon matters of general policy and generally oversees the actions of the Adviser and the other service providers of the Fund. 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, are set forth under “Board Members and Officers” in the SAI.

 

Investment Adviser

 

RiverNorth is the Fund’s investment adviser and is responsible for the day-to-day management of the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services. The Adviser is responsible for determining the Fund’s overall investment strategy and overseeing its implementation.

 

RiverNorth, founded in 2000, is a wholly-owned subsidiary of RiverNorth Financial Holdings LLC and is located at 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401. As of August 31, 2024, RiverNorth managed approximately $5.02 billion for registered open-end management investment companies, registered closed-end management investment companies and private investment vehicles. See “Management of the Fund” in the SAI.

 

Portfolio Management

 

Patrick W. Galley and Stephen O’Neill are responsible for implementing portfolio management decisions for the Fund.

 

Patrick W. Galley, CFA is a co-portfolio manager of the Fund. Mr. Galley is the Chief Executive Officer and Chief Investment Officer for the Adviser. Mr. Galley heads the firm’s research and investment team and oversees all portfolio management activities at the Adviser. Mr. Galley also serves as the President and Chairman of RiverNorth’s open-end funds and other CEFs in the RiverNorth fund complex. Prior to joining the Adviser in 2004, he served as a Vice President at Bank of America in the Global Investment Bank’s Portfolio Management group, where he specialized in analyzing and structuring corporate transactions for investment management firms in addition to closed-end and open-end funds, hedge funds, funds of funds, structured investment vehicles and insurance/reinsurance companies. Mr. Galley graduated with honors from Rochester Institute of Technology with a B.S. in Finance. He has received the Chartered Financial Analyst (CFA) designation, is a member of the CFA Institute and is a member of the CFA Society of Chicago.

 

Stephen O’Neill, CFA is a co-portfolio manager of the Fund. Mr. O’Neill conducts qualitative and quantitative analysis of closed-end funds and their respective asset classes at the Adviser. Prior to joining RiverNorth in 2007, Mr. O’Neill was most recently an Assistant Vice President at Bank of America in the Global Investment Bank’s Portfolio Management group. At Bank of America, he specialized in the corporate real estate, asset management, and structured finance industries. Mr. O’Neill graduated magna cum laude from Miami University in Oxford, Ohio with a B.S. in Finance. Mr. O’Neill has received the Chartered Financial Analyst (CFA) designation, is a member of the CFA Institute, and is a member of the CFA Society of Chicago.

 

The Fund’s SAI provides information about the compensation received by the portfolio managers of the Fund, other accounts that they manage and their ownership of the Fund’s equity securities.

 

Investment Advisory Agreement

 

Pursuant to an Investment Advisory Agreement, the Adviser is responsible for managing the Fund’s affairs, subject at all times to the general oversight of the Board of Directors. The Fund has agreed to pay the Adviser a management fee payable on a monthly basis at the annual rate of 1.25% of the Fund’s average monthly Managed Assets for the service it provides. “Managed Assets” means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing leverage and any preferred stock that may be outstanding). In addition to the monthly advisory fee, the Fund pays all other costs and expenses of its operations, including, but not limited to, compensation of its directors (other than those affiliated with the Adviser), custodial expenses, transfer agency and dividend disbursing expenses, legal fees, expenses of independent auditors, expenses of repurchasing shares, expenses of any leverage, expenses of preparing, printing and distributing prospectuses, shareholder reports, notices, proxy statements and reports to governmental agencies, and taxes, if any. In addition, the Adviser has agreed to waive or reimburse expenses of the Fund (other than brokerage fees and commissions; loan servicing fees; borrowing costs such as (i) interest and (ii) dividends on securities sold short; taxes; indirect expenses incurred by the underlying funds in which the Fund may invest; the cost of leverage, including dividends on preferred shares; and extraordinary expenses) to the extent necessary to limit the Fund’s total annual operating expenses at 1.95% of the average daily Managed Assets for at least twelve months from the effective date of this registration statement. The Adviser may recover from the Fund expenses reimbursed for three years after the date of the payment or waiver if the Fund’s operating expenses, including the recovered expenses, falls below the expense cap.

 

Because the fees received by the Adviser are based on the Managed Assets of the Fund, the Adviser has a financial incentive for the Fund to use leverage, which may create a conflict of interest between the Adviser on the one hand and the Fund’s shareholders on the other. Because leverage costs are borne by the Fund at a specified rate of return, the Fund’s investment management fees and other expenses, including expenses incurred as a result of any leverage, are paid only by the common shareholders and not by holders of preferred stock or through borrowings. See “Use of Leverage.”

 

A discussion of the basis for the Board of Directors’ most recent renewal of the Fund’s Investment Advisory Agreement is provided in the Fund’s semi-annual shareholder report for the period ended December 31, 2023. The basis for subsequent continuations of these agreements will be provided in semi-annual reports to Fund shareholders for the periods during which such continuations occur.

In addition, under a License Agreement, the Adviser has consented to the use by the Fund of the identifying word or name “RiverNorth” in the name of the Fund, and to use of certain associated trademarks. Such consent is conditioned upon the employment of the Adviser or an affiliate thereof as investment adviser to the Fund. If at any time the Fund ceases to employ the Adviser or an affiliate as investment adviser of the Fund, the Fund may be required to cease using the word or name “RiverNorth” in the name of the Fund, and cease making use of the associated trademarks, as promptly as practicable.

 

Payments to Third Parties

 

The Adviser may pay additional compensation, out of its own funds and not as an additional charge to the Fund, to selected affiliated or unaffiliated brokers, dealers or other intermediaries for the purpose of introducing other intermediaries and investors to the Fund. Such payments by the Adviser may vary in frequency and amount. The payments may be based on the amount invested in the Fund or the NAV of the Fund as determined by the Adviser. The amount of these payments may be substantial and could create a conflict of interest between the intermediary receiving payments and the investor.

 

Net Asset Value

 

NAV per common share is determined daily. NAV per common share is calculated by dividing the value of all of the securities and other assets of the Fund, less the liabilities (including accrued expenses and indebtedness) and the aggregate liquidation value of any outstanding preferred stock, by the total number of common shares outstanding.

 

In determining the NAV of the common shares, portfolio instruments generally are valued using prices provided by independent pricing services or obtained from other sources, such as broker-dealer quotations. Exchange-traded instruments generally are valued at the last reported sales price or official closing price on an exchange, if available. Independent pricing services typically value non-exchange traded instruments utilizing a range of market-based inputs and assumptions, including readily available market quotations obtained from broker-dealers making markets in such instruments, cash flows and transactions for comparable instruments. With respect to investments in Alternative Credit Instruments, the Fund will generally utilize prices provided by the Adviser, subject to review by the Board of Directors or its designee. In pricing certain instruments, particularly less liquid and lower quality securities, the pricing services may consider information about a security, its issuer or market activity provided by the Adviser.

 

If a price cannot be obtained from a pricing service or other pre-approved source, or if the Adviser deems such price to be unreliable, or if a significant event occurs after the close of the local market but prior to the time at which the Fund’s NAV is calculated, a portfolio instrument will be valued at its fair value as determined in good faith by the Board of Directors or persons acting at its direction. The Adviser may determine that a price is unreliable in various circumstances. For example, a price may be deemed unreliable if it has not changed for an identified period of time, or has changed from the previous day’s price by more than a threshold amount, and recent transactions and/or broker dealer price quotations differ materially from the price in question. 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. See “Risks-Structural and Market-Related Risks-Valuation Risk.”

 

The Board of Directors has adopted valuation policies and procedures for the Fund and has delegated the day-to-day responsibility for fair value determinations to the Adviser, as valuation designee. The Adviser’s valuation committee (the “Committee”) (comprised of officers of the Adviser and established pursuant to the policies and procedures adopted by the Board of Directors) has the day-to-day responsibility for overseeing the implementation of the Fund’s valuation policies and procedures and fair value determinations (subject to review and ratification by the Board of Directors). Pursuant to the Fund’s valuation policies and procedures as adopted by the Board of Directors, the Fund’s holdings in Alternative Credit Instruments are fair valued in accordance with such policies and procedures based on evaluated prices provided by the Adviser, and affirmed by the Committee. All fair value determinations are subject to review and ratification by the Board of Directors.

The Fund accounts for whole and fractional loans at the individual loan level for valuation purposes, and whole loans and fractional loans are fair valued using inputs that take into account borrower-level data that is updated as often as the NAV of Common Shares is calculated to reflect new information regarding the borrower or loan. Such borrower-level data will include the borrower’s payment history, including the payment, principal and interest amounts of each loan and the current status of each loan, which allows the Adviser to determine, among other things, the historical prepayment rate, charge-off rate, delinquency and performance with respect to such borrower/loan. In addition, borrower-level data may include the following to the extent applicable and available: updated FICO scores of the borrower of a consumer loan or the guarantor of the borrower of an SME loan, the borrower’s debt-to-income ratio and employment status (in the case of consumer loans) and financial statements, tax returns and sales data (in the case of SME loans).

 

The Fund, in accordance with the investment limitations approved by the Fund’s Board of Directors, will limit its investments in Alternative Credit to loans originated by platforms that will provide the Fund with a written commitment to deliver or cause to be delivered individual loan-level data on an ongoing basis throughout the life of each individual loan that is updated periodically as often as the NAV of Common Shares is calculated to reflect new information regarding the borrower or loan.

 

The Fund will not invest in loans originated by platforms for which the Adviser cannot evaluate to its satisfaction the completeness and accuracy of the individual Alternative Credit data provided by such platforms relevant to determining the existence and valuation of such Alternative Credit and utilized in the accounting of the loans.

 

The processes and procedures described herein are part of the Fund’s compliance policies and procedures. Records will be made contemporaneously with all determinations described in this section and these records will be maintained with other records that the Fund is required to maintain under the 1940 Act.

 

Dividends and Distributions

 

The Fund has adopted a distribution policy to provide holders of its Common Shares with a relatively stable cash flow. Under this policy, the Fund intends to declare and pay regular quarterly distributions to holders of the Common Shares at a level rate. However, the amount of actual distributions that the Fund may pay, if any, is uncertain. The distributions will be paid from net investment income (including excess gains taxable as ordinary income), if any, and net capital gains, if any, with the balance (which may comprise the entire distribution) representing return of capital. The Fund’s Common Shares are junior in priority of payment of dividends to the Fund’s Series A Preferred Stock and, accordingly, distributions on common shares will be prohibited at any time dividends on the Fund’s preferred stock are in arrears.

 

Any return of capital should not be considered by shareholders as yield or total return on their investment in the Fund. The Fund may pay distributions in significant part from sources that may not be available in the future and that are unrelated to the Fund’s performance, such as the net proceeds from the sale of common shares (representing a return of capital originally invested in the Fund by holders of the common shares) and Fund borrowings. Shareholders who periodically receive a distribution consisting of a return of capital may be under the impression that they are receiving net profits when they are not. Shareholders should not assume that the source of a distribution from the Fund is net profit. The distribution policy for the Fund’s common shares may be changed or discontinued without notice. See “Risks-Structural and Market-Related Risks-Distribution Policy Risks.”

Dividends and other distributions generally will be taxable to holders of the common shares whether they are reinvested in common shares or received in cash, although amounts treated as a tax-free return of capital will reduce a shareholder’s adjusted basis in its common shares, thereby increasing the shareholder’s potential gain or reducing its potential loss on the subsequent sale of those common shares. To the extent required by the 1940 Act and other applicable laws, a notice normally will accompany each distribution indicating the source(s) of the distribution when it is from a source other than the Fund’s accumulated undistributed net income or net income for the current or preceding fiscal year. The Board of Directors reserves the right to change or eliminate the Fund’s distribution policy with respect to its common shares any time without notice.

 

If, with respect to any distribution, the sum of previously undistributed net investment income and net realized capital gains is less than the amount of the distribution, the difference, i.e., the return of capital, normally will be charged against the Fund’s capital. If, for any taxable year of the Fund, the total distributions exceed the sum of the Fund’s net investment income and net realized capital gains, the excess will generally be treated first as ordinary dividend income (up to the amount, if any, of the Fund’s current and accumulated earnings and profits, which takes into account taxable distributions) and then as a return of capital (tax-free for a holder of the common shares up to the amount of its tax basis in its common shares). A return of capital represents a return of a shareholder’s original investment in the common shares and should not be confused with income or capital gain from this investment. A return of capital is not taxable, but it reduces a shareholder’s tax basis in its common shares, thus reducing any loss or increasing any gain on the shareholder’s subsequent taxable disposition of the common shares. The Fund’s final distribution, if any, in each calendar year may include any remaining net investment income undistributed during the year, as well as all undistributed net capital gains realized during the year.

 

If the Fund’s investments do not generate sufficient income, the Fund may be required to liquidate a portion of its portfolio to fund these distributions, and therefore these payments may represent a reduction of the shareholders’ principal investment. If the Fund distributes amounts in excess of its net investment income and realized net capital gains, such distributions will decrease the Fund’s capital and, therefore, have the potential effect of increasing the Fund’s expense ratio. To make such distributions, the Fund may have to sell a portion of its investment portfolio at a time when it would otherwise not do so.

 

Under the 1940 Act, the Fund may not declare any dividend or other distribution upon any capital stock, or purchase any such capital stock, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any such dividend or other distribution or at the time of any such purchase, an asset coverage of at least 300% after deducting the amount of such dividend, other distribution, or purchase price, as the case may be. In addition, certain lenders may impose additional restrictions on the payment of dividends or other distributions on the common shares in the event of a default on the Fund’s borrowings. Any limitation on the Fund’s ability to make distributions to shareholders could, under certain circumstances, impair its ability to maintain its qualification for taxation as a regulated investment company under the Code. See “U.S. Federal Income Tax Matters” in the SAI.

 

In addition, under the 1940 Act, the Fund may not declare any dividend or other distribution upon its common shares, or purchase any such common shares, unless the class of preferred stock of the Fund has, at the time of the declaration of any such dividend or other distribution or at the time of any such purchase, an asset coverage of at least 200% after deducting the amount of such dividend, other distribution, or purchase price, as the case may be.

The Fund may in the future seek to file an exemptive application with the SEC seeking an order under the 1940 Act to exempt the Fund from the requirements of Section 19(b) of the 1940 Act and Rule 19b-1 thereunder, permitting the Fund to make periodic distributions of long-term capital gains, provided that the distribution policy of the Fund with respect to the common shares calls for periodic distributions in an amount equal to a fixed percentage of the Fund’s average NAV over a specified period of time or market price per common share at or about the time of distribution or pay-out of a level dollar amount. There can be no assurance that the staff of the SEC will grant such relief to the Fund.

 

The level distribution policies described above would result in the payment of approximately the same amount or percentage to holders of the common shares each quarter. Section 19(a) of the 1940 Act and Rule 19a-1 thereunder require the Fund to provide a written statement accompanying any such payment that adequately discloses the source or sources of the distributions. Thus, if the source of the dividend or other distribution were the original capital contribution of the shareholder, and the payment amounted to a return of capital, the Fund would be required to provide written disclosure to that effect. Nevertheless, persons who periodically receive the payment of a dividend or other distribution may be under the impression that they are receiving net profits when they are not. Shareholders should read any written disclosure provided pursuant to Section 19(a) and Rule 19a-1 carefully, and should not assume that the source of any distribution from the Fund is net profit. In addition, in cases where the Fund would return capital to shareholders, such distribution may impact the Fund’s ability to maintain its asset coverage requirements and to pay the dividends on any shares of preferred stock that the Fund may issue.

 

The Fund’s distribution policy may result in the Fund making a significant distribution in December of each year in order to maintain the Fund’s status as a regulated investment company.

 

Dividend Reinvestment Plan

 

The information in “Dividend Reinvestment Plan” is set forth in the Fund’s most recent annual report on Form N-CSR for the year ended June 30, 2024 in the section entitled “Dividend Reinvestment Plan”, which is incorporated by reference into this Prospectus, and in any future filings we may file with the SEC that are incorporated by reference into this Prospectus. See “Incorporation by Reference” below for more information.

 

Description Of The Fund’s Securities

 

The following summary of the terms of the common shares of the Fund does not purport to be complete and is subject to and qualified in its entirety by reference to the Maryland General Corporation Law, and to the Fund’s Charter and the Fund’s Bylaws, copies of which are filed as exhibits to the Registration Statement.

 

The Fund is a corporation organized under the laws of Maryland. The Fund is authorized to issue 38,344,000 common shares, $0.0001 par value per share, and the Board of Directors, without obtaining shareholder approval, may increase the number of authorized common shares. As of the date of this prospectus, the Adviser did not own of record or beneficially any of the common shares.

 

In general, shareholders or subscribers for the common shares have no personal liability for the debts and obligations of the Fund because of their status as shareholders or subscribers, except to the extent that the subscription price or other agreed consideration for the common shares has not been paid.

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Under the Fund’s Charter, the Board of Directors is authorized to classify and reclassify any unissued common shares into other classes or series of stock and authorize the issuance of common shares without obtaining shareholder approval.

 

Common Stock-Shares in the Fund

 

The Common Shares issued in the offering are fully paid and non-assessable. Common Shares have no preemptive, conversion, exchange, appraisal or redemption rights, and each share has equal voting, dividend, distribution and liquidation rights. Shareholders are entitled to receive dividends if and when the Board of Directors declares dividends from funds legally available. Whenever preferred shares or borrowings are outstanding, common shareholders will not be entitled to receive any distributions from the Fund unless all accrued dividends on the preferred shares and interest and principal payments on borrowings have been paid, and unless the applicable asset coverage requirements under the 1940 Act would be satisfied after giving effect to the distribution as described above.

 

In the event of the Fund’s liquidation, dissolution or winding up, the common shares would be entitled to share ratably in all of the Fund’s assets that are legally available for distribution after the Fund pays all debts and other liabilities and subject to any preferential rights of holders of any outstanding preferred shares.

 

Common shareholders are entitled to one vote per share. All voting rights for the election of directors are noncumulative, which means that, assuming there are no preferred shares outstanding, the holders of more than 50% of the common shares will elect 100% of the directors then nominated for election if they choose to do so and, in such event, the holders of the remaining common shares will not be able to elect any directors.

 

The Fund’s Charter authorizes the Board of Directors to classify and reclassify any unissued common shares into other classes or series of stock. Prior to issuance of shares of each class or series, the Board of Directors is required by Maryland law and by the Fund’s Charter to set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of common shares with terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of the common shares or otherwise be in their best interest. As of the date of this prospectus, the Fund has no plans to classify or reclassify any unissued common shares.

 

The Fund’s currently outstanding common shares are, and the Common Shares offered in this Prospectus will be, subject to notice of issuance, listed on the NYSE under the trading or “ticker” symbol “RSF.” Under the rules of the NYSE applicable to listed companies, the Fund will be required to hold an annual meeting of shareholders in each year.

 

The provisions of the 1940 Act generally require that the public offering price (less underwriting commissions and discounts) of common shares sold by a closed-end investment company must equal or exceed the NAV of such company’s common shares (calculated within 48 hours of the pricing of such offering), unless such a sale is made in connection with an offering to existing holders of shares of common stock or with the consent of a majority of its common shareholders. The Fund may, from time to time, seek the consent of common shareholders to permit the issuance and sale by the Fund of common shares at a price below the Fund’s then-current NAV, subject to certain conditions. If such consent is obtained, the Fund may, contemporaneous with and in no event more than one year following the receipt of such consent, sell common shares at a price below NAV in accordance with any conditions adopted in connection with the giving of such consent. Additional information regarding any consent of common shareholders obtained by the Fund and the applicable conditions imposed on the issuance and sale by the Fund of common shares at a price below NAV will be disclosed in the prospectus supplement relating to any such offering of common shares at a price below NAV. See also “-Subscription Rights” below.

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Preferred Stock

 

The Fund’s Charter authorizes the Board of Directors to classify and reclassify any unissued common shares into other classes or series of stock, including preferred stock, without the approval of the common shareholders. Prior to issuance of any preferred shares, the Board of Directors is required by Maryland law and by the Fund’s Charter to set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for such shares. Thus, the Board of Directors could authorize the issuance of preferred shares with terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for common shareholders or otherwise be in their best interest. As of January 31, 2024, 1,656,000 shares of Series A Preferred Stock were outstanding and the Fund may, from time to time, issue additional preferred shares in the future.

 

Any issuance of preferred shares must comply with the requirements of the 1940 Act. Specifically, the Fund is not permitted under the 1940 Act to issue preferred stock unless immediately after such issuance the total asset value of the Fund’s portfolio is at least 200% of the liquidation value of the outstanding preferred stock. Among other requirements, including other voting rights, the 1940 Act requires that the holders of any preferred stock, voting separately as a single class, have the right to elect at least two directors at all times. In addition, subject to the prior rights, if any, of the holders of any other class of senior securities outstanding, the holders of any preferred stock would have the right to elect a majority of the Fund’s directors at any time two years’ dividends on any preferred stock are unpaid.

 

The Fund’s preferred shares, including Series A Preferred Stock, have complete priority over the common shares as to distribution of assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Fund, preferred shareholders would be entitled to receive a preferential liquidating distribution before any distribution of assets is made to common shareholders. After payment of the full amount of the liquidating distribution to which they are entitled, preferred shareholders would not be entitled to any further participation in any distribution of assets by the Fund. A consolidation or merger of the Fund with another fund or a sale of all or substantially all of the assets of the Fund shall not be deemed to be a liquidation, dissolution or winding up of the Fund.

 

The Fund’s preferred shares, including Series A Preferred Stock, are required to be voting shares and to have equal voting rights with common shares. Except as otherwise indicated in this prospectus of the SAI and except as otherwise required by applicable law, holders of Series A Preferred Stock would vote together with common shareholders as a single class.

 

The terms of the Fund’s preferred shares, including Series A Preferred Stock, provide that they may be redeemed by the issuer at certain times, in whole or in part, at the original purchase price per share plus accumulated but unpaid dividends. Any redemption or purchase of shares of preferred stock by the Fund will reduce the leverage applicable to common shares, while any issuance of preferred stock by the Fund would increase such leverage.

 

The applicable prospectus supplement will set forth whether or not the Preferred Shares offered in this Prospectus will be listed or traded on any securities exchange. If the Preferred Shares are not listed on a securities exchange, there may be no active secondary trading market for such shares and an investment in such shares may be illiquid.

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The terms, if any, on which the preferred stock may be exchanged for or converted into shares of common stock or any other security and, if applicable, the conversion or exchange price, or how it will be calculated, and the conversion or exchange period will also be set forth in the applicable prospectus supplement.

 

Subscription Rights

 

The Fund may issue Rights to (i) common shareholders to purchase Common Shares and/or Preferred Shares or (ii) preferred shareholders to purchase Preferred Shares (subject to applicable law). Rights may be issued independently or together with any other offered Security and may or may not be transferable by the person purchasing or receiving the Rights. In connection with a Rights offering to common and/or preferred shareholders, the Fund would distribute certificates evidencing the Rights and a prospectus supplement, containing all of the material terms of the Rights agreement relating to such Rights (the “Subscription Rights Agreement”), to the Fund’s common or preferred shareholders, as applicable, as of the record date that the Fund sets for determining the shareholders eligible to receive Rights in such Rights offering.

 

The applicable prospectus supplement would describe the following terms of Rights in respect of which this Prospectus is being delivered:

 

●

the period of time the offering would remain open (which will be open a minimum number of days such that all record holders would be eligible to participate in the offering and will not be open longer than 120 days);

 

●

the title of such subscription Rights;

 

●

the exercise price for such Rights (or method of calculation thereof);

 

●

the number of such Rights issued in respect of each common share;

 

●

the number of Rights required to purchase a single preferred share;

 

●

the extent to which such Rights are transferable and the market on which they may be traded if they are transferable;

 

●

if applicable, a discussion of the material U.S. federal income tax considerations applicable to the issuance or exercise of such Rights;

 

●

the date on which the right to exercise such Rights will commence, and the date on which such right will expire (subject to any extension);

 

●

the extent to which such Rights include an over-subscription privilege with respect to unsubscribed securities and the terms of such over-subscription privilege;

 

●

any termination right the Fund may have in connection with such Rights offering;

 

●

the expected trading market, if any, for Rights; and

 

●

any other terms of such Rights, including exercise, settlement and other procedures and limitations relating to the transfer and exercise of such Rights.

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Exercise of Rights. Each Right would entitle the holder of the Right to purchase for cash such number of shares at such exercise price as in each case is set forth in, or be determinable as set forth in, the prospectus supplement relating to the Rights offered thereby. Rights would be exercisable at any time up to the close of business on the expiration date for such Rights set forth in the prospectus supplement. After the close of business on the expiration date, all unexercised Rights would become void.

 

Upon expiration of the Rights offering and the receipt of payment and the Rights certificate properly completed and duly executed at the corporate trust office of the Rights agent or any other office indicated in the prospectus supplement, the Fund would issue, as soon as practicable, the shares purchased as a result of such exercise. To the extent permissible under applicable law, the Fund may determine to offer any unsubscribed offered Securities directly to persons other than shareholders, to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable prospectus supplement.

 

Subscription Rights to Purchase Common and Preferred Stock

 

The Fund may issue Rights, which would entitle holders to purchase both Common Shares and Preferred Shares in a ratio to be set forth in the applicable prospectus supplement. In accordance with the 1940 Act, at least three subscription rights to purchase Common Shares would be required to subscribe for one Common Share. It is expected that Rights to purchase both Common Shares and Preferred Shares would require holders to purchase an equal number of Common Shares and Preferred Shares, and would not permit holders to purchase an unequal number of Common Shares or Preferred Shares, or purchase only Common Shares or only Preferred Shares. For example, such an offering might be structured such that three Rights would entitle an investor to purchase one Common Share and one Preferred Share, and such investor would not be able to choose to purchase only a Common Share or only a Preferred Share upon the exercise of his, her or its Rights.

 

The Common Shares and Preferred Shares issued pursuant to the exercise of any such Rights, however, would at all times be separately tradeable securities. Such Common Shares and Preferred Shares would not be issued as a “unit” or “combination” and would not be listed or traded as a “unit” or “combination” on a securities exchange, such as the NYSE, at any time. The applicable prospectus supplement will set forth additional details regarding an offering of Rights to purchase Common Shares and Preferred Shares.

 

Certain Provisions Of The Fund’s Charter and Bylaws And Of Maryland Law

 

The following is a summary of certain provisions of the Maryland General Corporation Law (the “MGCL”) and of the Charter and Bylaws of the Fund.

 

General

 

The MGCL and the Fund’s Charter and Bylaws contain provisions that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund, to cause it to engage in certain transactions or to modify its structure.

 

These provisions could have the effect of depriving common shareholders of an opportunity to sell their common shares by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. On the other hand, these provisions may require persons seeking control of the Fund to negotiate with the Fund’s management regarding the price to be paid for the common shares required to obtain such control, promote continuity and stability and enhance the Fund’s ability to pursue long-term strategies that are consistent with its investment objective.

The Board of Directors has concluded that the potential benefits of these provisions outweigh their possible disadvantages.

 

Classified Board of Directors

 

The Board of Directors is divided into three classes of directors serving staggered three-year terms. The initial terms of the first, second and third classes will expire at the first, second and third annual meetings of shareholders, respectively, and, in each case, until their successors are duly elected and qualify. Upon expiration of their terms, directors of each class will be elected to serve for three-year terms and until their successors are duly elected and qualify and at each annual meeting one class of directors will be elected by the shareholders. A classified Board of Directors promotes continuity and stability of management but makes it more difficult for shareholders to change a majority of the directors because it generally takes at least two annual elections of directors for this to occur. The Fund believes that classification of the Board of Directors will help to assure the continuity and stability of the Fund’s strategies and policies as determined by the Board of Directors.

 

Election of Directors

 

The MGCL provides that, unless the charter or bylaws of a corporation provide otherwise, which the Fund’s Charter and the Fund’s Bylaws do not, a plurality of all the votes cast at a meeting at which a quorum is present is sufficient to elect a director.

 

Number of Directors; Vacancies

 

The Fund’s Charter provides that the number of directors will be set only by the Board of Directors in accordance with the Bylaws. The Bylaws provide that a majority of the Fund’s entire Board of Directors may at any time increase or decrease the number of directors, provided that there may be no fewer than three directors and no more than 12 directors.

 

The Fund’s Charter provides that the Fund elects, at such time as the Fund becomes eligible to make such an election (i.e., when the Fund has at least three independent directors and the common shares are registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), to be subject to the provision of Subtitle 8 of Title 3 of the MGCL regarding the filling of vacancies on the Board of Directors. Accordingly, at such time, except as may be provided by the Board of Directors in setting the terms of any class or series of preferred shares, any and all vacancies on the Board of Directors may be filled only by the affirmative vote of a majority of the remaining directors in office, and any director elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is elected and qualifies, subject to any applicable requirements of the 1940 Act.

 

Removal of Directors

 

The Fund’s Charter provides that, subject to the rights of the holders of one or more class or series of preferred shares to elect or remove directors, a director may be removed from office only for cause (as defined in the Charter) and then only by the affirmative vote of the holders of at least two-thirds of the votes entitled to be cast generally in the election of directors.

Absence of Cumulative Voting

 

There is no cumulative voting in the election of the Fund’s directors. Cumulative voting means that holders of stock of a corporation are entitled, in the election of directors, to cast a number of votes equal to the number of shares that they own multiplied by the number of directors to be elected. Because a shareholder entitled to cumulative voting may cast all of his or her votes for one nominee or disperse his or her votes among nominees as he or she chooses, cumulative voting is generally considered to increase the ability of minority shareholders to elect nominees to a corporation’s Board of Directors. In general, the absence of cumulative voting means that the holders of a majority of the Fund’s shares can elect all of the directors then standing for election and the holders of the remaining shares will not be able to elect any directors.

 

Approval of Extraordinary Corporate Actions

 

The Fund’s Charter requires the favorable vote of two-thirds of the entire Board of Directors and the favorable vote of the holders of at least two-thirds of the common shares and preferred shares entitled to be voted on the matter, voting together as a single class, to advise, approve, adopt or authorize the following:

 

●

a “Business Combination,” which includes the following:

 

●

a merger, consolidation or statutory share exchange of the Fund with or into another corporation,

 

●

an issuance or transfer by the Fund (in one or a series of transactions in any 12 month period) of any securities of the Fund to any person or entity for cash, securities or other property (or combination thereof) having an aggregate fair market value of $1,000,000 or more, excluding issuances or transfers of debt securities of the Fund, sales of securities of the Fund in connection with a public offering, issuances of securities of the Fund pursuant to a dividend reinvestment plan adopted by the Fund, issuances of securities of the Fund upon the exercise of any stock subscription rights distributed by the Fund and portfolio transactions effected by the Fund in the ordinary course of business, or

 

●

a sale, lease, exchange, mortgage, pledge, transfer or other disposition by the Fund (in one or a series of transactions in any 12 month period) to or with any person or entity of any assets of the Fund having an aggregate fair market value of $1,000,000 or more except for portfolio transactions (including pledges of portfolio securities in connection with borrowings) effected by the Fund in the ordinary course of its business;

 

●

the voluntary liquidation or dissolution of the Fund or charter amendment to terminate the Fund’s existence;

 

●

the conversion of the Fund from a closed-end company to an open-end company, and any amendments necessary to effect the conversion; or

 

●

unless the 1940 Act or federal law requires a lesser vote, any shareholder proposal as to specific investment decisions made or to be made with respect to the Fund’s assets as to which shareholder approval is required under federal or Maryland law.

 

However, the vote of holders of the common shares described above will not be required with respect to the foregoing transactions (other than those as to which shareholder approval is required under federal or Maryland law) if they are approved by a vote of two-thirds of the Continuing Directors (as defined below). In that case, if Maryland law requires approval of the holders of the common shares, the affirmative vote of a majority of the votes entitled to be cast thereon by shareholders of the Fund will be required. In addition, if the Fund has any preferred stock outstanding, the holders of a majority of the outstanding shares of the preferred stock, voting separately as a class, would be required under the 1940 Act to adopt any plan of reorganization that would adversely affect the holders of the preferred stock, to convert the Fund to an open-end investment company or to deviate from any of the Fund’s fundamental investment policies.

In no event will the foregoing provisions affect shareholder rights under the 1940 Act to approve or terminate an advisory contract of the Fund (either of which may be effectuated by Fund shareholders without the need for approval of any Continuing Director or other member of the Board of Directors).

 

“Continuing Director” means any member of the Board of Directors who is not an Interested Party (as defined below) or an affiliate of an Interested Party and has been a member of the Board of Directors for a period of at least 12 months, or has been a member of the Board of Directors since September 24, 2015, or is a successor of a Continuing Director who is unaffiliated with an Interested Party and is recommended to succeed a Continuing Director by a majority of the Continuing Directors then on the Board of Directors.

 

“Interested Party” means any person, other than an investment company advised by the Adviser or any of its affiliates, which enters, or proposes to enter, into a Business Combination with the Fund.

 

In addition, the Fund’s Charter requires the favorable vote of two-thirds of the entire Board of Directors to advise, approve, adopt or authorize any of the following:

 

●

the election and removal of officers;

 

●

the nomination of candidates to the Board of Directors (including the election of directors to fill vacancies on the Board of Directors resulting from the increase in size of the Board of Directors or the death, resignation or removal of a director, in which case the affirmative vote of two-thirds of the remaining directors in office shall be required);

 

●

the creation of and delegation of authority and appointment of members to committees of the Board of Directors;

 

●

amendments to the Fund’s Bylaws (which may only be effected by the Board of Directors, not the holders of the common shares);

 

●

Charter amendments and any other action requiring approval of the holders of the common shares; and

 

●

entering into, terminating or amending an investment advisory agreement.

 

 The Board of Directors has determined that the foregoing supermajority requirements applicable to certain votes of the directors and the common shareholders, which are greater than the minimum requirements permitted under Maryland law or the 1940 Act, are in the best interests of the Fund. Reference should be made to the Charter on file with the SEC for the full text of these provisions.

Action by Shareholders

 

Under the MGCL, shareholder action can be taken only at an annual or special meeting of shareholders or, unless the charter provides for shareholder action by less than unanimous written consent (which is not the case in the Fund’s Charter), by unanimous written consent in lieu of a meeting. These provisions, combined with the requirements of the Fund’s Bylaws regarding the calling of a shareholder-requested special meeting, as discussed below, may have the effect of delaying consideration of a shareholder proposal until the next annual meeting.

 

Procedures for Shareholder Nominations and Proposals

 

The Fund’s Bylaws provide that any shareholder desiring to make a nomination for the election of directors or a proposal for new business at a meeting of shareholders must comply with the advance notice provisions of the Bylaws. Nominations and proposals that fail to follow the prescribed procedures will not be considered. The Board of Directors believes that it is in the Fund’s best interests to provide sufficient time to enable management to disclose to shareholders information about a slate of nominations for directors or proposals for new business. This advance notice requirement also may give management time to solicit its own proxies in an attempt to defeat any slate of nominations should management determine that doing so is in the best interest of shareholders generally. Similarly, adequate advance notice of shareholder proposals will give management time to study such proposals and to determine whether to recommend to the shareholders that such proposals be adopted. For shareholder proposals to be included in the Fund’s proxy materials, the shareholder must comply with all timing and information requirements of the Exchange Act.

 

Calling of Special Meetings of Shareholders

 

The Fund’s Bylaws provide that special meetings of shareholders may be called by the Board of Directors or by certain of its officers. Additionally, the Fund’s Bylaws provide that, subject to the satisfaction of certain procedural and informational requirements by the shareholders requesting the meeting, a special meeting of shareholders will be called by the Fund’s Secretary upon the written request of shareholders entitled to cast not less than a majority of all the votes entitled to be cast at such meeting.

 

No Appraisal Rights

 

As permitted by the MGCL, the Fund’s Charter provides that shareholders will not be entitled to exercise appraisal rights, unless the Fund’s Board of Directors determines that such rights apply.

 

Limitations on Liabilities

 

The Fund’s Charter provides that the personal liability of the Fund’s directors and officers for monetary damages is eliminated to the fullest extent permitted by Maryland law. Maryland law currently provides that directors and officers of corporations that have adopted such a provision will generally not be so liable, except to the extent that (i) it is proved that the person actually received an improper benefit or profit in money, property, or services for the amount of the benefit or profit in money, property, or services actually received; and (ii) a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.

 

The Fund’s Charter delegates the Fund, to the maximum extent permitted by Maryland law, to indemnify and advance expenses to the Fund’s directors and officers. The Fund’s Bylaws provide that the Fund will indemnify its officers and directors against liabilities to the fullest extent permitted by Maryland law and the 1940 Act, and that it shall advance expenses to such persons prior to a final disposition of an action. The rights of indemnification provided in the Fund’s Charter and Bylaws are not exclusive of any other rights which may be available under any insurance or other agreement, by resolution of shareholders or directors or otherwise.

Authorized Shares

 

The Fund’s Charter authorizes the issuance of 38,344,000 common shares, and authorizes a majority of the Fund’s Board of Directors, without common shareholder approval, to increase the number of authorized common shares, to authorize the issuance of common shares and to classify and reclassify any unissued shares into one or more classes or series of stock and set the terms thereof. The issuance of capital stock or any class or series thereof without common shareholder approval may be used by the Fund’s Board of Directors consistent with its duties to deter attempts to gain control of the Fund. Further, the Board of Directors could authorize the issuance of preferred shares with terms and conditions that could have the effect of discouraging a takeover or other transaction that some of the Fund’s shareholders might believe to be in their best interests.

 

Anti-Takeover Provisions of Maryland Law

 

Maryland Unsolicited Takeovers Act

 

Subtitle 8 of Title 3 of the Maryland General Corporation Law permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions:

 

●

a classified board;

 

●

a two-thirds vote requirement for removing a director;

 

●

a requirement that the number of directors be fixed only by vote of directors;

 

●

a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred; and

 

●

a majority requirement for the calling of a special meeting of shareholders.

 

The charter of a corporation may contain a provision or the board of directors may adopt a provision that prohibits the corporation from electing to be subject to any or all of the provisions of Subtitle 8.

 

Maryland Business Combination Act

 

The provisions of the Maryland Business Combination Act (the “MBCA”) do not apply to a closed-end investment company, such as the Fund, unless the Board of Directors has affirmatively elected to be subject to the MBCA by a resolution. To date, the Fund has not made such an election but may make such an election under Maryland law at any time. Any such election, however, could be subject to certain of the 1940 Act limitations discussed below under “Maryland Control Share Acquisition Act” and would not apply to any person who had become an interested shareholder (as defined below) before the time that the resolution was adopted.

 

Under the MBCA, “business combinations” between a Maryland corporation and an interested shareholder or an affiliate of an interested shareholder are prohibited for five years after the most recent date on which the interested shareholder becomes an interested shareholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the MBCA, an asset transfer or issuance or reclassification of equity securities. An interested shareholder is defined as:

●

any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or

 

●

an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

 

A person is not an interested shareholder under the MBCA if the board of directors approved in advance the transaction by which he otherwise would have become an interested shareholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

 

After the five-year prohibition, any business combination between the Maryland corporation and an interested shareholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

 

●

80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

 

●

two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested shareholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested shareholder.

 

These super-majority vote requirements do not apply if the corporation’s common shareholders receive a minimum price, as defined in the MBCA, for their shares in the form of cash or other consideration in the same form as previously paid by the interested shareholder for its shares.

 

The MBCA permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested shareholder becomes an interested shareholder.

 

Maryland Control Share Acquisition Act

 

The Fund, in its Charter, has exempted all of its shares from the application of the Maryland Control Share Acquisition Act (the “MCSAA”). In order to avail itself of the provisions of this Act, the Charter would have to be amended (which would require the approval of the holders of at least a majority of the votes entitled to be cast) and the Board of Directors would have to affirmatively elect to be subject to the MCSAA by a resolution. Any such election, however, would be subject to the 1940 Act limitations discussed below and would not apply to any person who had become a holder of control shares (as defined below) before the time that the resolution was adopted.

 

The MCSAA provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, by officers of the acquirer or by an employee of the acquirer who is also a director of the acquirer are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power:

●

one-tenth or more but less than one-third,

 

●

one-third or more but less than a majority, or

 

●

a majority or more of all voting power.

 

Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained shareholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.

 

A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of shareholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any shareholders meeting.

 

If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the MCSAA, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or of any meeting of shareholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a shareholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.

 

Potentially inhibiting a closed-end investment company’s ability to utilize the MCSAA is Section 18(i) of the 1940 Act which provides that “every share of stock . . . issued by a registered management company . . . shall be a voting stock and have equal voting rights with every other outstanding voting stock,” thereby preventing the Fund from issuing a class of shares with voting rights that vary within that class. There are currently different views, however, on whether or not the MCSAA conflicts with Section 18(i) of the 1940 Act. One view is that implementation of the MCSAA would conflict with the 1940 Act because it would deprive certain shares of their voting rights. Another view is that implementation of the MCSAA would not conflict with the 1940 Act because it would limit the voting rights of shareholders who choose to acquire shares of stock that put them within the specified percentages of ownership rather than limiting the voting rights of the shares themselves.

 

The Fund originally exempted its shares from the MCSAA in light of a November 15, 2010 letter from the staff of the SEC’s Division of Investment Management that took the position that a closed-end fund, by opting in to the MCSAA, would be acting in a manner inconsistent with Section 18(i) of the 1940 Act. However, on May 27, 2020, the staff of the SEC’s Division of Investment Management published an updated statement (the “2020 Control Share Statute Relief”) withdrawing the November 15, 2010 letter and replacing it with a new no-action position allowing a closed-end fund under Section 18(i) to opt-in to the MCSAA, provided that the decision to do so was taken with reasonable care in light of (1) the board’s fiduciary duties, (2) applicable federal and state law, and (3) the particular facts and circumstances surrounding the action. The 2020 Control Share Statute Relief reflects only the enforcement position of the Staff and is not binding on the SEC or any court, and some uncertainty around the application under the 1940 Act of state control share statutes exists as a result of recent federal and state court decisions that have found that certain control share acquisition provisions violate the 1940 Act.

If the Fund were to amend its Charter and subsequently elect to be subject to the MCSAA, it would not apply (a) to shares acquired in a merger, consolidation or share exchange if the Fund is a party to the transaction or (b) to acquisitions approved or exempted by the Fund’s Charter or the Fund’s Bylaws.

 

Rights Offerings

 

The Fund may in the future, and at its discretion, choose to make offerings of Rights to (i) common shareholders to purchase Common Shares and/or Preferred Shares and/or (ii) preferred shareholders to purchase Preferred Shares (subject to applicable law). A future Rights offering may be transferable or non-transferable. Any such future Rights offering will be made in accordance with the 1940 Act. Under the laws of Maryland, the Board of Directors is authorized to approve rights offerings without obtaining shareholder approval. The staff of the SEC has interpreted the 1940 Act as not requiring shareholder approval of a transferable rights offering to purchase common stock at a price below the then current NAV so long as certain conditions are met, including: (i) a good faith determination by a fund’s board that such offering would result in a net benefit to existing shareholders; (ii) the offering fully protects shareholders’ preemptive rights and does not discriminate among shareholders (except for the possible effect of not offering fractional rights); (iii) management uses its best efforts to ensure an adequate trading market in the rights for use by shareholders who do not exercise such rights; and (iv) the ratio of a transferable rights offering does not exceed one new share for each three rights held.

 

U.S. Federal Income Tax MatterS

 

The following is a description of certain U.S. federal income tax consequences to a holder of shares (a “shareholder”) that acquires, holds and/or disposes of common shares or preferred shares. This discussion reflects applicable income tax laws of the United States as of the date of this prospectus, which tax laws may be changed or subject to new interpretations by the courts or the IRS possibly with retroactive effect. No attempt is made to present a detailed explanation of U.S. federal income tax concerns affecting the Fund and its shareholders, and the discussion set forth herein does not constitute tax advice. In addition, no attempt is made to present state, local or foreign tax concerns or tax concerns applicable to an investor with a special tax status such as a financial institution, real estate investment trust, insurance company, regulated investment company, individual retirement account, other tax-exempt entity, dealer in securities or non-U.S. investor. Unless otherwise noted, this discussion assumes the shares are held by U.S. persons and that such shares are held as capital assets. Investors are urged to consult their own tax advisors to determine the tax consequences to them before investing in the Fund.

 

The Fund has elected to be treated, and intends to qualify each year, as a “regulated investment company” under Subchapter M of Subtitle A, Chapter 1 of the Code, so that it will not pay U.S. federal income tax on income and capital gains timely distributed (or treated as being distributed, as described below) to shareholders. In order to qualify as a regulated investment company under Subchapter M of Subtitle A, Chapter 1 of the Code, the Fund must, among other things, derive at least 90% of its gross income for each taxable year from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, other income (including gains from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies and net income derived from interests in qualified publicly traded partnerships (collectively, the “90% income test”). If the Fund qualifies as a regulated investment company and distributes to its shareholders at least 90% of the sum of (i) its “investment company taxable income” as that term is defined in the Code (which includes, among other things, dividends, taxable interest, the excess of any net short-term capital gains over net long-term capital losses and certain net foreign exchange gains as reduced by certain deductible expenses) without regard to the deduction for dividends paid, and (ii) the excess of its gross tax-exempt interest, if any, over certain disallowed deductions, the Fund will be relieved of U.S. federal income tax on any income of the Fund, including long-term capital gains, distributed to shareholders. However, if the Fund retains any investment company taxable income or “net capital gain” (i.e., the excess of net long-term capital gain over net short-term capital loss), it will be subject to U.S. federal income tax at regular corporate federal income tax rates (currently at a rate of 21%) on the amount retained. The Fund intends to distribute at least annually all or substantially all of its investment company taxable income (determined without regard to the deduction for dividends paid), net tax-exempt interest, if any, and net capital gain. Under the Code, the Fund will generally be subject to a nondeductible 4% federal excise tax on the portion of its undistributed ordinary income and capital gains if it fails to meet certain distribution requirements with respect to each calendar year. In order to avoid the 4% federal excise tax, the required minimum distribution is generally equal to the sum of 98% of the Fund’s ordinary income (computed on a calendar year basis), plus 98.2% of the Fund’s capital gain net income (generally computed for the one-year period ending on October 31) plus undistributed amounts from prior years. The Fund intends to make distributions in a timely manner in an amount at least equal to the required minimum distribution but may be subject to the excise tax from time to time depending upon distribution levels.

In addition to the 90% income test, the Fund must also diversify its holdings (commonly referred to as the “asset test”) so that, at the end of each quarter of its taxable year (i) at least 50% of the value of the Fund’s total assets is represented by cash and cash items, U.S. government securities, securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater in value than 5% of the value of the Fund’s total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities (other than U.S. government securities or securities of other regulated investment companies) of any one issuer or of two or more issuers controlled by the Fund and engaged in the same, similar or related trades or businesses, or the securities of one or more qualified publicly traded partnerships.

 

The Fund has adopted policies and guidelines that are designed to enable the Fund to meet these tests, which will be tested for compliance on a regular basis for the purposes of being treated as a regulated investment company for federal income tax purposes. However, some issues related to qualification as a regulated investment company are open to interpretation. For example, the Fund intends to primarily invest in whole loans originated by alternative credit platforms and the Fund has taken the position that the issuer of such loans will be the identified borrowers in the loan documentation. The IRS, however, could disagree and successfully assert that the alternative credit platforms should be viewed as the issuer of the loans. If the IRS prevailed, the Fund would need to determine whether treating the alternative credit platforms as the issuer would cause the Fund to fail the regulated investment company diversification tests. In addition, the IRS and court authorities interpreting the identity of the issuer for Alternative Credit Instruments other than Alternative Credit in the form of whole loans may be less clear. For example, pass-through obligations (obligations of the alternative credit platform that only create an obligation to pay a note purchaser to the extent that the lending platform receives cash) could be viewed as an indirect undivided interest in the referenced loans or they could be viewed as a derivative instrument referencing a pool of loans. If the pass-through obligations were characterized as an indirect undivided interest in the referenced loans, the IRS and court authorities would indicate that the issuers of such instruments were the referenced borrowers in the underlying loans. If the pass-through obligations were characterized as a derivative instrument referencing a pool of loans, the IRS and court authorities would indicate that the issuers of such instruments were the alternative credit platform. The Fund will take the position that the writer of Pass-Through Notes and Alternative Credit Instruments other than whole consumer and small business loans will be the issuer for the regulated investment company tests even if arguments could be made that the persons and small businesses referenced in such instruments were the persons liable for making payments.

If, for any taxable year, the Fund did not qualify as a regulated investment company for U.S. federal income tax purposes, it would be treated as a U.S. corporation subject to U.S. federal income tax, and possibly state and local income tax, and distributions to its shareholders would not be deductible by the Fund in computing its taxable income. In such event, the Fund’s distributions, to the extent derived from the Fund’s current or accumulated earnings and profits, would generally constitute ordinary dividends, which would generally be eligible for the dividends received deduction available to corporate shareholders, and non-corporate shareholders would generally be able to treat such distributions as “qualified dividend income” eligible for reduced rates of U.S. federal income taxation, provided in each case that certain holding period and other requirements are satisfied.

 

A shareholder will have all dividends and distributions automatically reinvested in the shares (unless the shareholder “opts out” of the Plan). For shareholders subject to U.S. federal income tax, all dividends will generally be taxable regardless of whether the shareholder takes them in cash or they are reinvested in additional shares. Distributions of the Fund’s investment company taxable income (determined without regard to the deduction for dividends paid) will generally be taxable as ordinary income to the extent of the Fund’s current and accumulated earnings and profits. However, a portion of such distributions derived from certain corporate dividends, if any, may qualify for either the dividends-received deduction available to corporate shareholders under Section 243 of the Code or the reduced rates of U.S. federal income taxation for “qualified dividend income” available to non-corporate shareholders under Section 1(h)(11) of the Code, provided in each case certain holding period and other requirements are met.

 

Distributions of net capital gain, if any, are generally taxable as long-term capital gain for U.S. federal income tax purposes without regard to the length of time a shareholder has held shares. Because of the Fund’s level dividend policy, however, shareholders may recognize ordinary income from distributions in a year in which the Fund’s net capital gain for the year is offset by capital loss carryforwards from prior years. In addition, through December 31, 2025, the Fund may make distributions of “section 199A dividends” with respect to qualified dividends that it receives with respect to the Fund’s equity investments in REITs, if any. A section 199A dividend is any dividend or part of such dividend that the Fund pays to a shareholder and reports as a section 199A dividend in written statements furnished to the shareholder. Section 199A dividends may be taxed to individuals and other non-corporate shareholders at a reduced effective federal income tax rate, provided in each case certain holding period and other requirements are met.

 

A distribution of an amount in excess of the Fund’s current and accumulated earnings and profits, if any, will be treated by a shareholder as a tax-free return of capital, which is applied against and reduces the shareholder’s basis in his, her or its shares. To the extent that the amount of any such distribution exceeds the shareholder’s basis in his, her, or its shares, the excess will be treated by the shareholder as gain from the sale or exchange of such shares. The U.S. federal income tax status of all dividends and distributions will be designated by the Fund and reported to shareholders annually. The Fund does not expect a significant portion of its dividends to qualify for the dividends received deduction, for qualified dividend income treatment, or treatment as Section 199A dividends.

 

The Fund intends to distribute all realized net capital gains, if any, at least annually. If, however, the Fund were to retain any net capital gain, the Fund may designate the retained amount as undistributed capital gains in a notice to shareholders who, if subject to U.S. federal income tax on long-term capital gains, (i) will be required to include in income as long-term capital gain, their proportionate share of such undistributed amount, and (ii) will be entitled to credit their proportionate share of the federal income tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds such liabilities. If such an event occurs, the tax basis of shares owned by a shareholder of the Fund will, for U.S. federal income tax purposes, generally be increased by the difference between the amount of undistributed net capital gain included in the shareholder’s gross income and the tax deemed paid by the shareholder.

Any dividend declared by the Fund in October, November or December with a record date in such a month and paid during the following January will be treated for U.S. federal income tax purposes as paid by the Fund and received by shareholders on December 31 of the calendar year in which it is declared.

 

If a shareholder’s distributions are automatically reinvested in additional shares, for U.S. federal income tax purposes, the shareholder will be treated as having received a taxable distribution in the amount of the cash dividend that the shareholder would have received if the shareholder had elected to receive cash, unless the distribution is in newly issued shares of the Fund that are trading at or above NAV, in which case the shareholder will be treated as receiving a taxable distribution equal to the fair market value of the stock the shareholder receives.

 

The IRS has taken the position that if a regulated investment company has two or more classes of shares, it must designate distributions made to each class in any year as consisting of no more than such class’s proportionate share of particular types of income (e.g., ordinary income and net capital gains). Consequently, if both common stock and preferred stock are outstanding, the Fund intends to designate distributions made to each class of particular types of income in accordance with each class’s proportionate share of such income. Thus, the Fund will designate to the extent applicable, dividends qualifying for the corporate dividends received deduction (if any), income not qualifying for the dividends received deduction, qualified dividend income (if any), section 199A dividends (if any), ordinary income and net capital gain in a manner that allocates such income between the holders of common stock and preferred stock in proportion to the total dividends paid to each class during or for the taxable year, or otherwise as required by applicable law. However, for purposes of determining whether distributions are out of the Fund’s current or accumulated earnings and profits, the Fund’s earnings and profits will be allocated first to the Fund’s preferred stock, if any, and then to the shares. In such a case, since the Fund’s current and accumulated earnings and profits will first be used to pay dividends on the preferred stock, distributions in excess of such earnings and profits, if any, will be made disproportionately to common shareholders.

 

The repurchase of shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise, the gain or loss will generally be treated as short-term capital gain or loss. Any loss realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any capital gain dividends received by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other substantially identical shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.

 

A repurchase by the Fund of its shares from a shareholder generally will be treated as a sale of the shares by a shareholder provided that after the repurchase the shareholder does not own, either directly or by attribution under Section 318 of the Code, any such shares. If, after a repurchase a shareholder continues to own, directly or by attribution, any such shares, it is possible that any amounts received by such shareholder in the repurchase will be taxable as a dividend to such shareholder, and there is a risk that shareholders who do not have any of their shares repurchased would be treated as having received a dividend distribution as a result of their proportionate increase in the ownership of the Fund. Use of the Fund’s cash to repurchase shares could adversely affect the Fund’s ability to satisfy the distribution requirements for qualification as a regulated investment company. The Fund could also recognize income in connection with the liquidation of portfolio securities to fund share repurchases. Any such income would be taken into account in determining whether the distribution requirements were satisfied.

Certain of the Fund’s investment practices are subject to special and complex federal income tax provisions that may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert tax-advantaged, long-term capital gains and qualified dividend income into higher taxed short-term capital gain or ordinary income, (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (iv) cause the Fund to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the timing as to when a purchase or sale of stock or securities is deemed to occur, and (vi) adversely alter the intended characterization of certain complex financial transactions. These rules could therefore affect the character, amount and timing of distributions to shareholders. The Fund will monitor its investments and transactions and may make certain federal income tax elections where applicable in order to mitigate the effect of these provisions, if possible.

 

Investments in distressed debt obligations that are at risk of or in default may present special federal income tax issues for the Fund. The federal income tax consequences to a holder of such securities are not entirely certain. If the Fund’s characterization of such investments were successfully challenged by the IRS or the IRS issues guidance regarding investments in such securities, it may affect whether the Fund has made sufficient distributions or otherwise satisfied the requirements to maintain its qualification as a regulated investment company and avoid federal income and excise taxes and may affect the character of distributions as capital gain or ordinary income distributions.

 

 Pass-Through Note holders also should be aware that the IRS and the courts are not bound by the Pass-Through Note issuer's characterization of the Pass-Through Notes, and may take a different position with respect to the Pass-Through Notes' proper characterization. For example, if the Pass-Through Notes were treated as equity for the Pass-Through Note issuer, (i) the issuer would be subject to U.S. federal income tax on income, including interest, accrued on the underlying loans but would not be entitled to deduct interest or original issue discount ("OID") on the Pass-Through Notes, and (ii) payments on the Pass-Through Notes would be treated by the Pass-Through Note holder as dividends (that may be ineligible for reduced rates of U.S. federal income taxation or the dividends received deduction) for U.S. federal income tax purposes to the extent of the issuer's earnings and profits, or, if the Notes are treated as equity in a Pass-Through Note issuer that is taxed as a partnership, the Fund may be required to take into account income allocations from such issuers that may include gross income that is not described in Section 851(b)(2) of the Code and may cause the Fund to fail to meet the requirements of Code Section 851(b)(2) and fail to qualify as a regulated investment company.

 

The Fund may be subject to withholding and other taxes imposed by foreign countries, including taxes on interest, dividends and capital gains with respect to its investments in those countries, which would, if imposed, reduce the yield on or return from those investments. Tax treaties between certain countries and the U.S. may reduce or eliminate such taxes in some cases. The Fund does not expect to satisfy the requirements for passing through to its shareholders their pro rata share of qualified foreign taxes paid by the Fund, with the result that shareholders will not be required to include such taxes in their gross incomes and will not be entitled to a tax deduction or credit for such taxes on their own federal income tax returns.

 

Sales, exchanges and other dispositions of the shares generally are taxable events for shareholders that are subject to U.S. federal income tax. Shareholders should consult their own tax advisors with reference to their individual circumstances to determine whether any particular transaction in the shares is properly treated as a sale or exchange for federal income tax purposes, as the following discussion assumes, and the tax treatment of any gains or losses recognized in such transactions. Gain or loss will generally be equal to the difference between the amount of cash and the fair market value of other property received and the shareholder’s adjusted tax basis in the shares sold or exchanged. Such gain or loss will generally be characterized as capital gain or loss and will be long-term if the shareholder’s holding period for the shares is more than 12 months and short-term if it is 12 months or less. However, any loss realized by a shareholder upon the sale or other disposition of shares with a tax holding period of six months or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain with respect to such shares. For the purposes of calculating the six-month period, the holding period is suspended for any periods during which the shareholder’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, short sales or contractual obligations to sell. The ability to deduct capital losses may be limited. In addition, losses on sales or other dispositions of shares may be disallowed under the “wash sale” rules in the event that substantially identical stock or securities are acquired (including those made pursuant to reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after a sale or other disposition of shares. In such a case, the disallowed portion of any loss generally would be included in the U.S. federal income tax basis of the shares acquired.

Certain net investment income received by an individual having adjusted gross income in excess of $200,000 (or $250,000 for married individuals filing jointly) is subject to a Medicare tax of 3.8%. Undistributed net investment income of trusts and estates in excess of a specified amount is also subject to this tax. Dividends and capital gains distributed by the Fund, and gain realized on the sale of shares, will constitute investment income of the type subject to this tax.

 

The Fund is required in certain circumstances to backup withhold at a current rate of 24% on reportable payments including dividends, capital gain distributions, and proceeds of sales or other dispositions of the shares paid to certain shareholders who do not furnish the Fund with their correct social security number or other taxpayer identification number and certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to a shareholder may be refunded or credited against such shareholder’s U.S. federal income tax liability, if any, provided that the required information is timely furnished to the IRS.

 

Whether an investment in the shares is appropriate for a non-U.S. shareholder will depend upon that person’s particular circumstances. An investment in the shares by a non-U.S. shareholder may have adverse tax consequences. Non-U.S. shareholders should consult their tax advisers before investing in shares.

 

Distributions of the Fund's investment company taxable income to non-U.S. shareholders will be subject to U.S. federal withholding tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent of the Fund's current and accumulated earnings and profits unless an applicable exception applies. No withholding will be required on such distributions to the extent that (i) such distributions are properly reported to non-U.S. shareholders as “interest-related dividends” or “short-term capital gain dividends,” (ii) the distributions are derived from sources specified in the Code for such dividends and (iii) certain other requirements are satisfied. No assurance can be given as to whether any significant amount of the Fund's distributions with respect to the Fund's shares would be reported as eligible for this exemption from withholding.

 

If the distributions with respect to the shares are effectively connected with a U.S. trade or business of the non-U.S. shareholder (and, if an income tax treaty applies, attributable to a permanent establishment in the United States), no amount of U.S. federal tax will be required to be withheld from such distributions if the non-U.S. shareholder complies with applicable certification and disclosure requirements, although such distributions will be subject to U.S. federal income tax at the rates applicable to U.S. persons.

 

Special certification requirements apply to a non-U.S. shareholder that is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisers.

 

Actual or deemed distributions of the Fund's net capital gains to a non-U.S. shareholder, and gains realized by a non-U.S. shareholder upon the sale of shares, will not be subject to U.S. federal withholding tax and generally will not be subject to U.S. federal income tax unless (i) the distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the non-U.S. shareholder (and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the non-U.S. shareholder in the United States), or (ii) such non-U.S. shareholder is an individual present in the United States for 183 days or more during the year of the distribution or gain.

 

For a corporate non-U.S. shareholder, distributions and gains realized upon the sale of shares that are effectively connected to a U.S. trade or business may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at a lower rate if provided for by an applicable treaty) in addition to U.S. income tax.

A non-U.S. shareholder who is a non-resident alien individual, and who is otherwise subject to U.S. federal withholding tax, may be subject to information reporting and backup withholding of U.S. federal income tax on distributions unless the non-U.S. shareholder provides us or the dividend paying agent with an IRS Form W-8BEN or IRS Form W-8BEN-E (or an acceptable substitute form) or otherwise meets documentary evidence requirements for establishing that it is a non-U.S. shareholder or otherwise establishes an exemption from backup withholding.

 

Legislation commonly referred to as the “Foreign Account Tax Compliance Act,” or “FATCA,” generally imposes a 30% withholding tax on payments of certain types of income to foreign financial institutions, or “FFIs,” unless such FFIs either (i) enter into an agreement with the U.S. Treasury to report certain required information with respect to accounts held by U.S. persons (or held by foreign entities that have U.S. persons as substantial owners) or (ii) reside in a jurisdiction that has entered into an intergovernmental agreement, or “IGA” with the United States to collect and share such information and are in compliance with the terms of such IGA and any enabling legislation or regulations. The types of income subject to the tax include U.S. source dividends. While existing U.S. Treasury regulations would also require withholding on payments of the gross proceeds from the sale of any property that could produce U.S. source interest or dividends, the U.S. Treasury Department has indicated its intent to eliminate this requirement in subsequent proposed regulations, which state that taxpayers may rely on the proposed regulations until the final regulations are issued. The information required to be reported includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction activity within the holder’s account. In addition, subject to certain exceptions, this legislation also imposes a 30% withholding on payments to foreign entities that are not FFIs unless the foreign entity certifies that it does not have a greater than 10% U.S. owner or provides the withholding agent with identifying information on each greater than 10% U.S. owner. Depending on the status of a Non-U.S. shareholder and the status of the intermediaries through which they hold their shares, Non-U.S. shareholders could be subject to this 30% withholding tax with respect to distributions on their shares and potentially proceeds from the sale of their shares. Under certain circumstances, a Non-U.S. shareholder might be eligible for refunds or credits of such taxes.

 

Non-U.S. shareholders should consult their own tax advisers with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in shares.

 

The foregoing is a general and abbreviated summary of the relevant provisions of the Code and the Treasury regulations thereunder currently in effect as they directly govern the taxation of the Fund and its shareholders. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive. Additional discussion of the federal income tax rules applicable to the Fund can be found in the SAI, which is incorporated by reference into this prospectus. Shareholders are urged to consult their tax advisors regarding specific questions as to U.S. federal, foreign, state, and local income or other taxes before making an investment in the Fund.

 

Plan Of Distribution

 

The Fund may sell up to $150,000,000 in aggregate initial offering price of (i) Common Shares, (ii) Preferred Shares, and/or (iii) Rights, from time to time under this Prospectus and any related prospectus supplement in any one or more of the following ways: (1) directly to one or more purchasers; (2) through agents; (3) to or through underwriters; or (4) through dealers. See also “Dividend Reinvestment Plan” above.

 

Each prospectus supplement relating to an offering of the Securities will state the terms of the offering, including as applicable:

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the names of any agents, underwriters or dealers;

 

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any sales loads or other items constituting underwriters’ compensation;

 

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any discounts, commissions, fees or concessions allowed or reallowed or paid to dealers or agents;

 

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the public offering or purchase price of the offered Securities and the estimated net proceeds the Fund will receive from the sale; and

 

●

any securities exchange on which the offered Securities may be listed.

 

Any public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time.

 

In the case of a Rights offering, the applicable prospectus supplement will set forth the number of Common Shares and/or Preferred Shares issuable upon the exercise of each Right and the other terms of such Rights offering. The transferable Rights offered by means of this Prospectus and applicable prospectus supplement, including any related over-subscription privilege and any follow-on offering, if applicable, may be convertible or exchangeable into Common Shares at a ratio not to exceed one Common Share received for every three subscription rights to purchase Common Shares converted, exercised or exchanged on an aggregate basis such that the exercise of all subscription rights to purchase Common Shares in any transferable subscription Rights offering will not cumulatively result in more than a 33 1/3 percentage increase in the outstanding common shares of the Fund.

 

Direct Sales

 

The Fund may sell Securities directly to, and solicit offers from, purchasers, including institutional investors or others who may be deemed to be underwriters as defined in the 1933 Act for any resales of the Securities. In this case, no underwriters or agents would be involved. In addition to cash purchases, the Fund may allow Securities to be purchased by tendering payment in-kind in the form of shares of stock, bonds or other securities, including shares of other investment companies. Any securities used to buy the Fund’s Securities must be consistent with the Fund’s investment objective and otherwise acceptable to the Adviser and the Board. The Fund may use electronic media, including the Internet, to sell Securities directly. The terms of any of those sales will be described in a prospectus supplement.

 

By Agents

 

The Fund may offer Securities through agents that the Fund designates. Any agent involved in the offer and sale will be named and any commissions payable by the Fund will be described in the prospectus supplement. Unless otherwise indicated in the prospectus supplement, the agents will be acting on a best efforts basis for the period of their appointment.

 

The Fund may engage in at-the-market offerings to or through a market maker or into an existing trading market, on an exchange or otherwise, in accordance with Rule 415(a)(4). An at-the-market offering may be through one or more underwriters or dealers acting as principal or agent for the Fund.

 

By Underwriters

 

The Fund may offer and sell Securities from time to time to one or more underwriters who would purchase the Securities as principal for resale to the public, either on a firm commitment or best efforts basis. If the Fund sells Securities to underwriters, the Fund will execute an underwriting agreement with them at the time of the sale and will name them in the prospectus supplement. In connection with these sales, the underwriters may be deemed to have received compensation from the Fund in the form of underwriting discounts and commissions. The underwriters also may receive commissions from purchasers of Securities for whom they may act as agent. Unless otherwise stated in the prospectus supplement, the underwriters will not be obligated to purchase the Securities unless the conditions set forth in the underwriting agreement are satisfied, and if the underwriters purchase any of the Securities, they will be required to purchase all of the offered Securities. In the event of default by any underwriter, in certain circumstances, the purchase commitments may be increased among the non-defaulting underwriters or the underwriting agreement may be terminated. The underwriters may sell the offered Securities to or through dealers, and those dealers may receive discounts, concessions or commissions from the underwriters as well as from the purchasers for whom they may act as agent. Any public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time.

In connection with an offering of Common Shares, if a prospectus supplement so indicates, the Fund may grant the underwriters an option to purchase additional Common Shares at the public offering price, less the underwriting discounts and commissions, within a specified number of days from the date of the prospectus supplement, to cover any overallotments.

 

By Dealers

 

The Fund may offer and sell Securities from time to time to one or more dealers who would purchase the Securities as principal. The dealers then may resell the offered Securities to the public at fixed or varying prices to be determined by those dealers at the time of resale. The names of the dealers and the terms of the transaction will be set forth in the prospectus supplement.

 

General Information

 

Agents, underwriters, or dealers participating in an offering of Securities may be deemed to be underwriters, and any discounts and commission received by them and any profit realized by them on resale of the offered Securities for whom they may act as agent may be deemed to be underwriting discounts and commissions under the 1933 Act.

 

The Fund may offer to sell Securities either at a fixed price or at prices that may vary, at market prices prevailing at the time of sale, at prices related to prevailing market prices, or at negotiated prices. In addition to cash purchases, the Fund may allow Securities to be purchased by tendering payment in-kind in the form of shares of stock, bonds or other securities. Any underwriter may engage in overallotment, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation M under the Exchange Act.

 

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Overallotment involves sales in excess of the offering size, which create a short position.

 

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Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum price. Stabilizing transactions may occur when the demand for the shares of an offering is less than expected.

 

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Syndicate-covering or other short-covering transactions involve purchases of the securities, either through exercise of the overallotment option or in the open market after the distribution is completed, to cover short positions.

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Penalty bids permit the underwriters to reclaim a selling concession from a dealer when the securities originally sold by the dealer are purchased in a stabilizing or covering transaction to cover short positions.

 

Any of these activities may stabilize or maintain the market price of the Securities above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time.

 

Any underwriters that are qualified market makers on the NYSE may engage in passive market making transactions in our shares on NYSE in accordance with Regulation M under the Exchange Act, during the business day prior to the pricing of the offering, before the commencement of offers or sales of our shares. Passive market makers must comply with applicable volume and price limitations and must be identified as passive market makers. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market maker's bid, however, the passive market maker's bid must then be lowered when certain purchase limits are exceeded. Passive market making may stabilize the market price of the securities at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.

 

In connection with any Rights offering, the Fund may also enter into a standby underwriting agreement with one or more underwriters pursuant to which the underwriter(s) will purchase Common Shares and/or other Securities remaining unsubscribed for after the Rights offering.

 

Any underwriters to whom the offered Securities are sold for offering and sale may make a market in the offered Securities, but the underwriters will not be obligated to do so and may discontinue any market-making at any time without notice. There can be no assurance that there will be a liquid trading market for the offered Securities.

 

Under agreements entered into with the Fund, underwriters and agents may be entitled to indemnification by the Fund against certain civil liabilities, including liabilities under the 1933 Act, or to contribution for payments the underwriters or agents may be required to make. The underwriters, agents, and their affiliates may engage in financial or other business transactions with the Fund and its subsidiaries, if any, in the ordinary course of business.

 

The aggregate offering price specified on the cover of this Prospectus relates to the offering of the Securities not yet issued as of the date of this Prospectus.

 

To the extent permitted under the 1940 Act and the rules and regulations promulgated thereunder, the underwriters may from time to time act as a broker or dealer and receive fees in connection with the execution of our portfolio transactions after the underwriters have ceased to be underwriters and, subject to certain restrictions, each may act as a broker while it is an underwriter.

 

The Prospectus and accompanying prospectus supplement in electronic form may be made available on the website maintained by the underwriters. The underwriters may agree to allocate a number of Securities for sale to their online brokerage account holders. Such allocations of Securities for internet distributions will be made on the same basis as other allocations. In addition, Securities may be sold by the underwriters to securities dealers who resell Securities to online brokerage account holders.

Administrator, Fund Accountant, Transfer Agent, Dividend Disbursing Agent and Custodians

 

The Fund places and maintains its Alternative Credit investments, securities and cash in the custody of one or more entities meeting the requirements of Section 17(f) of the 1940 Act. For its investments in Alternative Credit, the Fund has engaged Millennium Trust Company, LLC, 2001 Spring Road #700, Oak Brook, Illinois 60523, a custodian with experience in the custody of loans originated through alternative credit platforms. For its services, Millennium Trust Company receives a monthly fee based upon, among other things, the average value of the total loans of the Fund. See “Investment Objective, Strategies and Policies-Alternative Credit-Alternative Credit and Pass-Through Notes.”

 

State Street Bank & Trust, Co., located at State Street Financial Center, One Lincoln Street, Boston, MA 02111, also serves as the Fund’s custodian of the cash and securities owned by the Fund. For its services, State Street Bank & Trust, Co. receives a monthly fee based upon, among other things, the average value of the cash and securities of the Fund.

 

DST Systems, Inc., an affiliate of the Fund’s administrator, located at 333 W. 11th Street, Kansas City, Missouri 64105, serves as the Fund’s transfer agent, registrar, Plan Administrator and dividend disbursing agent and is responsible for coordinating and processing all repurchase offers.

 

AFS is the Fund’s administrator. AFS is a service company and SEC-registered transfer agent. Under the Administration, Bookkeeping and Pricing Services Agreement, AFS is responsible for calculating NAVs, providing additional fund accounting and tax services, and providing fund administration and compliance-related services. The address of AFS is 1290 Broadway, Suite 1000, Denver, CO 80203. For its services, the Fund pays AFS customary fees based on the Fund’s net assets or an annual minimum fee, plus out of pocket expenses.

 

Legal Matters

 

Certain legal matters will be passed upon for the Fund by Faegre Drinker Biddle & Reath LLP. Faegre Drinker Biddle & Reath LLP may rely as to certain matters of Maryland law on the opinion of Shapiro Sher Guinot & Sandler, P.A.

 

Control Persons

 

Based on a review of Schedule 13D and Schedule 13G filings as of the date of this Prospectus, there are no persons who control the Fund. For purposes of the foregoing statement, “control” means (1) the beneficial ownership, either directly or through one or more controlled companies, of more than 25% of the voting securities of a company; (2) the acknowledgement or assertion by either the controlled or controlling party of the existence of control; or (3) an adjudication under Section 2(a)(9) of the 1940 Act, which has become final, that control exists.

 

Additional Information

 

The Fund is subject to the informational requirements of the Exchange Act and the 1940 Act and in accordance therewith files reports and other information with the SEC. The SEC maintains a website at sec.gov containing reports, proxy and information statements and other information regarding registrants, including the Fund (when available), that file electronically with the SEC.

 

This Prospectus constitutes part of a Registration Statement filed by the Fund with the SEC under the Securities Act and the 1940 Act. This Prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the Registration Statement and related exhibits for further information with respect to the Fund and the Common Shares offered hereby. Any statements contained herein concerning the provisions of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. The complete Registration Statement may be obtained from the SEC upon payment of the fee prescribed by its rules and regulations or free of charge through the SEC’s website (sec.gov).

The Fund’s Privacy Policy

 

The Fund is committed to ensuring your financial privacy. This notice is being sent to comply with privacy regulations of the SEC. The Fund has in effect the following policy with respect to nonpublic personal information about its customers:

 

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Only such information received from you, through application forms or otherwise, and information about your Fund transactions will be collected.

 

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None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account).

 

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Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information.

 

●

The Fund does not currently obtain consumer information. If the Fund were to obtain consumer information at any time in the future, it would employ appropriate procedural safeguards that comply with federal standards to protect against unauthorized access to and properly dispose of consumer information.

 

For more information about the Fund’s privacy policies call (855) 830-1222 (toll-free).

 

The Fund does not control the safeguarding, use or disposition of the personal and financial information about investors that is in the possession of the Underwriters and dealers. Investors should look to the privacy policies of those entities for information about how they treat investors’ personal and financial information.

INCORPORATION BY REFERENCE

 

This Prospectus is part of a registration statement that we have filed with the SEC. We are allowed to “incorporate by reference” the information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to comprise a part of this Prospectus from the date we file that document. Any reports filed by us with the SEC before the date that any offering of securities by means of this Prospectus and any applicable prospectus supplement is terminated will automatically update and, where applicable, supersede any information contained in this Prospectus or incorporated by reference in this Prospectus.

 

We incorporate by reference into this Prospectus our filings listed below and any future filings that we may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until all of the Securities offered by the Fund’s Prospectus and any applicable prospectus supplement have been sold or we otherwise terminate the offering of these Securities. Information that we file with the SEC will automatically update and may supersede information in this Prospectus, any applicable supplement and information previously filed with the SEC.

 

This Prospectus and any applicable prospectus supplement incorporate by reference the documents set forth below that have previously been filed with the SEC:

 

●

our annual report on Form N-CSR for the fiscal year ended June 30, 2024, filed with the SEC on September 6, 2024;

●

our definitive proxy statement on Schedule 14A, filed with the SEC on August 21, 2024;

●

the description of our common stock contained in our Registration Statement on Form 8-A (File No. 001-38234), as filed with the SEC on June 7, 2019, including any amendment or report filed for the purpose of updating such description prior to the termination of the offering of the common stock registered hereby; and

●

the description of our Series A Term Preferred Stock contained in our Registration Statement on Form 8-A (File No. 001-38234), as filed with the SEC on October 6, 2017, including any amendment or report filed for the purpose of updating such description prior to the termination of the offering of the preferred stock registered hereby.

 

You may request a copy of these filings (other than exhibits, unless the exhibits are specifically incorporated by reference into these documents) at no cost at the Fund's website at rivernorth.com or by writing or calling the following address and telephone number:

 

RiverNorth Capital Management, LLC 

360 South Rosemary Avenue, Suite 1420 

West Palm Beach, FL 33401 

(844) 569-4750

 

You should rely only on the information incorporated by reference or provided in the Fund’s Prospectus, SAI and any supplement thereto. We have not authorized anyone to provide you with different or additional information, and you should not rely on such information if you receive it. We are not making an offer of or soliciting an offer to buy, any securities in any state or other jurisdiction where such offer or sale is not permitted. You should not assume that the information in this Prospectus or in the documents incorporated by reference is accurate as of any date other than the date on the front of this Prospectus or those documents.

RIVERNORTH CAPITAL AND INCOME FUND, INC. 

PROSPECTUS

 

[ ], 2024

 

Until [ ], 2024 (25 days after the date of this Prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters.

The information in this Statement of Additional Information is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED October 22, 2024

 

RIVERNORTH CAPITAL AND INCOME FUND, INC.

 

STATEMENT OF ADDITIONAL INFORMATION

 

RiverNorth Capital and Income Fund, Inc. (the “Fund”) is a Maryland corporation that is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, closed-end management investment company and is operated as an interval fund. The Fund was incorporated on June 9, 2015. The investment objective of the Fund is to seek a high level of current income. RiverNorth Capital Management, LLC, the investment adviser of the Fund (“RiverNorth” or the “Adviser”), attempts to achieve the Fund’s investment objective by investing in credit instruments, including a portfolio of specialty finance and other financial companies that the Adviser believes offer attractive opportunities for income. See “The Fund’s Investment Objective, Strategies and Policies” in the Fund’s Prospectus (as defined below). There is no assurance that the Fund will achieve its investment objective.

 

This Statement of Additional Information (“SAI”) relates to the Fund’s (i) shares of common stock, $0.0001 par value per share (the “Common Shares”), (ii) shares of preferred stock (the “Preferred Shares”), (iii) subscription rights to purchase Common Shares, (iv) subscription rights to purchase Preferred Shares and (v) subscription rights to purchase Common Shares and Preferred Shares (“Rights” and, together with the Common Shares and Preferred Shares, “Securities”). This SAI is not a prospectus, but should be read in conjunction with the Prospectus dated [ ], 2024 (the “Prospectus”) and the applicable prospectus supplement. This SAI does not include all of the information that a prospective investor should consider before purchasing Securities. Investors should obtain and read the Prospectus and the applicable prospectus supplement prior to purchasing Securities. A copy of the Prospectus may be obtained without charge by calling the Fund at (844) 569-4750.

 

The Prospectus and this SAI omit certain of the information contained in the registration statement filed with the Securities and Exchange Commission (“SEC”), Washington, D.C. The Fund’s filings with the SEC are available to the public on the SEC’s website at sec.gov. Copies of these filings may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus.

 

This SAI is dated [ ], 2024.

TABLE OF CONTENTS 

 

INVESTMENT RESTRICTIONS	4
INVESTMENT POLICIES AND TECHNIQUES	7
Alternative Credit	7
Additional Investments and Practices of the Fund	14
MANAGEMENT OF THE FUND	24
Investment Adviser	24
Investment Advisory Agreement	24
Portfolio Managers	25
Compensation of Portfolio Managers	26
Portfolio Manager Ownership of Fund Shares	26
Conflicts of Interest	26
Other Accounts Managed	27
Administrator	28
Codes of Ethics	28
FUND SERVICE PROVIDERS	28
Independent Registered Public Accounting Firm	28
Legal Counsel	28
Custodians and Transfer Agent	28
PORTFOLIO TRANSACTIONS	29
U.S. FEDERAL INCOME TAX MATTERS	30
Fund Taxation	30
Shareholder Taxation	31
Information Reporting	33
Other Taxes	33
BOARD MEMBERS AND OFFICERS	34
Director Ownership in the Fund	34
Securities Beneficially Owned	34
PROXY VOTING GUIDELINES	35
ADDITIONAL INFORMATION	36
FINANCIAL STATEMENTS	36
INCORPORATION BY REFERENCE	37
APPENDIX A - PROXY VOTING POLICY OF THE ADVISER	A-1

INVESTMENT RESTRICTIONS

 

Except as otherwise indicated, the Fund’s investment policies are not fundamental and may be changed without a vote of shareholders. Except as otherwise indicated, any percentage limitations described in this SAI are as of the time of investment by the Fund and may be exceeded on a going-forward basis as a result of market value fluctuations of the Fund’s portfolio or other events.

 

As a matter of fundamental policy, the Fund may not:

 

(1) borrow money, except as permitted under the 1940 Act, and as interpreted or modified by regulatory authority having jurisdiction, from time to time by Congress or regulatory authorities having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations;

 

(2) issue senior securities, except as permitted under the 1940 Act and as interpreted or modified by regulatory authority having jurisdiction, from time to time by Congress or regulatory authorities having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations;

 

(3) purchase any security if, as a result of such purchase, 25% or more of the Fund’s total assets (taken at current value) would be invested in the securities of borrowers and other issuers having their principal business activities in the same industry or group of industries; provided, however, that such limitation shall not apply to obligations issued or guaranteed by the United States government or by its agencies or instrumentalities; and provided further that the Fund will invest more than 25% of its assets in diversified financials;

 

(4) engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended, in connection with the purchase and sale of portfolio securities;

 

(5) purchase or sell real estate, which term does not include securities of companies that deal in real estate or are engaged in the real estate business, including real estate investment trusts, and mortgages or investments secured by real estate or interests therein, except that the Fund reserves freedom of action to hold and to sell real estate or mortgages on real estate acquired as a result of the Fund’s ownership of securities;

 

(6) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options, futures contracts or other derivative instruments or from investing in securities or other instruments backed by physical commodities or as otherwise permitted by the 1940 Act, as amended, interpreted or modified from time to time by Congress or regulatory authorities having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations, or pursuant to an exemption or other relief applicable to the Fund from the provisions of the 1940 Act, as amended from time to time);

 

(7) make loans, except as permitted under the 1940 Act, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time by Congress or regulatory authorities having jurisdiction, including, for the avoidance of doubt, SEC staff interpretations or except as may be permitted by exemptive orders granted under the 1940 Act;

 

(8) invest in loans that are of subprime quality at the time of investment, as determined by the Adviser pursuant to guidelines approved by the board of directors of the Fund (the “Board of Directors”); and

(9) with respect to 75% of its total assets, purchase any securities (other than government securities (as defined in the 1940 Act) and securities issued by other investment companies), if, as a result, more than 5% of the Fund’s total assets would then be invested in securities of any single issuer or if, as a result, the Fund would hold more than 10% of the outstanding voting securities of any single issuer.

 

The Fund has also adopted the following fundamental policies in order to repurchase shares of its outstanding Common Shares:

 

●

The Fund will make an offer to repurchase, on a quarterly basis, a designated percentage of the outstanding Common Shares from shareholders (each, a “Repurchase Offer”) pursuant to Rule 23c-3 under the 1940 Act, as it may be amended from time to time.

 

●

The Fund will repurchase Common Shares that are tendered by a specific date occurring every three months (each, a “Repurchase Request Deadline”). The Fund’s Board of Directors will establish the Repurchase Request Deadline for each Repurchase Offer. The time between the notification to shareholders of each Repurchase Offer and the Repurchase Request Deadline may vary from no more than 42 days to no less than 21 days, and is expected to be approximately 30 days but may be revised by the Adviser, in its sole discretion, based on factors such as market conditions, the level of the Fund’s assets and shareholder servicing considerations provided that the Board of Directors is notified of this change and the reasons for the change.

 

●

Common Shares will be repurchased at the NAV per share determined as of the close of regular trading on the New York Stock Exchange (“NYSE”) typically as of the Repurchase Request Deadline, but no later than the 14th day after such date, or the next business day if the 14th day is not a business day.

 

See “Repurchase Policy for the Common Shares” in the Prospectus.

 

For purposes of fundamental policy (3) above, investments in diversified financials shall include, among other things, investments in borrowers of marketplace loans and issuers of Pass-Through Notes (as defined below), as well as any direct investments in marketplace lending platforms.

 

For purposes of fundamental policy (7) above, Section 21 of the 1940 Act makes it unlawful for a registered investment company, like the Fund, to lend money or other property if (i) the investment company’s policies set forth in its registration statement do not permit such a loan or (ii) the borrower controls or is under common control with the investment company. The Fund has not applied for, and currently does not intend to apply for, any exemptive relief that would allow it to make loans outside of the limits of the 1940 Act.

 

For purposes of fundamental policy (8) above, the Adviser will determine whether loans offered to the Fund are of subprime quality at the time of investment pursuant to guidelines approved by the Board of Directors from time to time. Although there is no specific legal or market definition of subprime quality, it is generally understood in the industry to signify that there is a material likelihood that the loan will not be repaid in full. The Fund considers a consumer marketplace loan to be of subprime quality if the individual borrower of such loan has a FICO score below 640. The Fund considers an SME (as defined below) loan to be of “subprime quality” if the likelihood of repayment on such loan is determined by the Adviser based on its due diligence and the credit underwriting policies of the originating platform to be similar to that of consumer loans that are of subprime quality. In determining whether an SME loan is of subprime quality, the Adviser will generally look to a number of borrower-specific factors, which will include the payment history of the borrower and, as available, financial statements, tax returns and sales data.

For the purpose of applying the limitation in fundamental investment restriction (9), an issuer shall be deemed the sole issuer of a security when its assets and revenues are separate from other governmental entities and its securities are backed only by its assets and revenues. Similarly, in the case of a non-governmental issuer, such as an industrial corporation or a privately owned or operated hospital, if the security is backed only by the assets and revenues of the non-governmental issuer, then such non-governmental issuer would be deemed to be the sole issuer. Where a security is also backed by the enforceable obligation of a superior or unrelated governmental or other entity (other than a bond insurer), it shall also be included in the computation of securities owned that are issued by such governmental or other entity. Where a security is guaranteed by a governmental entity or some other facility, such as a bank guarantee or letter of credit, such a guarantee or letter of credit would be considered a separate security and would be treated as an issue of such government, other entity or bank.

 

The Fund may incur borrowings and/or issue series of notes or other senior securities in an amount up to 33-1/3% of its total assets (including the amount borrowed) less all liabilities other than borrowings. The Fund may enter into derivatives or other transactions (e.g., total return swaps) that may provide leverage (other than through borrowings or the issuance of Preferred Shares). The Fund now complies with Rule 18f-4 with respect to its derivatives transactions. Thus, the fundamental policy relating to issuing senior securities above will not restrict the Fund from entering into derivatives transactions that are treated as senior securities so long as the Fund complies with Rule 18f-4 with respect to such derivatives transactions. The Fund may also invest in reverse repurchase agreements, total return swaps and derivatives or other transactions with leverage embedded in them in a limited manner or subject to a limit on leverage risk calculated based on value-at-risk, as required by Rule 18f-4 under the 1940 Act. These transactions will not cause the Fund to pay higher advisory or administration fee rates than it would pay in the absence of such transactions. The Fund does not anticipate it will enter into reverse repurchase agreements to incur any borrowings.

 

However, these transactions entail additional expenses (e.g., transaction costs) which are borne by the Fund. These types of transactions have the potential to increase returns to common shareholders, but they also involve additional risks. This additional leverage will increase the volatility of the Fund’s investment portfolio and could result in larger losses than if the transactions were not entered into. However, to the extent that the Fund enters into offsetting transactions or owns positions covering its obligations, the leveraging effect is expected to be reduced or eliminated.

 

For a further discussion of the limitations imposed on borrowing by the 1940 Act, please see the section entitled “Use of Leverage” in the Prospectus.

 

The foregoing fundamental investment policies may not be changed without the approval of the holders of a “majority of the outstanding voting securities” of the Fund, which includes the Common Shares and the Preferred Shares of the Fund, including the Fund’s Series A Term Preferred Stock (the “Series A Preferred Stock”), voting together as a single class, and the holders of the outstanding Preferred Shares of the Fund, including Series A Preferred Stock, voting as a single class. The Fund’s investment objective and the remainder of the Fund’s investment policies and limitations (as disclosed in the Prospectus), including its investment strategy, are not considered to be fundamental and can be changed without a vote of the shareholders. When used with respect to particular shares of the Fund, a “majority of the outstanding voting securities” means (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the shares are present or represented by proxy, or (ii) more than 50% of the shares, whichever is less.

 

The Fund may become subject to rating agency guidelines that are more limiting than its current investment restrictions in order to obtain and maintain a desired rating on its preferred shares.

Where applicable, the foregoing fundamental investment policies shall be interpreted based on the applicable rules, regulations and pronouncements of the SEC and its staff.

 

INVESTMENT POLICIES AND TECHNIQUES

 

Alternative Credit

 

The Fund’s alternative credit investments may be made through a combination of: (i) investing in loans to small- and mid-sized companies (“SMEs”); (ii) investing in notes or other pass-through obligations issued by an alternative credit platform (or an affiliate) representing the right to receive the principal and interest payments on an Alternative Credit investment (or fractional portions thereof) originated through the platform (“Pass-Through Notes”); (iii) purchasing asset-backed securities representing ownership in a pool of Alternative Credit; (iv) investing in private investment funds that purchase Alternative Credit; (v) acquiring an equity interest in an alternative credit platform (or an affiliate); and (vi) providing loans, credit lines or other extensions of credit to an alternative credit platform (or an affiliate) (the foregoing listed investments are collectively referred to herein as the “Alternative Credit Instruments” or “Alternative Credit”). Subject to the limitations in the prospectus and this SAI, the Fund may invest without limit in any of the foregoing types of Alternative Credit Instruments and the Fund’s investments in private investment funds will be limited to no more than 10% of the Fund’s Managed Assets (as defined below). The Alternative Credit in which the Fund typically invests are newly issued and/or current as to interest and principal payments at the time of investment. As a fundamental policy (which cannot be changed without the approval of the holders of a majority of the outstanding voting securities of the Fund), the Fund does not invest in Alternative Credit that are of subprime quality at the time of investment. The Fund considers an SME loan to be of “subprime quality” if the likelihood of repayment on such loan is determined by the Adviser based on its due diligence and the credit underwriting policies of the originating platform to be similar to that of consumer loans that are of subprime quality. The Fund has no intention as of the date of this SAI to invest in Alternative Credit originated from lending platforms based outside the United States or made to non-U.S. borrowers. However, the Fund may in the future invest in such Alternative Credit and, prior to such time, will amend the Prospectus and/or SAI (as applicable) to provide additional information on such investments, including the associated risks. See “Additional Investments and Practices of the Fund-Additional Risks of Investing in the Fund.”

 

The following supplements the discussion of Alternative Credit contained in the Prospectus and includes additional considerations and risks associated with the Fund’s investments in Alternative Credit. See “Investment Objective, Strategies and Policies-Alternative Credit” and “Risks” in the Prospectus.

 

Regulatory Considerations

 

The following highlights various laws and regulations impacting Alternative Credit and its participants.

 

The Equal Credit Opportunity Act. This law prohibits discrimination in the extension of all credit (consumer or business) on the basis of certain protected classes including on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act. It also requires notice of adverse action to be given to applicants who are denied credit.

 

OFAC, USA Patriot Act and Bank Secrecy Act. Certain participants in alternative credit, including the platforms through which the Fund may invest in Alternative Credit, may be required to comply with various anti-money laundering and related regulations. The Fund is not able to control or monitor such compliance. Moreover, in the Fund’s participation with the platforms, it is subject to compliance with OFAC (Office of Foreign Assets Control), the USA PATRIOT Act and Bank Secrecy Act regulations applicable to all businesses, which, for the Fund, generally involves cooperation with authorities in investigating any purported improprieties. Any material failure to comply with OFAC and other similar anti-money laundering restrictions or any investigation relating thereto could result in fines or penalties. Such fines or penalties could have a material adverse effect on the Fund directly for amounts owed for fines or penalties or indirectly as a negative consequence of the decreased demand for Alternative Credit from the platforms in violation of such requirements resulting from the adverse publicity and other reputation risks associated with any such fines and penalties assessed against the platforms or other industry participants.

Federal Trade Commission Act. Section 5 of this law (as well as analogous state laws) prohibits unfair and deceptive acts or practices in or affecting commerce. The FTC’s Holder in Due Course Rule allows borrowers in certain circumstances to assert any claim or defense they have against a seller of goods or services obtained with the proceeds of a loan against the originator or subsequent purchaser of the loan.

 

CAN-SPAM Act and Telemarketing Sales Rule. These laws and analogous state laws govern the marketing of credit and other products and services by use of email or telephone marketing and would affect programs of alternative credit platforms marketing by these means.

 

Electronic Signatures in Global and National Commerce Act. This law, along with analogous state laws including the Uniform Electronic Transactions Acts, which authorize the creation of legally binding and enforceable agreements electronically and utilizing electronic records and signatures govern the circumstances in which a person may electronically be provided disclosures otherwise required to be in writing. Alternative Credit Lenders must obtain consent to conduct business electronically from applicants and borrowers.

 

Bankruptcy Code. This law limits the extent to which creditors may seek to enforce debts against borrowers who have filed for bankruptcy protection.

 

In addition, funding banks are subject to banking laws and regulations and the supervision by federal and/or state banking agencies and such laws and regulators could impose restrictions on the funding bank.

 

Alternative Credit lenders may not always be in compliance with these laws and borrowers may make counterclaims regarding the enforceability of their obligations under borrower laws after collection actions have been commenced or otherwise seek damages under these laws.

 

Registration with the SEC. Pass-Through Notes are typically offered through private offerings and thus may not be registered under the Securities Act of 1933, as amended (the “1933 Act”). In addition, platforms are not registered as investment companies under the 1940 Act. If a platform (or an affiliate thereof) were to fail to comply with a private offering exemption under the 1933 Act, or if it were to fail to maintain an exemption from registration as an investment company under the 1940 Act, it (or such affiliate) could become subject to regulatory actions and/or significant civil liabilities. Although a platform (or its affiliate) may intend to operate in compliance with all applicable securities laws, these laws are complex and sometimes subject to alternative interpretations and any failure by a platform (or such affiliate) to comply with applicable securities laws could adversely affect its (or such affiliate’s) ability to make payments on the Pass-Through Notes.

 

Trust Indenture Act of 1939. Any Pass-Through Note offering made in reliance on an exemption from registration pursuant to Section 4(a)(2) of the 1933 Act will not be subject to the Trust Indenture Act of 1939. Consequently, holders of Pass-Through Notes will not have the protection of an indenture setting forth obligations of the Pass-Through Note issuers for the protection of the Pass-Through Note holders or a trustee appointed to represent their interests.

State Usury Laws. Some platforms (or their affiliates) may attempt to take advantage of policies in certain states that allow lenders to make Alternative Credit investments at advantageous interest rates by incorporating choice of law provisions into Alternative Credit agreements that hold that the agreements are to be governed by the laws of those lender-friendly states. This is sometimes the case in the origination of business as opposed to consumer loans. In the event that a borrower or state regulator successfully invalidates such choice-of-law clause, platforms (of their affiliates) may not be able to collect some or all of the interest and principal due on such Alternative Credit Instruments, such loans may not be found to be enforceable or the platforms (or their affiliates) could become subject to penalties and damages. Other platforms may engage in arrangements with funding banks where the platform assists the bank in originating loans that are funded by the bank. In some cases, the loans are sold to the platforms and the platforms as assignees of the bank under applicable law and precedent utilize the bank’s rate and fee exportation authority. At least one federal circuit has cast doubt upon this theory and other litigation challenges the ability of assignees to utilize a bank’s exportation authority as an assignee of the bank’s loans. Legislation is also pending in Congress that would validate an assignee’s ability to utilize the rates and fees of the originating lender.

 

Tax Treatment of Pass-Through Notes. There are no statutory provisions, regulations, published rulings or judicial decisions that address the characterization of Pass-Through Notes or other Alternative Credit Instruments substantially similar to Pass-Through Notes for U.S. federal income tax purposes and the proper tax characterization of Pass-Through Notes for U.S. federal income tax purposes is uncertain. To address this concern, some Pass-Through Note issuers require investors to agree to treat the Pass-Through Notes as debt of the Pass-Through Note issuer for federal, state and local income and franchise tax purposes. Further, prospective Pass-Through Note holders should be aware that a Pass-Through Note issuer may intend to treat (and report) the Pass-Through Notes as debt instruments that have original issue discount (“OID”) for U.S. federal income tax purposes. As a result, Pass-Through Note holders will be required to include OID in income as it accrues under a constant yield method, regardless of such note holder’s regular method of tax accounting, and so may be required to include OID in income in advance of the receipt of cash attributable to the related Note interest or principal.

 

Pass-Through Note holders also should be aware that the Internal Revenue Service (“IRS”) and the courts are not bound by the Pass-Through Note issuer’s characterization of the Pass-Through Notes, and may take a different position with respect to the Pass-Through Notes’ proper characterization. For example, if the Pass-Through Notes were treated as equity for the Pass-Through Note issuer, (i) the issuer would be subject to U.S. federal income tax on income, including interest, accrued on the underlying loans but would not be entitled to deduct interest or OID on the Pass-Through Notes, and (ii) payments on the Pass-Through Notes would be treated by the Pass-Through Note holder as dividends (that may be ineligible for reduced rates of U.S. federal income taxation or the dividends received deduction) for U.S. federal income tax purposes to the extent of the issuer’s earnings and profits, or, if the Notes are treated as equity in a Pass-Through Note issuer that is taxed as a partnership, the Fund may be required to take into account income allocations from such issuers that may include gross income that is not described in Section 851(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”) and may cause the Fund to fail to meet the requirements of Code Section 851(b)(2) and fail to qualify as a regulated investment company. If the Fund were to fail to qualify as a regulated investment company, the Fund would be liable for entity-level tax on all of its net income at corporate tax rates (currently 21%), and if the Fund fails to qualify as a regulated investment company for more than two years, it may be subject to tax on built-in gains if it later qualifies again as a regulated investment company. Alternatively, the IRS could determine that, in substance, each Pass-Through Note holder owns a proportionate interest in the underlying loans for U.S. federal income tax purposes, or it could instead seek to treat the Pass-Through Notes as some other financial instrument or contract (including a derivative financial instrument). Such different characterizations could significantly reduce the amount available to the Pass-Through Note issuer to pay interest on the Pass-Through Notes, and could significantly affect the amount, timing, and character of income, gain or loss recognized in respect of a Pass-Through Note.

Risk of Including Foreign Investors. An issuer of Pass-Through Notes may accept investors who are non-U.S. persons, in which case interest payments made to such an investor by the issuer could be subject to withholding taxes. In the event that the issuer fails to properly withhold on such payments, it could remain liable for a non-U.S. person’s individual tax liabilities for the interest payments. There is a further risk that a non-U.S. person investor could be named on the Department of the Treasury’s list of “Specially Designated Nationals,” “Blocked Persons,” or “Sanctioned Countries or Individuals,” which, if undiscovered, could result in an enforcement action against the issuer.

 

Additional Risk Considerations

 

Bankruptcy Risk. In the event that a platform (or its affiliate) or its service providers become subject to a bankruptcy, the Fund’s investments in Pass-Through Notes issued by such platform (or affiliate) may be negatively impacted.

 

Although many of the platforms (or their affiliates) through which the Fund invests may have been organized and operated in a manner that is intended to minimize the likelihood that such platforms (or affiliates) will become subject to a bankruptcy or similar proceeding, if the platforms (or their affiliates) were to become subject to bankruptcy proceedings, payments on the Pass-Through Notes issued by such platforms (or their affiliates) could be substantially delayed or reduced, and any interest accrued on those obligations may never be paid.

 

Platforms (or their affiliates) may have arrangements with servicers who monitor payments by the borrowers of the Alternative Credit and take action to enforce the platforms’ (or affiliates’) rights to payment. Arrangements for back-up servicing are limited. If a platform’s (or affiliate’s) servicer fails to maintain operations or the agreement between the platform (or affiliate) and the servicer is rejected or terminated in a bankruptcy of the servicer, the Fund may experience delays in the distribution of loan proceeds and increased costs in connection with its investments through such platform (or its affiliate). In some instances, the platform operator and its affiliates may be unable to collect and process payments from underlying borrowers and thus the Fund may not realize its expected return on investment on those instruments.

 

Platforms (or their affiliates) may have arrangements with administrators who manage the daily operations of the platforms (and/or their affiliates). Among other duties, an administrator may calculate the amounts payable by the platform operator or its affiliates on any outstanding Pass-Through Notes and supervise the platform’s (or affiliate’s) payment of such amounts. If the administrator were to become subject to bankruptcy proceedings and its agreement with the platform operator or its affiliates were terminated for any reason, the platform (or affiliate) would endeavor to locate a replacement administrator but there is no assurance that it would be able to do so. Accordingly, any termination of an administration agreement that occurs in connection with a bankruptcy of the administrator may impair the platform’s (or affiliate’s) ability to continue to make timely payments on the Pass-Through Notes. This could also prevent the platform operator or its affiliates from issuing any additional Pass-Through Notes until another administrator was located.

 

Chargeback Risk. The Fund may invest in Alternative Credit Instruments through securities issued by private investment funds that operate accounts with an independent bank whereby investors, such as the Fund, may deposit funds for the purchase of such securities and receive the proceeds from borrower payments on the underlying loans. These accounts may be affected by “borrower chargebacks.” A borrower chargeback is a process by which a borrower who has made a payment on an underlying loan has its bank cancel the payment or request a refund of that payment. If a borrower successfully processes a chargeback on a loan payment after proceeds have been distributed to such accounts, the issuer will deduct the amount of that payment from each account where the proceeds were deposited. To offset this risk, issuers utilizing this system may refrain from distributing borrower loan proceeds to these accounts for a period of time after a borrower payment on a loan. In the event that a borrower chargeback is executed after the proceeds of that payment have been distributed to investor accounts and an account holder has withdrawn those distributed proceeds, a negative cash balance may result. Amounts that would otherwise be credited to an investor’s account (including amounts deposited or that are payable on other notes) are subject to set-off against any such negative cash balance.

Risk of Inadequate Resources Devoted to the Collection of Alternative Credit. A substantial amount, if not all, of a platform operator’s revenues may be derived from origination fees or loan rate “spreads” generated through making and arranging Alternative Credit and offering related Pass-Through Notes. As a result, it has an incentive to originate as many loans as possible to maximize the amount of origination fees it is able to generate. Increased loan volumes increase the demands on a platform’s management resources and its ability to devote adequate attention and resources to the collection of corresponding Alternative Credit. The ability of a platform and its affiliates to collect the payments due from borrowers and/or to make timely payments on their Pass-Through Notes may be adversely affected in the event that they take on loan volumes that exceed their ability to service outstanding Alternative Credit.

 

Risk of Platform Failure to Meet Certain Obligations. Platforms might incur indemnification and repurchase obligations with respect to the Alternative Credit they originate that exceed their projections, in which case they might not have sufficient capital to meet such obligations. There can be no assurances that platforms can meet their repurchase and indemnification obligations and, if they are unable to do so, the Fund may incur losses related to payments on the affected Alternative Credit Instruments in which it invests.

 

Risks Associated With “Balloon” Payments. Some of the Alternative Credit may be interest-only loans providing for relatively small monthly payments with a large “balloon” payment of principal due at the end of the term. Borrowers may be unable to repay such balloon payments out of their own funds and will be compelled to refinance or sell their property. Fluctuations in real estate values, interest rates and the unavailability of mortgage funds could adversely affect the ability of borrowers to refinance their loans at maturity or successfully sell the property for enough money to pay off the corresponding Alternative Credit Instrument.

 

Servicer Autonomy. A platform (or its affiliate) may have an arrangement with a servicer that authorizes the servicer to waive or modify any non-material term of an Alternative Credit Instrument or consent to the postponement of strict compliance with any such term or in any manner grant a non-material indulgence to any borrower. In addition, if an Alternative Credit Instrument is in default, or the servicer determines that default is reasonably foreseeable or otherwise determines that such action is consistent with its servicing obligation, the servicer may be permitted to waive or modify any material term of an Alternative Credit Instrument, to accept payment of an amount less than the principal balance in final satisfaction of an Alternative Credit Instrument and to grant any indulgence to a borrower, provided that the servicer has reasonably determined that such action will not be materially adverse to the interests of the holder of such Alternative Credit or of the holders of any corresponding Pass-Through Note.

 

Subprime Borrower Risk. Although the Fund will not invest in Alternative Credit that is of subprime quality at the time of investment, loans held by the Fund may, subsequent to their purchase, become of subprime quality. The risks associated with an investment in Alternative Credit (as disclosed in the Prospectus and this SAI) are heightened for such loans that have been made to subprime borrowers, particularly with respect to the risk of default. In addition, loans to subprime borrowers could be subject to increased regulatory scrutiny.

 

Tax Considerations. The ability of a platform (or its affiliate) to pay principal and interest on a Pass-Through Note may be affected by its ability, for U.S. federal income tax purposes, to match the timing of income it receives from an underlying Alternative Credit Instrument that it holds and the timing of deductions that it may be entitled to in respect of payments made on the Pass-Through Notes that it issues. For example, if the Pass-Through Notes are treated as contingent payment debt instruments for U.S. federal income tax purposes but the corresponding Alternative Credit Instruments are not, there could be a potential mismatch in the timing of the Pass-Through Note issuer’s income and deductions for U.S. federal income tax purposes, and the Pass-Through Note issuer’s resulting tax liabilities could affect its ability to make payments on the Pass-Through Notes.

Additional Considerations with Regard to Real Estate Alternative Credit Instruments

 

Construction, Rehabilitation, Home Improvement and Entitlement Loans. Real estate-related loans may include construction, rehabilitation, home improvement and entitlement loans for various types of properties, including single family residential, condominiums, multi-family residential, industrial, small commercial, foreclosed (REO), unimproved land with entitlements and small tract properties. The loan underwriting for construction, rehabilitation and unimproved land with entitlement loans is typically based upon a determined “as completed” value, i.e., the projected value of the property after the completion of the construction or rehabilitation of a property. Special builder’s risk insurance, or “course of construction” insurance, may be required by the platform operator and its affiliates in these cases. This specialized insurance is intended to insure structures while they are under construction. Materials, fixtures and appliances that are intended to become an integral part of the structure being built are also insured. The insurance is provided for loss resulting from accidental direct physical damage to the structure under construction. The policies generally include broad coverage, but exclude earthquake, flood and damage caused by earth movement. Some builder’s risk policies limit coverage to physical damage caused by specifically named perils, such as fire and theft. These perils would be specifically listed in the policy.

 

Risk of Inadequate Revenues from a Property. The payment schedules with respect to many real estate-related loans are based on projected revenues generated by the property over the term of the loan. These projections are based on factors such as expected vacancy rates, expense rates and other projected income and expense figures relating to the property. The actual revenues generated by a property could fall short of projections due to factors such as lower-than-expected rental revenues, or greater-than-expected vacancy rates or property management expenses. In such event, the borrower’s cash flow could be inadequate to repay its loan in full.

 

Risk of Rising Insurance Costs or Unavailability of Insurance. Real estate properties are typically insured against risk of fire damage and other property casualties, but are sometimes not covered by severe weather or natural disaster events such as landslides, earthquakes, or floods. Changes in the conditions affecting the economic environment in which insurance companies do business could affect the borrower’s ability to continue insuring the property at a reasonable cost or could result in insurance being unavailable altogether. Moreover, any hazard losses not then covered by the borrower’s insurance policy would result in the Alternative Credit related to the affected property becoming significantly under secured, which could result in a loss to the investors of any corresponding Pass-Through Note.

 

Environmental Risks. If toxic environmental contamination is discovered to exist on a property underlying an Alternative Credit Instrument, it might affect the borrower’s ability to repay the Alternative Credit. To the extent that the platform operator and/or its affiliates are forced to foreclose and/or operate such a property, potential additional liabilities and responsibilities include reporting requirements, remediation costs, fines, penalties and damages. Of particular concern may be those properties that are, or have been, the site of manufacturing, industrial or disposal activity. These environmental risks may give rise to a diminution in value of the security property or liability for clean-up costs or other remedial actions. This liability could exceed the value of the real property or the principal balance of the related loan. For this reason, the platform operator and its affiliates may choose not to foreclose on contaminated property rather than risk incurring liability for remedial actions.

Under the laws of certain states, an owner’s failure to perform remedial actions required under environmental laws may give rise to a lien on mortgaged property to ensure the reimbursement of remedial costs. In some states this lien has priority over the lien of an existing mortgage against the real property. Because the costs of remedial action could be substantial, the value of a mortgaged property as collateral for a real estate-related loan could be adversely affected by the existence of an environmental condition giving rise to a lien.

 

The state of law is currently unclear as to whether and under what circumstances clean-up costs, or the obligation to take remedial actions, can be imposed on a secured lender. If a lender does become liable for cleanup costs, it may bring an action for contribution against the current owners or operators, the owners or operators at the time of on-site disposal activity or any other party who contributed to the environmental hazard, but these persons or entities may be bankrupt or otherwise judgment-proof. Furthermore, an action against the borrower may be adversely affected by the limitations on recourse in the loan documents.

 

Risk of Declining Property Value. The value of the real property security for Alternative Credit will be subject to the risks generally incident to the ownership of improved and unimproved real estate, including changes in general or local economic conditions, increases in interest rates for real estate financing, physical damage that is not covered by insurance, zoning, entitlements, and other risks. Many borrowers expect to use resale proceeds to repay their borrower loan. A decline in property values could result in a borrower loan amount being greater than the property value, which could increase the likelihood of borrower default. The maximum permissible loan-to-value ratio of the Fund’s real estate-related investments is 80% (determined at the time of investment).

 

Risks of Construction and Rehabilitation Loans. Construction and rehabilitation loans involve a number of particular risks, involving, among other things, the timeliness of the project’s completion, the integrity of appraisal values, whether or not the completed property can be sold for the amount anticipated, and the length of the sale process. If construction work is not completed (due to contractor abandonment, unsatisfactory work performance, or various other factors) and all the Alternative Credit funds have already been expended, then, in the event of a default, the platform operator and its affiliates may have to invest significant additional funds to complete the construction work. Any such investment would be recuperated by the platform operator and its affiliates prior to any payment on any corresponding Pass-Through Notes. Default risk also exists where it takes a borrower longer than anticipated either to construct or then resell the property, or if the borrower does not receive sufficient proceeds from the sale to repay the corresponding Alternative Credit Instrument in full.

 

Certain Risks Associated With Foreclosure. Different property types involve different types of risks in terms of realizing on the collateral in the event that the borrower defaults. These risks include completion costs in the case of an incomplete project, partial resale for condominiums and tracts and lease-up (finding tenants) for multi-family residential, small commercial and industrial properties. The platform operator and its affiliates may not be able to sell a foreclosed commercial property, for example, before expending efforts to find tenants to make the property more fully leased and more attractive to potential buyers.

 

Moreover, foreclosure statutes vary widely from state to state. Properties underlying defaulted loans will need to be foreclosed upon in compliance with the laws of the state where such property is located. Many states require lengthy processing periods or the obtaining of a court decree before a mortgaged property may be sold or otherwise foreclosed upon. Further, statutory rights to redemption and the effects of anti-deficiency and other laws may limit the ability for a platform operator (and its affiliates) to timely recover the value of a loan in the event of borrower default.

Certain Risks Associated With Bankruptcy. If a borrower enters bankruptcy, an automatic stay of all proceedings against the borrower’s property will be granted. This stay will prevent platforms and their affiliates from foreclosing on such property unless relief from the stay can be obtained from the bankruptcy court, and there is no guarantee that any such relief will be obtained. Significant legal fees and costs may be incurred in attempting to obtain relief from a bankruptcy stay from the bankruptcy court and, even if such relief is ultimately granted, it may take several months or more to obtain. In such event, the platform operator and its affiliates will be unable to promptly exercise their foreclosure remedy and realize any proceeds from a property sale.

 

In addition, bankruptcy courts have broad powers to permit the sale of any real property free of any lien that a platform operator or its affiliate may have, to compel the platform operator and its affiliates to accept an amount less than the balance due under a loan and to permit the borrower to repay the loan over a term which may be substantially longer than the original term of the loan.

 

Additional Investments and Practices of the Fund

 

The Fund may invest in income-producing securities of any maturity and credit quality, including below investment grade, and equity securities, including exchange-traded funds (“ETFs”) and registered closed-end funds. Below investment grade securities are commonly referred to as “junk” or “high yield” securities and are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. Such income-producing securities in which the Fund may invest may include, without limitation, corporate debt securities, U.S. government debt securities, short-term debt securities, asset backed securities, exchange-traded notes, loans, including secured and unsecured senior loans, Alternative Credit, collateralized loan obligations (“CLOs”) and other structured finance securities, and cash and cash equivalents. The following describes these instruments in which the Fund may, but is not required to, invest, and certain of the risks associated with an investment in such instruments, and supplements the discussion from the Prospectus. See “Risks” in the Prospectus. It is possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in all markets. Certain practices, techniques or instruments may not be principal activities of the Fund but, to the extent employed, could from time to time have a material impact on the Fund’s performance.

 

Asset-Backed Securities. Asset-backed securities represent direct or indirect participations in, or are secured by and payable from, pools of assets such as, among other things, motor vehicle installment sales contracts, installment loan contracts, leases of various types of real and personal property, and receivables from revolving credit (credit card) agreements or a combination of the foregoing. These assets are securitized through the use of trusts and special purpose entities. Credit enhancements, such as various forms of cash collateral accounts or letters of credit, may support payments of principal and interest on asset-backed securities. Although these securities may be supported by letters of credit or other credit enhancements, payment of interest and principal ultimately depends upon individuals paying the underlying loans or accounts, which payment may be adversely affected by general downturns in the economy. Asset-backed securities are subject to prepayment risk. There is risk that recovery on repossessed collateral might be unavailable or inadequate to support payments on the underlying investments.

 

Below Investment Grade Securities. The Fund may invest in securities of any credit quality, including securities that are rated below investment grade. Below investment grade securities are rated below “BBB-” by S&P Global, or Fitch Ratings, Inc., below “Baa” by Moody’s Investors Service, Inc. or comparably rated by another nationally recognized statistical rating organization (“NRSRO”) or, if unrated, determined by the Adviser to be of comparable credit quality at the time of purchase. Below investment grade securities are commonly referred to as “junk” or “high yield” securities and are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. Ratings assigned by an NRSRO are not absolute standards of credit quality and do not evaluate market risk or the liquidity of securities. Consequently, securities with the same maturity, duration, coupon and rating may have different yields. Any shortcomings or inefficiencies in an NRSRO’s processes for determining credit ratings may adversely affect the credit ratings of securities held by the Fund and, as a result, may adversely affect those securities’ perceived or actual credit risk. See “Additional Risks of Investing in the Fund-Below Investment Grade Securities Risk.”

Commercial Paper. Commercial paper represents short-term unsecured promissory notes issued in bearer form by corporations such as banks or bank holding companies and finance companies. The rate of return on commercial paper may be linked or indexed to the level of exchange rates between the U.S. dollar and a foreign currency or currencies.

 

Corporate Debt Securities. Corporate debt securities are debt obligations issued by U.S. and foreign corporations and other business entities to borrow money from investors. Corporate debt securities may be either secured or unsecured. Collateral used for secured debt includes, but is not limited to, real property, machinery, equipment, accounts receivable, stocks, bonds, or notes. If a bond is unsecured, it is known as a debenture. Holders of corporate debt securities, as creditors, have a prior legal claim over common and preferred stockholders as to both income and assets of the corporation for the principal and interest due them and may have a prior claim over other creditors if liens or mortgages are involved. Interest on corporate debt securities may be fixed rate, floating rate, adjustable rate, zero coupon, contingent, deferred, or have payment-in-kind features. Interest on corporate debt securities is typically paid semi-annually and is fully taxable to the holder of such securities. Corporate debt securities contain elements of both interest rate risk and credit risk. The market value of a corporate debt security generally may be expected to rise and fall inversely with interest rates and may also be affected by the credit rating of the corporation, the corporation’s performance, and perceptions of the corporation in the marketplace. Corporate debt securities usually yield more than government or agency securities due to the presence of credit risk. See “Additional Risks of Investing in the Fund-Fixed Income Securities Risk.”

 

Equity Securities. The Fund may invest in equity securities, including but not limited to common stock, preferred stock and shares of ETFs.

 

Common stock represents an equity ownership interest in a company, providing voting rights and entitling the holder to a share of the company’s success through dividends and/or capital appreciation. In the event of liquidation, common stockholders have rights to a company’s remaining assets after bondholders, other debt holders and preferred stockholders have been paid in full. Typically, common stockholders are entitled to one vote per share to elect the company’s board of directors (although the number of votes is not always directly proportional to the number of shares owned). Common stockholders also receive voting rights regarding other company matters such as mergers and certain important company policies such as issuing securities to management. Common stock fluctuates in price in response to many factors, including historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. See “Additional Risks of Investing in the Fund-Common Stock Risk.”

 

Preferred stock represents an equity ownership interest in an issuer, but generally entitles the holder to receive, in preference to the holders of other stocks such as common stock, dividends and a fixed share of the proceeds resulting from the liquidation of the issuer. Some preferred stock also entitles their holders to receive additional liquidation proceeds on the same basis as holders of the issuer’s common stock. Some preferred stock offers a fixed rate of return with no maturity date. Preferred stock with no maturity may perform similarly to long term bonds, and can be more volatile than other types of preferred stock with heightened sensitivity to changes in interest rates. Other preferred stock has a variable dividend, generally determined on a quarterly or other periodic basis. Because preferred stock represents an equity ownership interest in a company, its value usually will react more strongly than bonds and other debt instruments to actual or perceived changes in an issuer’s financial condition or prospects or to fluctuations in the equity markets. Unlike common stock, preferred stock does not usually have voting rights absent the occurrence of specified events; preferred stock, in some instances, is convertible into common stock. In order to be payable, dividends on preferred stock must be declared by the issuer’s board of directors. There is, however, no assurance that dividends will be declared by the boards of directors of issuers of the preferred stocks in which the Fund invests. See “Additional Risks of Investing in the Fund-Preferred Stock Risk” below.

ETFs are funds whose shares are traded on securities exchanges and generally seek to approximate the investment performance of their respective benchmarks by investing in a variety of U.S. and foreign equity, debt, commodities, money market securities, futures and other instruments. The shares of an ETF may be assembled in a block (typically 50,000 shares) known as a creation unit and redeemed in-kind for a portfolio of the underlying securities (based on the ETF’s net asset value (“NAV”)) together with a cash payment generally equal to accumulated dividends as of the date of redemption. Conversely, a creation unit may be purchased from the ETF by depositing a specified portfolio of the ETF’s underlying securities, as well as a cash payment generally equal to accumulated dividends of the securities (net of expenses) up to the time of deposit. See “Additional Risks of Investing in the Fund-ETFs Risk.”

 

Exchange-Traded Notes. The Fund may invest in exchange-traded notes (“ETNs”), which are a type of unsecured, unsubordinated debt security. ETNs combine certain aspects of bonds and ETFs. Similar to ETFs, ETNs are traded on a major exchange (e.g., the NYSE) during normal trading hours, although trading volume can be limited. However, investors can also hold the ETN until maturity. At maturity, the issuer pays to the investor a cash amount equal to the principal amount, subject to the day’s index factor. ETN returns are based upon the performance of a market index minus applicable fees. ETNs do not make periodic coupon payments and provide no principal protection. The value of an ETN may be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying markets, changes in the applicable interest rates, changes in the issuer’s credit rating and economic, legal, political or geographic events that affect the referenced index. The value of the ETN may drop due to a downgrade in the issuer’s credit rating, despite the underlying index remaining unchanged. See “Additional Risks of Investing in the Fund-ETNs Risk.”

 

Government Debt Securities. The Fund may invest in government debt securities, which are debt securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. Obligations issued or guaranteed by the U.S. government, its agencies and instrumentalities include bills, notes and bonds issued by the U.S. Treasury, as well as “stripped” or “zero coupon” U.S. Treasury obligations representing future interest or principal payments on U.S. Treasury notes or bonds. Stripped securities are sold at a discount to their “face value,” and may exhibit greater price volatility than interest-bearing securities because investors receive no payment until maturity. Other obligations of certain agencies and instrumentalities of the U.S. government are supported only by the credit of the instrumentality. The U.S. government may choose not to provide financial support to U.S. government-sponsored agencies or instrumentalities if it is not legally obligated to do so, in which case, if the issuer were to default, the Fund might not be able to recover its investment from the U.S. government.

 

Loans. In addition to Alternative Credit Instruments, the Fund may invest in loans other than Alternative Credit Instruments that are senior and secured loans as well as unsecured or subordinated loans. In addition, the Fund may invest in secured and unsecured participations in loans. While the loans purchased by the Fund may be secured by a first-priority security interest in most tangible and intangible assets of the issuer, they are not required to be and the Fund will not be subject to any limit on purchasing loans with lower-priority security interests or loans whose security interests exclude material assets of the issuer.

The Fund may invest in term loans and other types of loans, including those that are attached to a term loan tranche or otherwise required to be purchased along with the purchase of a term loan tranche. The loans purchased by the Fund may be negotiated and structured by a syndicate of lenders consisting of commercial banks, investment banks, thrift institutions, insurance companies, finance companies or other financial institutions, one or more of which will administer the loan on behalf of all the lenders. The Fund may purchase assignments of these loans, in which case it will typically become a lender for purposes of the relevant loan agreement with direct contractual rights against the borrower, including the right to receive payments of principal and interest. However, the Fund may also purchase participation interests, in which case it will not have any direct relationship with the borrower and will instead rely on the lender or participant that sold the participation interest for enforcement of rights against the borrower and to receive and process payments of interest, principal and other amounts due to the Fund. See “Additional Risks of Investing in the Fund-Loan Risk.”

 

Additional Risks of Investing in the Fund

 

Below Investment Grade Securities Risk. The Fund may invest in below investment grade securities, which are commonly referred to as “junk” or “high yield” securities. These securities are considered to be high-risk investments. The risks include the following:

 

These securities are regarded as predominately speculative. There is a greater risk that issuers of lower rated securities will default than issuers of higher rated securities. Issuers of lower-rated securities generally are less creditworthy and may be highly indebted, financially distressed or bankrupt. These issuers are more vulnerable to real or perceived economic changes, political changes or adverse industry developments. In addition, below investment grade securities are frequently subordinated to the prior payment of senior indebtedness. If an issuer fails to pay principal or interest, the Fund would experience a decrease in income and a decline in the market value of its investments. The Fund also may incur additional expenses in seeking recovery from the issuer.

 

The income and market value of lower-rated securities may fluctuate more than higher-rated securities. Although certain below investment grade securities may be less sensitive to interest rate changes than investment grade securities, below investment grade securities generally are more sensitive to short-term corporate, economic and market developments. During periods of economic uncertainty and change, the market price of the investments in lower-rated securities may be volatile. The default rate for high yield bonds tends to be cyclical, with defaults rising in periods of economic downturn.

 

It is often more difficult to value lower-rated securities than higher-rated securities. If an issuer’s financial condition deteriorates, accurate financial and business information may be limited or unavailable. In addition, the lower-rated investments may be thinly traded and there may be no established secondary market. Because of the lack of market pricing and current information for investments in lower-rated securities, valuation of such investments is much more dependent on judgment than is the case with higher-rated securities.

 

There may be no established secondary or public market for investments in lower-rated securities. Such securities are frequently traded in markets that may be relatively less liquid than the market for higher-rated securities. In addition, relatively few institutional purchasers may hold a major portion of an issue of lower-rated securities at times. As a result, lower-rated securities may be required to be sold at substantial losses or retained indefinitely even where an issuer’s financial condition is deteriorating.

 

Credit quality of below investment grade securities can change suddenly and unexpectedly, and even recently-issued credit ratings may not fully reflect the actual risks posed by a particular below investment grade security.

Future legislation may have a possible negative impact on the market for below investment grade securities.

 

Common Stock Risk. Common stock risk is the risk that the value of the common stock held by the Fund will fall, sometimes rapidly and unpredictably, due to general market and economic conditions, perceptions regarding the industries in which the issuers of common stock held by the Fund participate or factors relating to specific companies in which the Fund invests. Common stock of an issuer in the Fund’s portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the common stock experiences a decline in its financial condition. Common stock in which the Fund may invest is structurally subordinated to preferred stock, bonds and other debt instruments in a company’s capital structure, in terms of priority to corporate income and liquidation payments, and therefore will be subject to greater dividend risk than preferred stock or debt instruments of such issuers. In addition, while common stock has historically generated higher average returns than debt securities over the long term, common stock has also experienced significantly more volatility in those returns. An adverse event, such as an unfavorable earnings report, may depress the value of common stock of an issuer held by the Fund. Also, the price of common stock of an issuer is sensitive to general movements in the stock market, changes in investors’ perceptions of the financial condition of the issuer and the occurrence of political or economic events affecting issuers. A drop in the stock market may depress the price of most or all of the common stock to which the Fund has investment exposure. In addition, common stock prices may be sensitive to rising interest rates as the costs of capital rise and borrowing costs increase.

 

The Fund may invest in common stock of companies of any market capitalization. Accordingly, the Fund may invest in common stock of companies having smaller market capitalizations, including mid-cap and small-cap common stocks. The common stock of these companies often have less liquidity than the common stock of larger companies and these companies frequently have less management depth, narrower market penetrations, less diverse product lines and fewer resources than larger companies. Due to these and other factors, common stock of smaller companies may be more susceptible to market downturns and other events, and their prices may be more volatile than the common stock of larger companies. Larger, more established companies in which the Fund may invest may be unable to attain the high growth rates of successful, smaller companies during periods of economic expansion.

 

Currency Risk. The value of securities denominated or quoted in foreign currencies may be adversely affected by fluctuations in the relative currency exchange rates and by exchange control regulations. The Fund’s investment performance may be negatively affected by a devaluation of a currency in which the Fund’s investments are denominated or quoted. Further, the Fund’s investment performance may be significantly affected, either positively or negatively, by currency exchange rates because the U.S. dollar value of securities denominated or quoted in another currency will increase or decrease in response to changes in the value of such currency in relation to the U.S. dollar.

 

Deflation Risk. Deflation risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market valuation of companies, their assets and revenues. In addition, deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio.

 

ETFs Risk. To the extent the Fund invests a portion of its Managed Assets in ETFs, those assets will be subject to the risks of the purchased funds’ portfolio securities, and a Shareholder in the Fund will bear not only his or her proportionate share of the Fund’s expenses, but also indirectly the expenses of the purchased funds. Shareholders would therefore be subject to duplicative expenses to the extent the Fund invests in other funds. The Fund’s investments in other funds also are subject to the ability of the managers of those funds to achieve the funds’ investment objective(s).

Risks associated with investments in ETFs may generally include the risks associated with the Fund’s structure as a closed-end fund, including market risk. Most ETFs are investment companies that aim to track or replicate a desired index, such as a sector, market or global segment. Most 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(s) 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. ETF shares may trade at a premium or discount to their NAV. As ETFs trade on an exchange, they are subject to the risks of any exchange-traded instrument, including: (i) an active trading market for its shares may not develop or be maintained, (ii) trading of its shares may be halted by the exchange, and (iii) its shares may be delisted from the exchange. Some ETFs are highly leveraged and therefore will expose the Fund to risks posed by leverage, including the risk that the use of leverage by an ETF can magnify the effect of any of its losses.

 

Investment Company Securities Risk. Under Section 12(d)(1)(A) of the 1940 Act, the Fund may hold securities of an investment company in amounts which (i) do not exceed 3% of the total outstanding voting stock of the investment company, (ii) do not exceed 5% of the value of the Fund’s total assets and (iii) when added to all other investment company securities held by the Fund, do not exceed 10% of the value of the Fund’s total assets. These limits may be exceeded when permitted under Rule 12d1-4. Section 12(d)(1)(F) of the 1940 Act provides that the provisions of paragraph 12(d)(1)(A) shall not apply to securities purchased or otherwise acquired by the Fund if (i) immediately after such purchase or acquisition not more than 3% of the total outstanding stock of such investment company is owned by the Fund and all affiliated persons of the Fund, and (ii) certain requirements are met with respect to sales charges, or Rule 12d1-4.

 

ETNs Risk. The Fund may invest in ETNs, which are notes representing unsecured debt of the issuer. ETNs are typically linked to the performance of an index plus a specified rate of interest that could be earned on cash collateral. The value of an ETN may be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying markets, changes in the applicable interest rates, changes in the issuer’s credit rating and economic, legal, political or geographic events that affect the referenced index. ETNs typically mature 30 years from the date of issue. There may be restrictions on the Fund’s right to liquidate its investment in an ETN prior to maturity (for example, the Fund may only be able to offer its ETN for repurchase by the issuer on a weekly basis), and there may be limited availability of a secondary market.

 

Fixed Income Securities Risk. In addition to the risks described elsewhere in this prospectus, such as below investment grade securities risk, fixed income securities in which the Fund may invest are subject to certain other risks, including the following. These risks may also pertain to the loans in which the Fund may invest.

 

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Issuer Risk. The value of fixed income securities may decline for a number of reasons which directly relate to the issuer, such as management performance, leverage and reduced demand for the issuer’s goods and services, historical and projected earnings, and the value of its assets. Changes in an issuer’s credit rating or the market’s perception of an issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer.

 

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Interest Rate Risk. Interest rate risk is the risk that income securities will decline in value because of changes in market interest rates. When market interest rates rise, the market value of fixed income securities generally will fall. Market value generally falls further for fixed rate securities with longer duration. During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected prepayments. This may lock in a below-market yield, increase the security’s duration and further reduce the value of the security. Investments in fixed income securities with long-term maturities may experience significant price declines if long-term interest rates increase. Fluctuations in the value of portfolio securities will not affect interest income on existing portfolio securities but will be reflected in the Fund’s NAV. Since the magnitude of these fluctuations will generally be greater at times when the Fund’s average maturity is longer, under certain market conditions the Fund may, for temporary defensive purposes, accept lower current income from short-term investments rather than investing in higher yielding long-term securities.

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Liquidity Risk. Certain fixed income securities may be substantially less liquid than many other securities, such as common stocks traded on an exchange. Illiquid securities involve the risk that the securities will not be able to be sold at the time desired by the Fund or at prices approximating the value at which the Fund is carrying the securities on its books.

 

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Prepayment Risk. During periods of declining interest rates, the issuer of a security may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in lower yielding securities, which may result in a decline in the Fund’s income and distributions to shareholders. This is known as call or prepayment risk. Certain fixed income securities frequently have call features that allow the issuer to redeem the security prior to its stated maturity. An issuer may redeem an obligation if the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. If the Fund bought a security at a premium, the premium could be lost in the event of a prepayment.

 

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Reinvestment Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the Fund portfolio’s current earnings rate. A decline in income could affect the Fund shares’ market price or the overall return of the Fund.

 

Inflation Risk. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of Fund shares and distributions can decline.

 

Interest Rate Risk. Interest rate risk is the risk that the value of the debt securities held by the Fund will decline because of rising market interest rates. Interest rate risk is generally lower for shorter-term investments and higher for longer-term investments. Duration is a common measure of interest rate risk, which measures a bond’s expected life on a present value basis, taking into account the bond’s yield, interest payments and final maturity. Duration is a reasonably accurate measure of a bond’s price sensitivity to changes in interest rates. The longer the duration of a bond, the greater the bond’s price sensitivity is to changes in interest rates.

 

LIBOR Discontinuation Risk. LIBOR has been used extensively in the U.S. and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds, bank loans, asset-backed and mortgage-related securities, interest rate swaps and other derivatives. Instruments in which the Fund invests may have historically paid interest at floating rates based on LIBOR or may have been subject to interest caps or floors based on LIBOR. The Fund and issuers of instruments in which the Fund invests may have also historically obtained financing at floating rates based on LIBOR. The underlying collateral of CLOs in which the Fund invests have also paid interest at floating rates based on LIBOR.

As of June 30, 2023, almost all settings of LIBOR have ceased to be published, except that certain widely used U.S. dollar LIBORs will continue to be published on a temporary, synthetic and non-representative basis through at least September 30, 2024. In some instances, regulators have restricted new use of LIBORs prior to the date when synthetic LIBORs will cease to be published. The Secured Overnight Financing Rate (“SOFR”), which has been used increasingly on a voluntary basis in new instruments and transactions, is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities in the repurchase agreement market. On December 16, 2022, the Federal Reserve Board adopted regulations implementing the Adjustable Interest Rate Act, which provides a statutory fallback mechanism to replace LIBOR, by identifying benchmark rates based on SOFR that replaced LIBOR in certain financial contracts after June 30, 2023. These regulations apply only to contracts governed by U.S. law, among other limitations. The regulations include provisions that (i) provide a safe harbor for selection or use of a replacement benchmark rate selected by the Federal Reserve Board; (ii) clarify who may choose the replacement benchmark rate selected by the Federal Reserve Board; and (iii) ensure that contracts adopting a replacement benchmark rate selected by the Federal Reserve Board will not be interrupted or terminated following the replacement of LIBOR. Uncertainty related to the liquidity impact of the change in rates, and how to appropriately adjust these rates at the time of transition, poses risks for the Fund. The transition away from LIBOR could have a significant impact on the financial markets in general and may also present heightened risk to market participants, including public companies, investment advisers, investment companies, and broker-dealers. The risks associated with this discontinuation and transition will be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. For example, current information technology systems may be unable to accommodate new instruments and rates with features that differ from LIBOR. Accordingly, it is difficult to predict the full impact of the transition away from LIBOR on the Fund until new reference rates and fallbacks for both legacy and new instruments and contracts are commercially accepted and market practices become settled. who may choose the replacement benchmark rate selected by the Federal Reserve Board; and (iii) ensure that contracts adopting a replacement benchmark rate selected by the Federal Reserve Board will not be interrupted or terminated following the replacement of LIBOR. Uncertainty related to the liquidity impact of the change in rates, and how to appropriately adjust these rates at the time of transition, poses risks for the Fund. The transition away from LIBOR could have a significant impact on the financial markets in general and may also present heightened risk to market participants, including public companies, investment advisers, investment companies, and broker-dealers. The risks associated with this discontinuation and transition will be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. For example, current information technology systems may be unable to accommodate new instruments and rates with features that differ from LIBOR. Accordingly, it is difficult to predict the full impact of the transition away from LIBOR on the Fund until new reference rates and fallbacks for both legacy and new instruments and contracts are commercially accepted and market practices become settled.

 

Loan Risk. The Fund’s investments in loans may create substantial risk. The Fund may invest in senior and secured loans and in unsecured or subordinated loans. In addition, the Fund may invest in secured and unsecured participations in loans. These loans will generally be rated below investment grade. See “-Below Investment Grade Securities Risk” above. In making investments in such loans, which are made by banks or other financial intermediaries to borrowers, the Adviser will depend primarily upon the creditworthiness of the borrower for payment of principal and interest which will expose the Fund to the credit risk of the underlying borrower. If the Fund invests in a loan through a participation, the Fund will also be exposed to the credit risk of the financial institution selling the participation to the Fund as well as the credit risk of the underlying borrower. The market for loans may not be liquid and the Fund may have difficulty selling them. Loans have similar risks to high yield bonds and are speculative, involve greater risks of default, downgrade, or price declines and are more volatile and tend to be less liquid than investment grade securities. Companies issuing loans may be less financially strong, more likely to encounter financial difficulties, and more vulnerable to adverse market events and negative sentiments than companies with higher credit ratings.

Senior loans hold the most senior position in the capital structure of a business entity, are typically secured with specific collateral and have a claim on the assets and/or stock of the borrower that is senior to that held by subordinated debt holders and stockholders of the borrower. Senior loans that the Fund may invest in may be rated below investment grade, and share the same risks of other below investment grade debt instruments. Although the Fund may invest in senior loans that are secured by specific collateral, there can be no assurance the liquidation of such collateral would satisfy a borrower’s obligation to the Fund in the event of borrower default or that such collateral could be readily liquidated under such circumstances. If the terms of a senior loan do not require the borrower to pledge additional collateral in the event of a decline in the value of the already pledged collateral, the Fund will be exposed to the risk that the value of the collateral will not at all times equal or exceed the amount of the borrower’s obligations under the senior loan. In the event of bankruptcy of a borrower, the Fund could also experience delays or limitations with respect to its ability to realize the benefits of any collateral securing a senior loan. Some senior loans are subject to the risk that a court, pursuant to fraudulent conveyance or other similar laws, could subordinate the senior loans to presently existing or future indebtedness of the borrower or take other action detrimental to lenders, including the Fund. Such court action could under certain circumstances include invalidation of senior loans.

 

Second lien loans and unsecured loans generally are subject to the same risks associated with investments in senior loans, as discussed above. Because second lien loans and unsecured loans are lower in priority of payment to senior loans, they are subject to the additional risk that the cash flow of the borrower and property securing the loan, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the borrower. This risk is generally higher for unsecured loans, which are not backed by a security interest in any specific collateral. Second lien loans and unsecured loans are expected to have greater price volatility than senior loans and may be less liquid. Second lien loans and unsecured loans of below investment grade quality also share the same risks of other below investment grade debt instruments.

 

Pandemic Risk. In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) emerged globally. The outbreak of COVID-19 and its variants 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. This outbreak negatively 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. On May 5, 2023, the World Health Organization declared the end of the global emergency status for COVID-19. The United States subsequently ended the federal COVID-19 public health emergency declaration effective May 11, 2023. Although vaccines for COVID-19 are widely available, it is unknown how long certain circumstances related to the pandemic will persist, whether they will reoccur in the future, and what additional implications may follow from the pandemic. The impact of these events and other epidemics or pandemics in the future could adversely affect Fund performance.

 

Preferred Stock Risk. Preferred stocks are unique securities that combine some of the characteristics of both common stocks and bonds. See “-Common Stock Risk” and “-Fixed Income Securities Risk” above. In addition to the risks described elsewhere in this section, such as those described for common stock and fixed income securities, including interest rate risk, preferred stocks are subject to certain other risks, including:

●

Deferral and Omission Risk. Preferred stocks may include provisions that permit the issuer, at its discretion, to defer or omit distributions for a stated period without any adverse consequences to the issuer.

 

●

Subordination Risk. Preferred stocks are generally subordinated to bonds and other debt instruments in a company’s capital structure in terms of having priority to corporate income, claims to corporate assets and liquidation payments, and therefore will be subject to greater credit risk than more senior debt instruments.

 

●

Floating Rate and Fixed-to-Floating Rate Securities Risk. The market value of floating rate securities is a reflection of discounted expected cash flows based on expectations for future interest rate resets. The market value of such securities may fall in a declining interest rate environment and may also fall in a rising interest rate environment if there is a lag between the rise in interest rates and the reset. This risk may also be present with respect to fixed-to-floating rate securities in which the Fund may invest. A secondary risk associated with declining interest rates is the risk that income earned by the Fund on floating rate and fixed-to-floating rate securities may decline due to lower coupon payments on floating-rate securities.

 

●

Call and Reinvestment Risk. During periods of declining interest rates or certain varying circumstances, an issuer may be able to exercise an option to redeem its issue at par earlier than scheduled, which is generally known as call risk. If this occurs, the Fund may be forced to reinvest in lower yielding securities.

 

●

Limited Voting Rights Risk. Generally, traditional preferred stock offers no voting rights with respect to the issuer unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred stockholders may have the ability to elect a director or directors to the issuer’s board. Generally, once all the arrearages have been paid, the preferred stockholders no longer have voting rights.

 

●

Special Redemption Rights. In certain varying circumstances, an issuer of preferred stock may redeem the securities prior to their scheduled call or maturity date. As with call provisions, a redemption by the issuer may negatively impact the return of the security held by the Fund.

 

SOFR RISK. SOFR is intended to be a broad measure of the cost of borrowing funds overnight in transactions that are collateralized by U.S. Treasury securities. SOFR is calculated based on transaction-level repo data collected from various sources. For each trading day, SOFR is calculated as a volume-weighted median rate derived from such data. SOFR is calculated and published by the Federal Reserve Bank of New York (“FRBNY”). If data from a given source required by the FRBNY to calculate SOFR is unavailable for any day, then the most recently available data for that segment will be used, with certain adjustments. If errors are discovered in the transaction data or the calculations underlying SOFR after its initial publication on a given day, SOFR may be republished at a later time that day. Rate revisions will be effected only on the day of initial publication and will be republished only if the change in the rate exceeds one basis point.

 

Because SOFR is a financing rate based on overnight secured funding transactions, it differs fundamentally from LIBOR. LIBOR was intended to be an unsecured rate that represents interbank funding costs for different short-term maturities or tenors. It was a forward-looking rate reflecting expectations regarding interest rates for the applicable tenor. Thus, LIBOR was intended to be sensitive, in certain respects, to bank credit risk and to term interest rate risk. In contrast, SOFR is a secured overnight rate reflecting the credit of U.S. Treasury securities as collateral. Thus, it is largely insensitive to credit-risk considerations and to short-term interest rate risks. SOFR is a transaction-based rate, and it has been more volatile than other benchmark or market rates during certain periods. For these reasons, among others, there is no assurance that SOFR, or rates derived from SOFR. SOFR has a limited history, having been first published in April 2018. The future performance of SOFR, and SOFR-based reference rates, cannot be predicted based on SOFR’s history or otherwise. Levels of SOFR in the future may bear little or no relation to historical levels of SOFR, LIBOR or other rates.

MANAGEMENT OF THE FUND

 

Investment Adviser

 

RiverNorth Capital Management, LLC is the investment adviser for the Fund pursuant to an Investment Advisory Agreement. RiverNorth is headquartered at 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401. Under the oversight of the Board of Directors, the Adviser is responsible for the day-to-day management of the Fund’s portfolio, managing the Fund’s business affairs and providing certain clerical, bookkeeping and other administrative services. The Adviser is also responsible for determining the Fund’s overall investment strategy and overseeing its implementation. Founded in 2000, RiverNorth is registered with the SEC and as of August 31, 2024 managed approximately $5.02 billion for registered open-end management investment companies, registered closed-end management investment companies and private investment vehicles. Patrick W. Galley, a portfolio manager of the Fund, and Brian H. Schmucker, each own, directly or indirectly, more than 25% of the voting securities of the ultimate parent company of the Adviser and each is deemed to control the Adviser.

 

Investment Advisory Agreement

 

For its services under the Investment Advisory Agreement, the Fund pays the Adviser a monthly management fee computed at the annual rate of 1.25% of the average monthly Managed Assets. “Managed Assets” means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing leverage and any preferred stock that may be outstanding). In addition to the monthly advisory fee, the Fund pays all other costs and expenses of its operations, including, but not limited to, compensation of its directors (other than those affiliated with the Adviser), custodial expenses, transfer agency and dividend disbursing expenses, legal fees, expenses of independent auditors, expenses of repurchasing shares, expenses of any leverage, expenses of preparing, printing and distributing prospectuses, shareholder reports, notices, proxy statements and reports to governmental agencies, and taxes, if any. In addition, the Adviser has agreed to waive or reimburse expenses of the Fund (other than brokerage fees and commissions, loan servicing fees, borrowing costs such as (i) interest and (ii) dividends on securities sold sort, taxes, indirect expenses incurred by the underlying funds in which the Fund may invest, the cost of leverage, including dividends on preferred shares and extraordinary expenses) to the extent necessary to limit the Fund’s total annual operating expenses at 1.95% of the average daily Managed Assets for at least twelve months from the effective date of this registration statement.

 

When the Fund determines to use leverage, as is the case with the issuance of preferred stock, the fees paid to the Adviser for investment management services are higher than if the Fund did not use leverage because the fees paid are calculated based on Managed Assets, which includes assets attributable to leverage. Because the fees paid to the Adviser are determined on the basis of Managed Assets, this creates a conflict of interest for the Adviser. The Board of Directors monitors the Fund’s use of leverage and in doing so monitors this potential conflict.

 

The advisory fees paid by the Fund to the Adviser for the fiscal year ended June 30, 2022 was $1,559,067 before a waiver of $45,940. The advisory fees paid by the Fund to the Adviser for the fiscal year ended June 30, 2023 was $1,328,158 before a waiver of $114,281. The advisory fees paid by the Fund to the Adviser for the fiscal year ended June 30, 2024 was $1,336,059 before a waiver of $290,466. See “Summary Of Fund Expenses” in the Prospectus.

The Investment Advisory Agreement provides that the Adviser shall not be liable for any act or omission connected with or arising out of any services to be rendered under such agreement, except by reason of willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under such agreement.

 

The Adviser will make available, without additional expense to the Fund, the services of such of its officers, directors and employees as may be duly elected as officers or directors of the Fund, subject to the individual consent of such persons to serve and to any limitations imposed by law. The Adviser pays all expenses incurred in performing its services under the Investment Advisory Agreement, including compensation of and office space for directors, officers and employees of the Adviser connected with management of the Fund. The Fund pays brokerage and other expenses of executing the Fund’s portfolio transactions; taxes or governmental fees; interest charges and other costs of borrowing funds; litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business.

 

The Investment Advisory Agreement shall remain in effect from year to year if approved annually (i) by a majority of the outstanding voting securities of the Fund or by a vote of the Board of Directors, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by vote of a majority of the Board of Directors who are not parties to the Investment Advisory Agreement or “interested persons” of any party to the Investment Advisory Agreement, cast in person at a meeting called for the purpose of voting on such approval. In addition, the Fund’s Charter requires the favorable vote of two-thirds of the entire Board of Directors to advise, approve, adopt or authorize entering into, terminating or amending the Investment Advisory Agreement, which supermajority voting requirement is greater than the minimum voting requirement under the 1940 Act. The Investment Advisory Agreement will terminate upon assignment by any party and is terminable, without penalty, on 60 days’ written notice by the Board of Directors or by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund or upon 60 days’ written notice by the Adviser.

 

Portfolio Managers

 

Patrick W. Galley and Stephen O’Neill are responsible for implementing portfolio management decisions for the Fund.

 

Patrick W. Galley, CFA is a co-portfolio manager of the Fund. Mr. Galley is the Chief Executive Officer and Chief Investment Officer for the Adviser. Mr. Galley heads the Adviser’s research and investment team and oversees all portfolio management activities at the Adviser. Mr. Galley also serves as the President and Chairman of the RiverNorth Funds, a mutual fund complex for which RiverNorth serves as the investment adviser. Prior to joining the Adviser in 2004, he was most recently a Vice President at Bank of America in the Global Investment Bank’s Portfolio Management group, where he specialized in analyzing and structuring corporate transactions for investment management firms in addition to closed-end and open-end funds, hedge funds, funds of funds, structured investment vehicles and insurance/reinsurance companies. Mr. Galley graduated with honors from Rochester Institute of Technology with a B.S. in Finance. He has received the Chartered Financial Analyst (CFA) designation, is a member of the CFA Institute and is a member of the CFA Society of Chicago.

 

Stephen O’Neill, CFA is a co-portfolio manager of the Fund. Mr. O’Neill conducts qualitative and quantitative analysis of closed-end funds and their respective asset classes at the Adviser. Prior to joining RiverNorth in 2007, Mr. O’Neill was most recently an Assistant Vice President at Bank of America in the Global Investment Bank’s Portfolio Management group. At Bank of America, he specialized in the corporate real estate, asset management, and structured finance industries. Mr. O’Neill graduated magna cum laude from Miami University in Oxford, Ohio with a B.S. in Finance. Mr. O’Neill has received the Chartered Financial Analyst (CFA) designation, is a member of the CFA Institute, and is a member of the CFA Society of Chicago.

 

Compensation of Portfolio Managers

 

Messrs. Galley’s and O’Neill’s total compensation package, like others in the Adviser’s business, is a package designed to attract and retain investment professionals. The compensation package includes a base salary fixed from year to year. The amount of the base salary is assessed for its competitiveness in the industry and geographic location of the Adviser. The compensation package also provides for an annual but variable performance bonus. The performance bonus reflects individual performance of the portfolio manager in his or her allocated duties and responsibilities. While performance of the funds managed by the portfolio manager is considered in determining the annual performance bonus, it is but one factor. The overall success of the Adviser in its business objectives and the performance of the Adviser’s business as a whole are more important factors than the investment performance of a particular fund or account. Messrs. Galley and O’Neill also participate in a 401K program on the same basis as other officers of the Adviser, which includes matching of employee contributions up to a certain percent of the portfolio manager’s base salary. Those portfolio managers that are also equity stakeholders in the Adviser or its affiliates may also receive periodic distribution of profits from business operations.

 

Portfolio Manager Ownership of Fund Shares

 

The following table shows the dollar range of equity securities of the Fund beneficially owned by the portfolio managers of the Fund as of June 30, 2024.

 

Name of Portfolio Manager	Dollar Range of Equity Securities of the Fund
Patrick W. Galley	Over $100,000
Stephen O’Neill	$0 - $10,000

 

Conflicts of Interest

 

Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other accounts. More specifically, portfolio managers who manage multiple funds are presented with the following potential conflicts, among others:

 

The management of multiple accounts may result in a portfolio manager devoting unequal time and attention to the management of each account. The management of multiple funds and accounts also may give rise to potential conflicts of interest if the funds and accounts have different objectives, benchmarks, time horizons and fees as the portfolio manager must allocate his time and investment ideas across multiple funds and accounts. Another potential conflict of interest may arise where another account has the same or similar investment objective as the Fund, whereby the portfolio manager could favor one account over another.

With respect to securities transactions for the Fund, the Adviser determines which broker to use to execute each order, consistent with the duty to seek best execution of the transaction. A portfolio manager may execute transactions for another fund or account that may adversely impact the value of securities held by the Fund. Securities selected for funds or accounts other than the Fund may outperform the securities selected for the Fund. Further, a potential conflict could include a portfolio manager’s knowledge about the size, timing and possible market impact of Fund trades, whereby they could use this information to the advantage of other accounts and to the disadvantage of the Fund. These potential conflicts of interest could create the appearance that a portfolio manager is favoring one investment vehicle over another.

 

The management of personal accounts also may give rise to potential conflicts of interest. Although a portfolio manager generally does not trade securities in his or her own personal account, the Adviser and the Fund have each adopted a code of ethics that, among other things, permits personal trading by employees (including trading in securities that can be purchased, sold or held by the Fund) under conditions where it has been determined that such trades would not adversely impact client accounts. Nevertheless, the management of personal accounts may give rise to potential conflicts of interest, and there is no assurance that these codes of ethics will adequately address such conflicts.

 

Conflicts potentially limiting the Fund’s investment opportunities may also arise when the Fund and other clients of the Adviser invest in, or even conduct research relating to, different parts of an issuer’s capital structure, such as when the Fund owns senior debt obligations of an issuer and other clients own junior tranches of the same issuer. In such circumstances, decisions over whether to trigger an event of default, over the terms of any workout, or how to exit an investment may result in conflicts of interest. In order to minimize such conflicts, a portfolio manager may avoid certain investment opportunities that would potentially give rise to conflicts with other clients of the Adviser or result in the Adviser receiving material, non-public information, or the Adviser may enact internal procedures designed to minimize such conflicts, which could have the effect of limiting the Fund’s investment opportunities. Additionally, if the Adviser acquires material non-public confidential information in connection with its business activities for other clients, a portfolio manager or other investment personnel may be restricted from purchasing securities or selling certain securities for the Fund or other clients. When making investment decisions where a conflict of interest may arise, the Adviser will endeavor to act in a fair and equitable manner between the Fund and other clients; however, in certain instances the resolution of the conflict may result in the Adviser acting on behalf of another client in a manner that may not be in the best interest, or may be opposed to the best interest, of the Fund.

 

The Adviser has adopted certain compliance procedures which are designed to address these types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.

 

Other Accounts Managed

 

As of June 30, 2024, the portfolio managers of the Fund were responsible for the management of the following other accounts (in addition to the Fund):

 

Number of Other Accounts Managed and Assets by Account Type As of June 30, 2024
Portfolio Manager	Registered Investment Companies (other than the Fund)	Registered Investment Companies Subject to Performance-Based Advisory Fees	Other Pooled Investment Vehicles	Other Pooled Investment Vehicles Subject to Performance-Based Advisory Fees	Other Accounts	Other Accounts Subject to Performance-Based Advisory Fees
Patrick W. Galley	13 $3.83B	0 $0	5 $988M	5 $988M	10 $85.4M	10 $85.4M
Stephen O’Neill	11 $3.82B	0 $0	5 $988M	5 $988M	10 $85.4M	10 $85.4M

 

Administrator

 

Under the Administration, Bookkeeping and Pricing Services Agreement (the “Administration Agreement”), subject to the supervision of the Board of Directors, ALPS Fund Services, Inc. (“AFS” or the “Administrator”) is responsible for calculating NAVs, providing additional fund accounting and tax services, and providing fund administration and compliance-related services. AFS bears all expenses in connection with the performance of its services under the Administration Agreement, except for certain out-of-pocket expenses described therein. AFS does not bear any expenses incurred by the Fund, including but not limited to, initial organization and offering expenses; litigation expenses; costs of preferred shares; expenses of conducting repurchase offers for the purpose of repurchasing Fund shares; transfer agency and custodial expenses; taxes; interest; Fund directors’ fees; compensation and expenses of Fund officers who are not associated with AFS or its affiliates; brokerage fees and commissions; state and federal registration fees; advisory fees; insurance premiums; fidelity bond premiums; Fund legal and audit fees and expenses; costs of maintenance of Fund existence; printing and delivery of materials in connection with meetings of the Fund’s directors; printing and mailing shareholder reports, offering documents, and proxy materials; securities pricing and data services; and expenses in connection with electronic filings with the SEC.

 

AFS, an affiliate of the Fund’s transfer agent, is entitled to receive a monthly fee based on the Fund’s net assets or an annual minimum fee, plus certain out of pocket expenses. See “Summary of Fund Expenses” in the prospectus.

 

Codes of Ethics

 

The Fund and the Adviser have each adopted a code of ethics under Rule 17j-1 under the 1940 Act. These codes permit personnel subject to the code to invest in securities, including securities that may be purchased or held by the Fund. The codes of ethics are available on the EDGAR Database on the SEC’s website (sec.gov), and copies of these codes may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov.

 

FUND SERVICE PROVIDERS

 

Independent Registered Public Accounting Firm

 

KPMG LLP (“KPMG”), located at 191 West Nationwide Blvd., Suite 500, Columbus, Ohio 43215, has been appointed as the independent registered public accounting firm for the Fund. KPMG audits the financial statements of the Fund and provides other audit, tax and related services.

 

Legal Counsel

 

Faegre Drinker Biddle & Reath LLP serves as legal counsel to the Fund and legal counsel to the independent directors of the Fund. Faegre Drinker Biddle & Reath LLP may rely as to certain matters of Maryland law on the opinion of Shapiro Sher Guinot & Sandler, P.A.

 

Custodians and Transfer Agent

 

Millennium Trust Company, located at 2001 Spring Road #700, Oak Brook, Illinois 60523, serves as the Fund’s loan custodian and maintains custody of the loans held by the Fund pursuant to a Custody Agreement. Under the Custody Agreement, the custodian holds the Fund’s loans in compliance with the 1940 Act.

 

State Street Bank and Trust Company, located at State Street Financial Center, One Lincoln Street, Boston, MA 02111, serves as the Fund’s custodian and maintains custody of the securities and cash of the Fund pursuant to a Custody Agreement. Under the Custody Agreement, the custodian holds the Fund’s assets in compliance with the 1940 Act.

DST Systems, Inc., located at 333 W. 11th Street, Kansas City, Missouri 64105, serves as the transfer agent and registrar for the Fund.

 

PORTFOLIO TRANSACTIONS

 

The Adviser is responsible for the Fund’s portfolio decisions and the placing of the Fund’s portfolio transactions. In placing portfolio transactions, the Adviser seeks the best qualitative execution for the Fund, taking into account such factors as price (including the applicable brokerage commission or dealer spread), the execution capability, financial responsibility and responsiveness of the broker or dealer and the brokerage and research services provided by the broker or dealer. The Adviser generally seeks favorable prices and commission rates that are reasonable in relation to the benefits received.

 

The Adviser is specifically authorized to select brokers or dealers who also provide brokerage and research services to the Fund and/or the other accounts over which the Adviser exercises investment discretion, and to pay such brokers or dealers a commission in excess of the commission another broker or dealer would charge if the Adviser determines in good faith that the commission is reasonable in relation to the value of the brokerage and research services provided. The determination may be viewed in terms of a particular transaction or the Adviser’s overall responsibilities with respect to the Fund and to other accounts over which it exercises investment discretion. The Adviser may not give consideration to sales of Shares as a factor in the selection of brokers and dealers to execute portfolio transactions. However, the Adviser may place portfolio transactions with brokers or dealers that promote or sell Shares so long as such placements are made pursuant to policies approved by the Board of Directors that are designed to ensure that the selection is based on the quality of the broker’s execution and not on its sales efforts.

 

Research services include supplemental research, securities and economic analyses, statistical services and information with respect to the availability of securities or purchasers or sellers of securities, and analyses of reports concerning performance of accounts. The research services and other information furnished by brokers through whom the Fund effects securities transactions may also be used by the Adviser in servicing all of its accounts. Similarly, research and information provided by brokers or dealers serving other clients may be useful to the Adviser in connection with its services to the Fund. Although research services and other information are useful to the Fund and the Adviser, it may not be possible to place a dollar value on the research and other information received. It is the opinion of the Adviser that the review and study of the research and other information will not reduce the overall cost to the Adviser of performing its duties to the Fund under the Agreement.

 

Over-the-counter transactions will be placed either directly with principal market makers or with broker-dealers, if the same or a better price, including commissions and executions, is available. Fixed income securities are normally purchased directly from the issuer, an underwriter or a market maker. Purchases include a concession paid by the issuer to the underwriter and the purchase price paid to a market maker may include the spread between the bid and ask prices.

 

When the Fund and another of the Adviser’s clients seek to purchase or sell the same security at or about the same time, the Adviser may execute the transaction on a combined (“blocked”) basis. Blocked transactions can produce better execution for the Fund because of the increased volume of the transaction. If the entire blocked order is not filled, the Fund may not be able to acquire as large a position in such security as it desires or it may have to pay a higher price for the security. Similarly, the Fund may not be able to obtain as large an execution of an order to sell or as high a price for any particular portfolio security if the other client desires to sell the same portfolio security at the same time. In the event that the entire blocked order is not filled, the purchase or sale will normally be allocated on a pro rata basis. The Adviser may adjust the allocation when, taking into account such factors as the size of the individual orders and transaction costs, the Adviser believes an adjustment is reasonable.

The Fund has no obligation to deal with any particular broker or dealer in the execution of its transactions, but has no present intention of using affiliated broker-dealers for Fund portfolio trades.

 

The following table sets forth the aggregate amount of brokerage commissions paid by the Fund for the specified periods.

 

Fiscal Year ended June 30, 2022	$11,049
Fiscal Year ended June 30, 2023	$24,919
Fiscal Year ended June 30, 2024	$14,234

 

The Fund did not pay any brokerage commissions during the fiscal years ended June 30, 2024, June 30, 2023 and June 30, 2022 to any broker that (1) is an affiliated person of the Fund, (2) is an affiliated person of an affiliated person of the Fund or (3) has an affiliated person that is an affiliated person of the Fund or the investment adviser.

 

During the fiscal year ended June 30, 2024, the Fund did not pay commissions to brokers in return for research services. During the fiscal year ended June 30, 2024, the Fund did not acquire any securities of its regular brokers or dealers as defined in Rule 10b-1 under the 1940 Act or the parents of the brokers or dealers.

 

U.S. FEDERAL INCOME TAX MATTERS

 

The following is a summary discussion of certain U.S. federal income tax consequences that may be relevant to a Fund shareholder (“Shareholder”) that acquires, holds and/or disposes of Fund shares (the “Shares”) other than items covered in the Prospectus. This discussion only addresses U.S. federal income tax consequences to U.S. Shareholders who hold their Shares as capital assets and does not address all of the potential U.S. federal income tax consequences that may be relevant to particular Shareholders in light of their individual circumstances. This discussion also does not address the tax consequences to Shareholders who are subject to special rules, including, without limitation, banks and financial institutions, insurance companies, dealers in securities or foreign currencies, foreign holders, persons who hold their Shares as or in a hedge against currency risk, a constructive sale, or conversion transaction, or tax-exempt or tax-deferred plans, accounts, or entities. In addition, the discussion does not address any state, local, or foreign tax consequences. The discussion reflects applicable income tax laws of the United States as of the date hereof, which tax laws may be changed or subject to new interpretations by the courts or the IRS retroactively or prospectively and could affect the continued validity of this summary. No attempt is made to present a detailed explanation of all U.S. federal income tax concerns affecting the Fund and its Shareholders, and the discussion set forth herein does not constitute tax advice. Investors are urged to consult their own tax advisers before making an investment in the Fund to determine the specific tax consequences to them of investing in the Fund, including the applicable federal, state, local and foreign tax consequences as well as the effect of possible changes in tax laws.

 

Fund Taxation

 

If the Fund invests in certain positions such as pay-in-kind securities, zero coupon securities, deferred interest securities or, in general, any other securities with original issue discount (or with market discount if the Fund elects to include market discount in income currently), the Fund must accrue income on such investments for each taxable year, which generally will be prior to the receipt of the corresponding cash payments. However, the Fund must distribute, at least annually, all or substantially all of its net investment income, including such accrued income, to Shareholders to avoid U.S. federal income and excise taxes. Therefore, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may have to leverage itself by borrowing the cash, to satisfy distribution requirements.

The Fund may also acquire market discount bonds. A market discount bond is a security acquired in the secondary market at a price below its redemption value (or its adjusted issue price if it is also an original issue discount bond). If the Fund invests in a market discount bond, it will be required for federal income tax purposes to treat any gain recognized on the disposition of such market discount bond as ordinary income (instead of capital gain) to the extent of the accrued market discount unless the Fund elects to include the market discount in income as it accrues.

 

The Fund may invest in debt obligations that are in the lowest rating categories or are unrated, including debt obligations of issuers not currently paying interest or who are in default. Investments in debt obligations that are at risk of or in default present special tax issues for the Fund. Tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a bankruptcy or workout context are taxable. These and other related issues will be addressed by the Fund when, as and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a regulated investment company and does not become subject to U.S. federal income or excise taxes.

 

If the Fund utilizes leverage through borrowing, asset coverage limitations imposed by the 1940 Act as well as additional restrictions that may be imposed by certain lenders on the payment of dividends or distributions could potentially limit or eliminate the Fund’s ability to make distributions on its Shares until the asset coverage is restored. These limitations could prevent the Fund from distributing at least 90% of its investment company taxable income as is required under the Code and therefore might jeopardize the Fund’s qualification as a regulated investment company and/or might subject the Fund to the nondeductible 4% federal excise tax. Upon any failure to meet the asset coverage requirements imposed by the 1940 Act, the Fund may, in its sole discretion and to the extent permitted under the 1940 Act, purchase or redeem shares of preferred stock, if any, in order to maintain or restore the requisite asset coverage and avoid the adverse consequences to the Fund and its Shareholders of failing to meet the distribution requirements. There can be no assurance, however, that any such action would achieve these objectives. The Fund generally will endeavor to avoid restrictions on its ability to distribute dividends.

 

Shareholder Taxation

 

Although the classification of preferred instruments has been subject to litigation, the Fund is taking the position that the Shares are equity for US federal income tax purposes. Because the treatment of a corporate security as debt or equity is determined on the basis of the facts and circumstances of each case, and no controlling precedent exists for the Shares, there can be no assurance that the IRS will not question the Fund’s characterization of the Shares as equity. If the IRS were to succeed in such a challenge, holders of the Shares could be characterized as receiving taxable interest income rather than dividends and could be required to recognize such income at different times than when cash is received. If this caused a holder to have underpaid income tax in affected years, this could result in obligations to pay additional tax, interest and penalties.

In addition, solely for the purpose of satisfying the 90% distribution requirement and the distribution requirement for avoiding federal income taxes, certain distributions made after the close of a taxable year of the Fund may be “spilled back” and treated as paid during such taxable year. In such case, Shareholders will be treated as having received such dividends in the taxable year in which the distribution was actually made. The IRS has ruled privately that dividends paid following the close of the taxable year that are treated for federal income tax purposes as derived from income from the prior year will be treated as dividends “paid” in the prior year for purposes of determining the proportionate share of a particular type of income for each class. Accordingly, the Fund intends to treat any such dividends that are paid following the close of a taxable year as “paid” in the prior year for purposes of determining a class’s proportionate share of a particular type of income. However, the private ruling is not binding on the IRS and the Fund has not sought its own private ruling from the IRS, so there can be no assurance that the IRS will respect such treatment.

 

Pursuant to its repurchase policy, the Fund may repurchase its Shares at periodic intervals. Shareholders who tender all Shares held, and those considered to be held (through attribution rules contained in the Code), by them will be treated as having sold their Shares and generally will realize a capital gain or loss. If a Shareholder tenders fewer than all of his, her or its Shares (including those considered held through attribution), such Shareholder may be treated as having received a taxable dividend upon the tender of its Shares. If a tender offer is made, there is a risk that non-tendering Shareholders will be treated as having received taxable distributions from the Fund. To the extent that the Fund recognizes net gains on the liquidation of portfolio securities to meet such tenders of Shares, the Fund will be required to make additional distributions to its Shareholders. If the Board of Directors determines that a tender offer will be made by the Fund, the federal income tax consequences of such offer will be discussed in materials that will be available at such time in connection with the specific tender offer, if any.

 

A repurchase by the Fund of Shares generally will be treated as a sale or exchange of the Shares by a Shareholder provided that after the repurchase the Shareholder does not own, either directly or by attribution under Section 318 of the Code, any Shares. Likewise, if (i) a repurchase of Shares by the Fund reduces a Shareholder’s percentage ownership of the Fund by at least 20% (determined after applying the ownership attribution rules under Section 318 of the Code and taking into consideration the reduction in the total number of Shares outstanding that is caused by the repurchase) or (ii) a Shareholder does not hold more than an insignificant ownership interest in the Fund (determined after applying the ownership attribution rules under Section 318 of the Code), the repurchase will be treated as a sale or exchange of the Shares by the Shareholder. This discussion does not address the tax treatment of tendering Shareholders who hold Shares other than as capital assets. Shareholders should consult their own tax advisors on the specific tax consequences to them of participating or not participating in a repurchase offer.

 

If a tendering Shareholder’s proportionate ownership of the Fund (determined after applying the ownership attribution rules under Section 318 of the Code) is not substantially reduced as a result of the tender, such Shareholder will be deemed to receive a distribution from the Fund with respect to the Shares held (or deemed held under Section 318 of the Code) by the Shareholder after the tender. The amount of this distribution will equal the price paid by the Fund to such Shareholder for the Shares sold. The distribution would be taxable as a dividend, i.e., as ordinary income, to the extent of the Fund’s current or accumulated earnings and profits allocable to such distribution. The adjusted basis of the Shares held (or deemed held under Section 318 of the Code) by the Shareholder after the tender will be increased by the Shareholder’s adjusted tax basis in the Shares sold in the tender and decreased by the portion of such distribution not treated as a dividend. If the portion of the distribution not treated as a dividend exceeds the adjusted tax basis of the Shares held (or deemed held under Section 318 of the Code) by the Shareholder after the tender (determined after increasing such basis by the adjusted tax basis of the Shares sold in the tender), such excess portion of the distribution will be a capital gain in the hands of the Shareholder. In the case of a tendering U.S. Shareholder that is a corporation treated as receiving a distribution from the Fund pursuant to the repurchase offer, special basis adjustments may also apply with respect to any Shares of such Shareholder not repurchased pursuant to a repurchase offer.

If no tendering Shareholder were treated as receiving a dividend as a result of selling Shares pursuant to a particular repurchase offer, Shareholders who do not sell Shares pursuant to that repurchase offer, or whose percentage interest in the Fund nonetheless increase as a result thereof, would not realize constructive distributions on their Shares as a result of other Shareholders selling Shares in the repurchase offer. If, however, any tendering Shareholder is deemed to receive a dividend, it is possible that Shareholders whose proportionate ownership of the Fund increases as a result of that repurchase will be deemed to receive a constructive distribution in an amount equal to the increase in their proportionate ownership of the Fund as a result of the tender. Such constructive distribution will be treated as a dividend to the extent of current accumulated earnings and profits allocable to it.

 

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 Shareholders 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 Shareholders, 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 Shareholders 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 Shareholders 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 Shareholder is urged to consult its own tax advisor regarding the application of Section 6045B to its individual circumstances.

 

Other Taxes

 

The description of certain U.S. federal income tax provisions above relates only to U.S. federal income tax consequences for Shareholders who are U.S. persons (i.e., U.S. citizens or residents or U.S. corporations, partnerships, trusts or estates). Non-U.S. Shareholders should consult their tax advisors concerning the tax consequences of ownership of Shares, including the possibility that distributions may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding provided by an applicable treaty if the investor provides proper certification of such status).

Shareholders should consult their own tax advisors on these matters and on any specific question of U.S. federal, state, local, foreign and other applicable tax laws before making an investment in the Fund.

 

BOARD MEMBERS AND OFFICERS

 

The Board of Directors is divided into three classes of directors serving staggered three-year terms and, upon expiration of their initial terms, directors of each class will be elected to serve for three-year terms and until their successors are duly elected and qualify, and at each annual meeting, one class of directors will be elected by the shareholders. Two of the Fund’s directors are elected by the holders of Preferred Shares, voting separately as a class, and the remaining directors of the Fund are elected by holders of Common Shares and Preferred Shares, voting together as a class.

 

More information regarding the Directors and Officers of the Fund is set forth in the “Management” section of the Fund’s most recent definitive proxy statement on Schedule 14A, which is incorporated by reference into this SAI, and in any future filings we may file with the SEC that are incorporated by reference into this SAI. See “Incorporation by Reference” for more information. Except as otherwise noted, the address for all directors and officers is 360 S. Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401. The “independent directors” consist of those directors who are not “interested persons” of the Fund, as that term is defined under the 1940 Act (each, an “Independent Director” and collectively, the “Independent Directors”).

 

Board Leadership Structure, Risk Oversight and Compensation. Information regarding each of these items is set forth in the respective similarly named section of the Fund’s most recent definitive proxy statement on Schedule 14A, which is incorporated by reference into this SAI, and in any future filings we may file with the SEC that are incorporated by reference into this SAI. See “Incorporation by Reference” for more information.

 

Director Ownership in the Fund

 

Information regarding the Directors’ ownership in the Fund is set forth in the “Director Ownership in the Funds” section of the Fund’s most recent definitive proxy statement on Schedule 14A, which is incorporated by reference into this SAI, and in any future filings we may file with the SEC that are incorporated by reference into this SAI. See “Incorporation by Reference” for more information.

 

As of December 31, 2023, the Independent Directors of the Fund and immediate family members do not own beneficially or of record any class of securities of the investment adviser or principal underwriter of the Fund or any person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Fund.

 

As of August 31, 2024, the directors and officers of the Fund owned, as a group, approximately 6.14% of any class of the Fund's outstanding securities.

 

Securities Beneficially Owned

 

To the knowledge of the Fund, as of September 30, 2024, no single shareholder or “group” (as that term is used in Section 13(d) of the Exchange Act, as amended) beneficially owned more than 5% of any class of the Fund’s outstanding shares, except as described in the following table. The Fund does not have any knowledge of the identity of the ultimate beneficiaries of the shares listed below. A control person is one who owns, either directly or indirectly, more than 25% of the voting securities of the Fund or acknowledges the existence of control.

Name And Address Of Beneficial Owner	Shares Of A Class Beneficially Owned	% Outstanding Shares of a Class Beneficially Owned	Type of Ownership
Karpus Management, Inc. 183 Sully's Trail Pittsford, New York 14534	431,823 Preferred	26.08%	Beneficial*
Sit Investment Associates, Inc. 3300 IDS Center  80 South Eighth Street Minneapolis, MN 55402	740,000 Common	19.17%	Beneficial**

 

*	Information regarding this beneficial owner is derived from the most recent Schedule 13G filing made by such owner as of December 31, 2023. Such ownership information is as of the date of the applicable filing and may no longer be accurate.

**	Information regarding this beneficial owner is derived from the most recent Schedule Form 13F filing made by such owner as of June 30, 2024. Such ownership information is as of the date of the applicable filing and may no longer be accurate.

 

PROXY VOTING GUIDELINES

 

The Fund has delegated proxy voting responsibilities to the Adviser, subject to the Board of Directors’ general oversight. The Adviser will vote such proxies in accordance with its proxy policies and procedures. In some instances, the Adviser may be asked to cast a proxy vote that presents a conflict between the interests of the Fund’s shareholders, and those of the Adviser or an affiliated person of the Adviser. In such a case, the Adviser will abstain from making a voting decision and will forward all necessary proxy voting materials to the Fund to enable the Board of Directors to make a voting decision. The Adviser shall make a written recommendation of the voting decision to the Board of Directors, which shall include: (i) an explanation of why it has a conflict of interest; (ii) the reasons for its recommendation; and (iii) an explanation of why the recommendation is consistent with the Adviser’s proxy voting policies. The Board of Directors shall make the proxy voting decision that in its judgment, after reviewing the recommendation of the Adviser, is most consistent with the Adviser’s proxy voting policies and in the best interests of shareholders. When the Board of Directors of the Fund is required to make a proxy voting decision, only the directors without a conflict of interest with regard to the security in question or the matter to be voted upon shall be permitted to participate in the decision of how the Fund’s vote will be cast. The Adviser votes proxies pursuant to the proxy voting policy and guidelines set forth in Appendix A to this SAI.

 

You may also obtain information about how the Fund voted proxies related to its portfolio securities during the 12-month period ended June 30 by visiting the SEC’s website at sec.gov or by visiting the Fund’s website at rivernorth.com (this reference to the Fund’s website does not incorporate the contents of the website into this SAI).

ADDITIONAL INFORMATION

 

A Registration Statement on Form N-2, including amendments thereto, relating to the Securities offered hereby, has been filed by the Fund with the SEC. The Fund’s Prospectus and this SAI do not contain all of the information set forth in the Registration Statement, including any exhibits and schedules thereto. For further information with respect to the Fund and the Securities offered hereby, reference is made to the Fund’s Registration Statement. Statements contained in the Fund’s Prospectus and this SAI as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference.

 

The Registration Statement is available on the Edgar Database on the SEC’s website, sec.gov, or may be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov.

 

FINANCIAL STATEMENTS

 

The Fund’s financial statements and financial highlights and the report of the Fund's independent registered public accounting firm, KPMG, thereon, contained in the following document filed by the Fund with the SEC, are hereby incorporated by reference into, and are made part of, this SAI: the Fund’s Annual Report for the year ended June 30, 2024 contained in the Fund’s Form N-CSR, filed with the SEC on September 6, 2024.

INCORPORATION BY REFERENCE

 

This SAI is part of a registration statement that we have filed with the SEC. We are allowed to “incorporate by reference” the information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to comprise a part of this SAI from the date we file that document. Any reports filed by us with the SEC before the date that any offering of any Securities by means of the Fund’s prospectus and any applicable prospectus supplement is terminated will automatically update and, where applicable, supersede any information contained in this SAI or incorporated by reference herein.

 

We incorporate by reference into this SAI our filings listed below and any future filings that we may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, until all of the Securities offered by the Fund’s prospectus and any applicable prospectus supplement have been sold or we otherwise terminate the offering of these Securities. Information that we file with the SEC will automatically update and may supersede information in this SAI, any applicable supplement and information previously filed with the SEC.

 

This SAI and any applicable supplement thereto incorporate by reference the documents set forth below that have previously been filed with the SEC:

 

	●	our annual report on Form N-CSR for the fiscal year ended June 30, 2024, filed with the SEC on September 6, 2024;

	●	our definitive proxy statement on Schedule 14A, filed with the SEC on August 21, 2024;

	●	the description of our common stock contained in our Registration Statement on Form 8-A (File No. 001-38234), as filed with the SEC on June 7, 2019, including any amendment or report filed for the purpose of updating such description prior to the termination of the offering of the common stock registered hereby; and

	●	the description of our Series A Term Preferred Stock contained in our Registration Statement on Form 8-A (File No. 001-38234), as filed with the SEC on October 6, 2017, including any amendment or report filed for the purpose of updating such description prior to the termination of the offering of the preferred stock registered hereby.

You may request a copy of these filings (other than exhibits, unless the exhibits are specifically incorporated by reference into these documents) at no cost at the Fund's website at rivernorth.com or by writing or calling the following address and telephone number:

 

RiverNorth Capital Management, LLC

360 South Rosemary Avenue, Suite 1420

West Palm Beach, FL 33401

(844) 569-4750

 

You should rely only on the information incorporated by reference or provided in the Fund’s Prospectus, this SAI and any supplement thereto. We have not authorized anyone to provide you with different or additional information, and you should not rely on such information if you receive it. We are not making an offer of or soliciting an offer to buy, any securities in any state or other jurisdiction where such offer or sale is not permitted. You should not assume that the information in this SAI or in the documents incorporated by reference is accurate as of any date other than the date on the front of this SAI or those documents.

APPENDIX A 

PROXY VOTING POLICY OF THE ADVISER

 

Proxy Voting

RiverNorth Capital Management, LLC

 

PROXY VOTING POLICIES AND PROCEDURES

 

Pursuant to the recent adoption by the Securities and Exchange Commission (the “Commission”) of Rule 206(4)-6 (17 CFR 275.206(4)-6) and amendments to Rule 204-2 (17 CFR 275.204-2) under the Investment Advisers Act of 1940 (the “Act”), it is a fraudulent, deceptive, or manipulative act, practice or course of business, within the meaning of Section 206(4) of the Act, for an investment adviser to exercise voting authority with respect to client securities, unless (i) the adviser has adopted and implemented written policies and procedures that are reasonably designed to ensure that the adviser votes proxies in the best interests of its clients, (ii) the adviser describes its proxy voting procedures to its clients and provides copies on request, and (iii) the adviser discloses to clients how they may obtain information on how the adviser voted their proxies.

 

In its standard investment advisory agreement, RiverNorth Capital Management, LLC (RiverNorth Capital) specifically states that it does not vote proxies and the client, including clients governed by ERISA, is responsible for voting proxies. Therefore, RiverNorth Capital will not vote proxies for these clients. However, RiverNorth Capital will vote proxies on behalf of investment company clients (“Funds”). RiverNorth Capital has instructed all custodians, other than Fund custodians, to forward proxies directly to its clients, and if RiverNorth Capital accidentally receives a proxy for any non-Fund client, current or former, the Chief Compliance Officer will promptly forward the proxy to the client. In order to fulfill its responsibilities to Funds, RiverNorth Capital Management, LLC (hereinafter “we” or “our”) has adopted the following policies and procedures for proxy voting with regard to companies in any Fund’s investment portfolios.

 

KEY OBJECTIVES

 

The key objectives of these policies and procedures recognize that a company’s management is entrusted with the day-to-day operations and longer term strategic planning of the company, subject to the oversight of the company’s board of directors. While “ordinary business matters” are primarily the responsibility of management and should be approved solely by the corporation’s board of directors, these objectives also recognize that the company’s shareholders must have final say over how management and directors are performing, and how shareholders’ rights and ownership interests are handled, especially when matters could have substantial economic implications to the shareholders.

 

Therefore, we will pay particular attention to the following matters in exercising our proxy voting responsibilities as a fiduciary for our clients:

 

Accountability. Each company should have effective means in place to hold those entrusted with running a company’s business accountable for their actions. Management of a company should be accountable to its board of directors and the board should be accountable to shareholders.

 

Alignment of Management and Shareholder Interests. Each company should endeavor to align the interests of management and the board of directors with the interests of the company’s shareholders. For example, we generally believe that compensation should be designed to reward management for doing a good job of creating value for the shareholders of the company.

Transparency. Promotion of timely disclosure of important information about a company’s business operations and financial performance enables investors to evaluate the performance of a company and to make informed decisions about the purchase and sale of a company’s securities.

 

DECISION METHODS

 

We generally believe that the individual portfolio managers that invest in and track particular companies are the most knowledgeable and best suited to make decisions with regard to proxy votes. Therefore, we rely on those individuals to make the final decisions on how to cast proxy votes.

 

No set of proxy voting guidelines can anticipate all situations that may arise. In special cases, we may seek insight from our managers and analysts on how a particular proxy proposal will impact the financial prospects of a company, and vote accordingly.

 

In some instances, a proxy vote may present a conflict between the interests of a client, on the one hand, and our interests or the interests of a person affiliated with us, on the other. In such a case, we will abstain from making a voting decision and will forward all of the necessary proxy voting materials to the client to enable the client to cast the votes.

 

Notwithstanding the foregoing, the following policies will apply to investment company shares owned by a Fund. Under Section 12(d)(1) of the Investment Company Act of 1940, as amended, (the “1940 Act”), a fund may only invest up to 5% of its total assets in the securities of any one investment company, but may not own more than 3% of the outstanding voting stock of any one investment company or invest more than 10% of its total assets in the securities of other investment companies. However, Section 12(d)(1)(F) of the 1940 Act provides that the provisions of paragraph 12(d)(1) shall not apply to securities purchased or otherwise acquired by a fund if (i) immediately after such purchase or acquisition not more than 3% of the total outstanding stock of such registered investment company is owned by the fund and all affiliated persons of the fund; and (ii) the fund is not proposing to offer or sell any security issued by it through a principal underwriter or otherwise at a public or offering price which includes a sales load of more than 1½% percent. Therefore, each Fund (or the Adviser acting on behalf of the Fund) must comply with the following voting restrictions unless it is determined that the Fund is not relying on Section 12(d)(1)(F):

 

-when the Fund exercises voting rights, by proxy or otherwise, with respect to any investment company owned by the Fund, the Fund will either

 

-seek instruction from the Fund’s shareholders with regard to the voting of all proxies and vote in accordance with such instructions, or

 

-vote the shares held by the Fund in the same proportion as the vote of all other holders of such security.

 

PROXY VOTING GUIDELINES

 

Election of the Board of Directors

 

We believe that good corporate governance generally starts with a board composed primarily of independent directors, unfettered by significant ties to management, all of whose members are elected annually. We also believe that turnover in board composition promotes independent board action, fresh approaches to governance, and generally has a positive impact on shareholder value. We will generally vote in favor of non-incumbent independent directors.

The election of a company’s board of directors is one of the most fundamental rights held by shareholders. Because a classified board structure prevents shareholders from electing a full slate of directors annually, we will generally support efforts to declassify boards or other measures that permit shareholders to remove a majority of directors at any time, and will generally oppose efforts to adopt classified board structures.

 

Approval of Independent Auditors

 

We believe that the relationship between a company and its auditors should be limited primarily to the audit engagement, although it may include certain closely related activities that do not raise an appearance of impaired independence.

 

We will evaluate on a case-by-case basis instances in which the audit firm has a substantial non-audit relationship with a company to determine whether we believe independence has been, or could be, compromised.

 

Equity-based compensation plans

 

We believe that appropriately designed equity-based compensation plans, approved by shareholders, can be an effective way to align the interests of shareholders and the interests of directors, management, and employees by providing incentives to increase shareholder value. Conversely, we are opposed to plans that substantially dilute ownership interests in the company, provide participants with excessive awards, or have inherently objectionable structural features.

 

We will generally support measures intended to increase stock ownership by executives and the use of employee stock purchase plans to increase company stock ownership by employees. These may include:

 

1. Requiring senior executives to hold stock in a company.

 

2. Requiring stock acquired through option exercise to be held for a certain period of time.

 

These are guidelines, and we consider other factors, such as the nature of the industry and size of the company, when assessing a plan’s impact on ownership interests.

 

Corporate Structure

 

We view the exercise of shareholders’ rights, including the rights to act by written consent, to call special meetings and to remove directors, to be fundamental to good corporate governance.

 

Because classes of common stock with unequal voting rights limit the rights of certain shareholders, we generally believe that shareholders should have voting power equal to their equity interest in the company and should be able to approve or reject changes to a company’s by-laws by a simple majority vote.

 

We will generally support the ability of shareholders to cumulate their votes for the election of directors.

Shareholder Rights Plans

 

While we recognize that there are arguments both in favor of and against shareholder rights plans, also known as poison pills, such measures may tend to entrench current management, which we generally consider to have a negative impact on shareholder value. Therefore, while we will evaluate such plans on a case by case basis, we will generally oppose such plans.

 

CLIENT INFORMATION

 

A copy of these Proxy Voting Policies and Procedures is available to our clients, without charge, upon request, by calling 1-800-646-0148. We will send a copy of these Proxy Voting Policies and Procedures within three business days of receipt of a request, by first-class mail or other means designed to ensure equally prompt delivery.

 

In addition, we will provide each client, without charge, upon request, information regarding the proxy votes cast by us with regard to the client’s securities.

PART C - OTHER INFORMATION

 

Item 25: Financial Statements and Exhibits

 

1.	Financial Statements: The Registrant's audited financial statements for the fiscal year ended June 30, 2024 have been incorporated by reference into Part B of the Registration Statement by reference to the Registrant's annual report for the fiscal year ended June 30, 2024.

 

2.

Exhibits:

 

a.1	Articles of Incorporation (1)
a.2	Articles of Amendment and Restatement (2)
a.3	Articles Supplementary Establishing and Fixing the Rights and Preferences of Term Preferred Shares (2)
b.	By-Laws of Fund. (2)
c.	None.
d.1.	Form of Subscription Certificate for Rights Offering. (12)
d.2	Form of Notice of Guaranteed Delivery for Rights Offering. (12)
e.	Terms and Conditions of the Dividend Reinvestment Plan. (2)
f.	None.
g	Form of Investment Management Agreement between Registrant and RiverNorth Capital Management, LLC. (2)
h.1	Distribution Agreement between Registrant and ALPS Distributors, Inc. (8)
h.2	Sub-Placement Agent Agreement between ALPS Distributors, Inc. and UBS Securities LLC. (8)
i.	None.
j.1	Custody Agreement between Registrant and Millennium Trust Company. (14)
j.2	Master Custodian Agreement between Registrant and State Street Bank and Trust Company. (5)
j.3	Letter Agreement incorporating the Custody Agreement as of October 14, 2020, between Registrant and State Street Bank and Trust Company. (5)
k.1	Form of Agency Agreement between Registrant and Fund Transfer Agent. (2)
k.2	Administration, Bookkeeping and Pricing Services Agreement between Registrant and ALPS Fund Services, Inc. (5)
k.3	Subscription Agent and Information Agent Agreement. (12)
k.4	Expense Limitation Agreement. (12)
k.5	Credit Agreement with BNP Paribas. (14)
k.6	Credit Agreement with Pershing LLC. (14)
l.1	Opinion and consent of Fund counsel. (14)
l.2	Opinion and consent of Maryland counsel. (14)
m.	None.
n.1	Consent of Independent Registered Public Accounting Firm (14)
n.2	Report of Independent Registered Public Accounting Firm. (9)
o.	None.
p.	Subscription Agreement. (2)
q.	None.
r.	Combined Code of Ethics for the Registrant and RiverNorth Capital Management, LLC. (8)
s.	Calculation of Filing Fees Tables. (13)
t.1	Powers of Attorney. (13)

(1)	Filed on June 11, 2015 on Registrant’s Registration Statement on Form N-2 (File No. 333-204886) and incorporated herein by reference.
(2)	Filed on August 17, 2016 on Registrant’s Registration Statement on Form N-2 (File No. 333-204886) and incorporated herein by reference.

(3)	Filed on October 19, 2017 on Registrant’s Registration Statement on Form N-2 (File No. 333-218851) and incorporated herein by reference.
(4)	Filed on August 9, 2022 on Registrant’s Registration Statement on Form N-2 (File No. 333-266719) and incorporated herein by reference.
(5)	Filed on October 12, 2022 on Registrant's Registration Statement on Form N-2 (File No. 333-266719) and incorporated herein by reference.
(6)	Filed on December 7, 2022 on Registrant's Registration Statement on Form N-2 (File No. 333-266719) and incorporated herein by reference.
(7)	Filed on January 6, 2023 on Registrant's Registration Statement on Form N-2 (File No. 333-266719) and incorporated herein by reference.
(8)	Filed on August 24, 2023 on Registrant's Registration Statement on Form N-2 (File No. 333-266719) and incorporated herein by reference.
(9)	Filed on December 26, 2023 on Registrant's Registration Statement on Form N-2 (File No. 333-266719) and incorporated herein by reference.
(10)	Filed on February 13, 2024 on Registrant's Registration Statement on Form N-2 (File No. 333-266719) and incorporated herein by reference.
(11)	Filed on February 27, 2024 on Registrant's Registration Statement on Form N-2 (File No. 333-266719) and incorporated herein by reference.
(12)	Filed on April 1, 2024 on Registrant's Registration Statement on Form N-2 (File No. 333-266719) and incorporated herein by reference.
(13)	Filed on August 8, 2024 on Registrant's Registration Statement on Form N-2 (File No. 333-281399) and incorporated herein by reference.
(14)	Filed herewith.

 

Item 26: Marketing Arrangements

 

The information contained under the heading “Plan of Distribution” on page 47 of the Prospectus is incorporated by reference. Please also see the Distribution Agreement incorporated by reference as exhibit (h)(1) hereto.

 

Item 27: Other Expenses of Issuance and Distribution

 

The following table sets forth estimated expenses payable by us in connection with all offerings described in this Registration Statement (excluding any placement fees):

 

Securities and Exchange Commission Fees		$	17,684
Financial Industry Regulatory Authority, Inc. Fees		$	--
NYSE Listing Fees		$	32,391
Legal Fees		$	90,000
Accounting Expenses		$	2,000
Rating Fees		$	--
Printing and Miscellaneous Expenses		$	5,000
Total		$	147,076

 

Item 28: Persons Controlled by or under Common Control with Registrant

 

None

 

Item 29: Number of Holders of Securities

 

At August 31, 2024

Title of Class	Number of Record Holders
Common Stock, $0.0001 par value	3
Series A Term Preferred Shares, $0.0001 par value	1

 

Item 30: Indemnification

 

Section 7.2 of the Charter provides, subject to the limitations of the 1940 Act, that any person who is made a party or is threatened to be made a party in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that such person is a current or former director or officer of the Corporation, or is or was serving while a director or officer of the Corporation as a director, officer, partner, trustee, employee, agent, or fiduciary of another corporation, partnership, joint venture, trust, enterprise, or employee benefit plan, shall be indemnified by the Corporation against judgments, penalties, fines, excise taxes, settlements, and reasonable expenses (including attorneys’ fees) actually incurred by such person in connection with such action, suit, or proceeding to the fullest extent permissible under Maryland law, the Securities Act, and the 1940 Act, as such statutes are now or hereinafter in force. In addition, the Corporation shall advance expenses to its current and former directors and officers who are made, or are threatened to be made, parties to any action, suit, or proceeding described above to the fullest extent that advancement of expenses is permitted by Maryland law, the Securities Act and the 1940 Act. The Board of Directors, by Bylaw, resolution, or agreement, may make further provision for indemnification of directors, officers, employees, and agents to the fullest extent permitted by Maryland law. No provision of this Article VII shall be effective to protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which she or he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of her or his office. Upon the direction of the Board of Directors, an advancement-of-costs agreement may be required in order to require the repayment of reimbursed expenses in the event that the foregoing exclusion was later determined to apply.

 

Please also see the Distribution Agreement incorporated by reference as exhibit (h)(1) hereto.

 

Item 31: Business and Other Connections of Investment Advisers

 

RiverNorth Capital Management, LLC

 

The information in the Statement of Additional Information under the captions “Board Members and Officers” is hereby incorporated by reference.

 

The principal occupation of the directors and officers of the RiverNorth Capital Management, LLC (the “Adviser”) are their services as directors and officers of the Adviser. The address of the Adviser is 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401.

 

Set forth below is information as to any other business, profession, vocation and employment of a substantial nature in which each officer of the Adviser is, or at any during the last two fiscal years has been, engaged for their own account or in the capacity of director, officer, employee partner or trustee:

NAME*	POSITIONS WITH RIVERNORTH CAPITAL  MANAGEMENT, LLC	OTHER BUSINESS CONNECTIONS	TYPE OF BUSINESS
Patrick W. Galley	Chief Executive Officer, Chief Investment Officer and Board of Managers	President and Director, RiverNorth Fund Complex; Board of Directors, RiverNorth Holdings, Co.; Board of Managers, RiverNorth Financial Holdings, LLC.	Investments
Jonathan M. Mohrhardt	President, Chief Operating Officer and Board of Managers	Treasurer, RiverNorth Fund Complex; Board of Directors, RiverNorth Holdings, Co.; Board of Managers, RiverNorth Financial Holdings, LLC	Investments
Marcus L. Collins	Secretary, General Counsel and Chief Compliance Officer	Chief Compliance Officer, RiverNorth Fund Complex	Investments

 

*	The address for each of the named is 360 South Rosemary Avenue, Suite 1420, West Palm Beach, FL 33401.

 

Item 32: Location of Accounts and Records.

 

RiverNorth Capital Management, LLC maintains the Charter, By-Laws, minutes of directors and shareholders meetings and contracts of the Registrant, all advisory material of the investment adviser, all general and subsidiary ledgers, journals, trial balances, records of all portfolio purchases and sales, and all other documents required to be maintained by Section 31(a) of the 1940 Act and the Rules thereunder.

 

Item 33: Management Services

 

Not applicable.

 

Item 34: Undertakings

 

1.

Not applicable.

 

2.

Not applicable.

 

3.

The Registrant hereby undertakes:

 

(a)

to file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement:

 

(1)

to include any prospectus required by Section 10(a)(3) of the Securities Act.

 

(2)

to reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

(3)

to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

 

Provided, however, that paragraphs (a)(1), (2), and (3) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act of 1934 that are incorporated by reference into the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

 

(b)

that, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof;

 

(c)

to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;

 

(d)

that, for the purpose of determining liability under the Securities Act to any purchaser:

 

(1)

if the Registrant is relying on Rule 430B:

 

(A)

Each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

 

(B)

Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (x), or (xi) for the purpose of providing the information required by Section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

(2)

if the Registrant is subject to Rule 430C: each prospectus filed pursuant to Rule 424(b) under the Securities Act as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use;

 

(e)

that, for the purpose of determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution of securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:

 

(1)

any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424 under the Securities Act;

 

(2)

any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;

 

(3)

the portion of any other free writing prospectus or advertisement pursuant to Rule 482 under the Securities Act relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and

(4)

any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.

 

4.

The Registrant undertakes that:

 

(a)

for the purpose of determining any liability under the Securities Act, the information omitted from the form 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 424(b)(1) under the Securities Act 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 Securities 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.

 

5.

The undersigned Registrant hereby undertakes that, for purposes of determining any liabilities under the Securities Act of 1933, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference into the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

6.

Insofar as indemnification for liabilities arising under the Securities 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 SEC such indemnification is against public policy as expressed in the Securities 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 Securities Act and will be governed by the final adjudication of such issue.

 

7.

The Registrant hereby undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any prospectus or 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 this City of West Palm Beach, and State of Florida, on the 22^nd day of October, 2024.

 

	RIVERNORTH CAPITAL AND INCOME FUND, INC.
	By:	/s/ Patick W. Galley
		Patrick W. Galley, President

 

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

 

Signature			Title		Date
By:	/s/ Patrick W. Galley		President (Principal Executive Officer)		October 22, 2024
	Patrick W. Galley
By:	/s/ Jonathan M. Mohrhardt		Chief Financial Officer and Treasurer		October 22, 2024
	Jonathan M. Mohrhardt		(Principal Financial Officer/Principal Accounting Officer)
By:	/s/ Patrick W. Galley		Chairman of the Board and Director		October 22, 2024
	Patrick W. Galley
John K. Carter(1)			Director	By:	/s/ Patrick W. Galley
Lisa B. Mougin(1)			Director		Patrick W. Galley
David M. Swanson(1)			Director		Attorney-In-Fact
Jerry Raio(1)			Director		October 22, 2024
J. Wayne Hutchens(1)			Director

 

(1)

Original powers of attorney authorizing Joshua B. Deringer, David L. Williams and Patrick W. Galley to execute Registrant’s Registration Statement, and Amendments thereto, for the directors of the Registrant on whose behalf this Registration Statement is filed were previously executed and were filed on August 8, 2024 as Exhibit t.1 to the Registrant's Registration Statement on Form N-2 (File No. 333-281399).

INDEX TO EXHIBITS

 

j.1	Custody Agreement between Registrant and Millennium Trust Company
k.5	Credit Agreement with BNP Paribas
k.6	Credit Agreement with Pershing LLC
l.1	Opinion and Consent of Fund Counsel
l.2	Opinion and Consent of Maryland Counsel
n.1	Consent of Independent Registered Public Accounting Firm

 

 

 

 

CUSTODY AGREEMENT

 

dated as of

 

September 13, 2016

 

by and between

 

RIVERNORTH MARKETPLACE LENDING CORPORATION

 

and

 

MILLENNIUM TRUST COMPANY, LLC

 

 

TABLE OF CONTENTS

 

		Page
1.	DEFINITIONS
2.	APPOINTMENT OF CUSTODIAN
3.	DUTIES OF CUSTODIAN
4.	ACCESS TO CUSTODIAL ACCOUNT; REPORTS
5.	DEPOSIT IN U.S. SECURITIES SYSTEMS
6.	CERTAIN GENERAL TERMS
7.	COMPENSATION OF CUSTODIAN
8.	STANDARD OF CARE
9.	RESPONSIBILITY OF CUSTODIAN
10.	SECURITY CODES
11.	TAX LAW
12.	EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
13.	REPRESENTATIONS AND WARRANTIES
14.	PARTIES IN INTEREST; NO THIRD PARTY BENEFIT
15.	NOTICES
16.	CHOICE OF LAW
17.	ENTIRE AGREEMENT; COUNTERPARTS
18.	AMENDMENT; WAIVER
19.	SUCCESSORS AND ASSIGNS
20.	SEVERABILITY
21.	REQUEST FOR INSTRUCTIONS
22.	OTHER BUSINESS
23.	REPRODUCTION OF DOCUMENTS
24.	CONFIDENTIALITY
25.	SHAREHOLDER COMMUNICATIONS ELECTION

 

SCHEDULE 1 – Initial Authorized Persons

 

 

THIS CUSTODY AGREEMENT (this “Agreement”) is dated as of September 13, 2016 by and between RiverNorth Marketplace Lending Corporation, a corporation organized under the laws of Maryland, having its principal place of business at 325 North LaSalle Street, Suite 645, Chicago, Illinois 60654 (the “Fund”), and MILLENNIUM TRUST COMPANY, LLC, a limited liability company organized under the laws of the State of Illinois, having its principal place of business at 2001 Spring Road, Oak Brook, IL 60523 (the “Custodian”).

 

RECITALS

 

WHEREAS, the Fund is a closed-end management investment company, which has elected to do business as an interval fund under the Investment Company Act of 1940, as amended (the “1940 Act”), and is authorized to issue shares of common stock;

 

WHEREAS, the Fund desires to retain the Custodian to act as a custodian for the Fund;

 

WHEREAS, the Fund desires that a portion of the Fund’s Assets (as defined below) be held and administered by the Custodian pursuant to this Agreement; and

 

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

 

1.

DEFINITIONS

 

1.1 Defined Terms. In addition to terms expressly defined elsewhere herein, the following words shall have the following meanings as used in this Agreement:

 

“Agreement” means this Custody Agreement (as the same may be amended from time to time in accordance with the terms hereof).

 

“Assets” means, collectively, the (i) investments, including Loans, acquired by the Fund or a Subsidiary (as applicable) and delivered to the Custodian by or on behalf of the Fund or a Subsidiary (as applicable) from time to time during the term of, and pursuant to the terms of, this Agreement, (ii) all dividends in kind (e.g., non-cash dividends) from the investments described in clause (i), and all other non-cash property of the Fund or a Subsidiary delivered to the Custodian by or on behalf of the Fund or a Subsidiary (as applicable) from time to time,

 

“Authoritative Copy” means a copy of an Electronic Loan Document that has not been altered since it was (i) delivered for effect, if it was not required to be signed, or (ii) signed.

 

“Authorized Person” has the meaning set forth in Section 6.4(a).

 

“Business Day” means a day on which the Custodian is open for business both in the United States and in the country in which a transaction is to take place.

 

“Custodial Account” means each segregated custodial account (or sub-account thereof) to be established at the Custodian on behalf of the Fund or a Subsidiary, respectively, in which the Custodian shall hold all Assets, and the Loan Register.

 

 

“Data File” has the meaning set forth in Section 3,3(b)(iii).

 

“Electronic Loan” means a Loan evidenced by Electronic Loan Documents.

 

“Electronic Loan Delivery Method” means the arrangement or method that the Fund has agreed upon with a Platform for secure electronic delivery of Electronic Loan Documents to the Custodian, including but not limited to Secure File Transfer Protocol (SFTP), a secure online portal maintained by a Platform, or an eVault.

 

“Electronic Loan Documents” means all documents associated with the Loan application and closing process which have been delivered to and/or signed by the Borrower(s) (or an attorney- in-fact on behalf of the Borrower(s)) via ESIGN Technology, and which evidence a Loan, along with the related Audit Logs generated by the ESIGN Technology.

 

“ESIGN Technology” means the process and technology utilized by a Platform or a Platform’s service provider to permit reviewers and signers to (i) receive delivery of electronic documents, (ii) sign documents electronically, and (iii) consent to the use of such technology.

 

“eVault” means any secure electronic document management system for the storage and management of Electronic Loan Documents.

 

“Federal Reserve Bank Book-Entry System” means a depository and securities transfer system operated by the Federal Reserve Bank of the United States on which are eligible to be held all United States Government direct obligation bills, notes and bonds.

 

“Financing Document” has the meaning set forth in Section 3.3(b)(v),

 

“Foreign Assets” means any of the Fund’s or a Subsidiary’s investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Fund’s or a Subsidiary’s transactions in such investments.

 

“Foreign Custody Manager” means the foreign custody manager to which the Fund has delegated duties with respect to the Foreign Assets pursuant to Rule 17f-5 under the 1940 Act.

 

“Information Security Program” means written policies and procedures adopted, implemented, maintained and followed to (i) ensure the security and confidentiality of Personal Information; (ii) protect against any anticipated threats or hazards to the security or integrity of the Personal Information; (iii) protect against unauthorized access to or use of the Personal Information; and (iv) comply with the applicable provisions of the Privacy Requirements in all material respects.

 

“Lending Account” means one or more marketplace lending investment accounts established at a Platform in the name of the Custodian for the benefit of the Fund or a Subsidiary.

 

“Loan” means all right, title and interest in any loan or in any shares, certificates, notes, or other securities representing the right to receive principal and interest payments due on fractions or pools of whole loans acquired by the Fund or a Subsidiary from time to time to be held in the Custodial Account, including without limitation (a) the Required Loan Documents, and (b) all other rights, interests, benefits, remedies and claims arising from or relating to such Loan.

 

 

“Loan File” means, with respect to each Loan delivered to the Custodian, each of the Required Loan Documents that a Platform or Loan issuer agrees in writing with the Fund from time to time to deliver to the Custodian.

 

“Loan Register” means a register maintained by the Custodian (in book-entry form or in such other form as it shall deem necessary or desirable) of all Loans held by the Custodian on behalf of or for the benefit of the Fund, containing such information as the Fund and the Custodian may reasonably agree.

 

“Noteless Loan” means a Loan with respect to which (i) the related loan agreement does not require the obligor to execute and deliver an Underlying Note to evidence the indebtedness created under such Loan and (ii) no Underlying Notes are outstanding with respect to the portion of the Loan transferred to the Fund.

 

“Participation” means an interest in a Loan that is acquired indirectly by way of a participation, or an interest in a share, certificate, note or other security, from a selling institution or issuer, as the case may be, and includes any certificate evidencing more than one Participation.

 

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association joint stock company, trust (including any beneficiary thereof) unincorporated organization, or any government or agency or political subdivision thereof.

 

“Personal Information” means any sensitive or personally identifiable information or records in any form (oral, written, graphic, electronic, machine-readable, or otherwise) relating to a natural Person (e.g., a Loan borrower), including, but not limited to: a natural Person’s name, address, telephone number, social security number or other government identifier, account number, or transactional account history, credit history, credit score, biometric information, account status; the fact that the Person has a relationship with a financial institution; and any other data of or regarding a Person, the use, access or protection of which is regulated under any applicable law.

 

“Platform” means one or more online credit platforms from or through which the Fund or a Subsidiary may purchase a Loan, including an Electronic Loan or interests in an Electronic Loan, or a Participation, and any of the online credit platform’s related systems and data.

 

“Privacy Requirements” means (i) Title V of the Gramm-Leach-Bliley Act, 15 U.S. C. 6801 et-. seq.; (ii) federal regulations implementing such act; and (iii) other applicable law, rules, regulations, orders and guidance relating to the use, privacy and security of any Personal Information.

 

“Proper Instructions” means instructions received by the Custodian, in form acceptable to it, reasonably believed by the Custodian to be from the Fund or any Authorized Person by any of the following means:

 

(a)

in writing signed by an Authorized Person (and delivered by hand, by mail, by overnight courier or by telecopier);

 

 

(b)

by electronic mail from an Authorized Person; or

 

(c)

such other means as may be agreed upon in writing from time to time by the Custodian and any Authorized Person.

 

“Required Loan Documents’* means, for each Loan, the documents included in the Loan File, which shall at a minimum include the following:

 

(a)

for Electronic Loans, Authoritative Copies of the Electronic Loan Documents;

 

(b)

with the exception of Noteless Loans, Electronic Loans and Participations, the original executed Underlying Note endorsed by the issuer or the prior holder of record in blank or to the Fund or a Subsidiary;

 

(c)

an executed copy of the Underlying Loan Agreement, together with a copy of all amendments and modifications thereto;

 

(d)

other than in the case of a Participation or a Loan that is not acquired by assignment, an executed copy of the assignment for such Loan, and, if applicable, evidence of notice of assignment to the obligor; and

 

(e)

for Participations, the participation agreement, including a schedule of loans subject to such participation agreement.

 

and may include the following, as applicable:

 

(x)

a copy of each related security agreement signed by the applicable obligor(s);

 

(y)

an executed copy of the assignment for such Loan and evidence of notice of assignment to the obligor; and

 

(z)

a copy of each related guarantee then executed in connection with such Loan.

 

With respect to any Electronic Loan, the Required Loan Documents shall be in the form delivered in a Loan File via an Electronic Loan Delivery Method.

 

“Securities Depository” means The Depository Trust Company and any other clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, as amended (the “1934 Act”), which acts as a system for the central handling of securities where all securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of the securities.

 

“Securities System” means the Federal Bank Reserve Book-Entry System, a clearing agency which acts as a Securities Depositoiy, or another book entry system for the central handling of securities. The term “Securities System” does not include a Loan Register or any eVault.

 

“Servicer” means the Platform (or its affiliate) or any bank or other entity used by a Platform to service any Loan and any back-up Loan servicer engaged by a Platform or the Fund.

 

 

“Shares” means the shares of common stock issued by the Fund.

 

“Street Delivery Custom” means a custom of the United States securities market to deliver securities which are being sold to the buying broker for examination to determine that the securities are in proper form.

 

“Street Name” means the form of registration in which the securities are held by a broker who is delivering the securities to another broker for the purposes of sale, it being an accepted custom in the United States securities industry that a security in Street Name is in proper form for delivery to a buyer and that a security may be re-registered by a buyer in the ordinary course.

 

“Sub-custodian” means and includes (i) any branch of a “U.S. bank,” as that term is defined in Rule 17f-5 under the 1940 Act, and (ii) any “Eligible Foreign Custodian” as that term is defined in Rule 17f-5 under the 1940 Act, having a contract with the Custodian which the Custodian has determined will provide reasonable care of Assets of the Fund or a Subsidiary based on the standards specified in Section 2.4 below.

 

“Subsidiary” means, collectively, any wholly owned subsidiary of the Fund, whether now existing or hereafter formed, except for those wholly-owned subsidiaries whose assets are held in custody by a custodian other than the Custodian.

 

“Underlying Loan Agreement” means, with respect to any Loan, the document or documents evidencing the commercial loan agreement or facility pursuant to which such Loan is made.

 

“Underlying Note” means the one or more promissory notes executed by an obligor to evidence a Loan.

 

1.2 Construction, In this Agreement unless the contrary intention appears:

 

(a)

any reference to this Agreement or another agreement or instrument refers to such agreement or instrument as the same may be amended, modified or otherwise rewritten from time to time;

 

(b)

a reference to a statute, ordinance, code or other law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them;

 

(c)

any term defined in the singular form may be used in, and shall include, the plural with the same meaning, and vice versa;

 

(d)

a reference to a Person includes a reference to the Person’s executors, custodian, successors and permitted assigns;

 

(e)

an agreement, representation or warranty in favor of two or more Persons is for the benefit of them jointly and severally;

 

(f)

an agreement, representation or warranty on the part of two or more Persons binds them jointly and severally;

 

(g)

a reference to the term “including” means “including, without limitation,” and

 

 

(h)

a reference to any accounting term is to be interpreted in accordance with generally accepted principles and practices in the United States, consistently applied, unless otherwise instructed by the Fund,

 

1.3 Headings. Headings are inserted for convenience and do not affect the interpretation of this Agreement,

 

2.

APPOINTMENT OF CUSTODIAN

 

2.1 Appointment and Acceptance. The Fund hereby appoints the Custodian as custodian of , Assets owned by the Fund or any Subsidiary and delivered to the Custodian at any time during the period of this Agreement, all of which shall be held in the Custodial Account, on ! the terms and conditions set forth in this Agreement (which shall include any addendum hereto which is hereby incorporated herein and made a part of this Agreement), and the Custodian hereby accepts such appointment and agrees to hold Assets owned by the Fund or any Subsidiary delivered to the Custodian in the Custodial Account and to perform the services and duties set forth in this Agreement with respect to it subject to and in accordance with the provisions hereof.

 

2.2 Instructions. The Fund agrees that it shall from time to time provide, or cause to be provided, to the Custodian all necessary instructions and information, and shall respond promptly to all inquiries and requests of the Custodian, as may reasonably be necessary to enable the Custodian to perform its duties hereunder.

 

2.3 Fund Responsible For Directions. The Fund is solely responsible for directing the Custodian with respect to deposits to, withdrawals from and transfers to or from the Custodial Account, Without limiting the generality of the foregoing, the Custodian has no responsibility for compliance with any restrictions, covenants, limitations or obligations to which the Fund or its Subsidiaries may be subject or for which it may have obligations to third parties in respect of the Custodial Account, and the Custodian shall have no liability for the application of any funds made at the direction of the Fund. The Fund shall, or shall direct the appropriate Persons, to deposit fimds to be used for the purchase of Assets into certain accounts at the Custodian or other custodians for such purpose. The Fund shall be solely responsible for properly instructing all applicable payors to make all appropriate cash payments and for properly instructing the Custodian or other custodians with respect to the allocation or application of all such payments.

 

2.4 Appointment of Sub-Custodian. With prior written notice to the Fund, and at the direction of the Fund with respect to any foreign Sub-custodian, the Custodian may from time to time - employ one or more Sub-custodians for the Custodial Account, The Foreign Custody Manager shall be responsible for determining whether any foreign Sub-custodian meets the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, and for performing the duties of a foreign custody manager set forth in Rule 17f-5 under the 1940 Act. The appointment of any Sub-custodian and the maintenance of any Assets and cash of the Fund or its Subsidiaries with such Sub-custodian shall be at the Fund’s expense.

 

3.

DUTIES OF CUSTODIAN

 

3.1 Segregation. All Assets held by the Custodian for the account of the Fund or its Subsidiaries (other than securities maintained in a Securities Depository or Securities System) shall be accounted for separately from and shall not be commingled with other securities and property in the custody of tire Custodian or the Custodian’s own assets, and the records of the . Custodian shall indicate at all times that such Assets are held for the Fund or its Subsidiaries, Securities certificates, originally signed Required Loan Documents and tangible non-cash property shall be held in safekeeping and physically segregated from other securities and noncash property in the possession of the Custodian and shall be identified as subject to this Agreement, All Electronic Loan Documents received by the Custodian shall be held by Custodian in an eVault in the name of the Custodian for the benefit of the Fund. Each Electronic Loan shall be identified as such in the Loan Register.

 

 

3.2 Custodial Account. The Custodian shall establish and maintain each Custodial Account, in which the Custodian shall enter and carry, subject to Section 3.3(b), all Assets of the Fund and any Subsidiary which are delivered to it in accordance with this Agreement, The Custodian shall maintain the Loan Register in the Custodial Account and shall record, hold, and segregate in the Custodial Account the Required Loan Documents that the Custodian receives for the account of the Fund and any Subsidiary.

 

3.3 Delivery of Assets to Custodian.

 

(a)

The Fund shall deliver, or cause to be delivered, to the Custodian Assets owned by the Fund and its Subsidiaries during the period of this Agreement. Except to the extent otherwise expressly provided herein, the Fund shall cause delivery of Assets to the Custodian to be made against receipt of payment therefor, and in the name of the Custodian as custodian for the benefit of the Fund or a Subsidiary, Street Name or other good delivery foim. The Custodian shall not be responsible for such Assets until actually delivered to, and received by the Custodian. The Custodian, unless it agrees otherwise in writing, shall have no duty to hold for the account of the Fund or its Subsidiaries any Asset other than Loans delivered to the Custodian. The Fund agrees that neither the Fund nor any Subsidiary will deliver Assets other than Loans to the Custodian without the Custodian’s consent.

 

(b)

(i) In connection with its acquisition of a Loan or other delivery of an Asset constituting a Loan, the Fund shall deliver or cause to be delivered to the Custodian written information sufficient to identify such Loan (which information shall be as agreed to by the Fund and the Custodian) which the Custodian may conclusively rely upon without further inquiry or investigation, in such form and format as the Custodian reasonably may require, and shall cause to be delivered to the Custodian the Required Loan Documents for all Loans (it being understood that all Authoritative Copies of Electronic Loan Documents shall be delivered to the Custodian in a Loan File via an Electronic Loan Delivery Method). The Fund acknowledges and agrees that prior to the delivery of any Loan File to the Custodian, the Fund shall notify the Custodian as to the Required Loan Documents that the Fund and the Platform or Loan issuer have agreed will be contained therein. The Custodian shall maintain records of all locations of Required Loan Documents, together with a current inventory thereof.

 

(ii) The Fund or a Subsidiary shall cause each Platform and Servicer to designate the Custodian as the owner of any Loan for the benefit of the Fund or such Subsidiary. In addition, the Custodian shall provide to the Fund any information it receives from a Platform or Servicer with respect to Loan repayment status.

 

(iii) Notwithstanding anything herein to the contrary, the Fund shall cause the applicable Platform to make available to the Custodian an electronic data file (a “Data File”) with respect to each Electronic Loan transferred to the Fund or a Subsidiary via such Platform’s typical method for secure transmission of Electronic Loan data, which may include a secure online portal maintained by such Platform or other secure electronic means, which the Custodian may conclusively rely upon without further inquiry or investigation. In accordance with procedures agreed to between the Custodian and the Fund, the Custodian shall verify that certain information in one or more of the Required Loan Documents matches the information contained in the Data File and that each Loan File includes each of the Required Loan Documents for Loans acquired from the relevant Platform or Loan issuer, and report any exceptions, to the extent and in the manner as shall be agreed upon by the Fund and the Custodian with respect to each Platform or Loan issuer.

 

 

(iv) Notwithstanding anything herein to the contrary, delivery of Loans acquired by the Fund or its Subsidiaries which constitute Noteless Loans or Participations shall be made by delivery to the Custodian of: (A) in the case of a Noteless Loan, a copy of the loan register with respect to such Noteless Loan evidencing registration of such Loan on the books and records of the applicable obligor or bank agent to the name of the Fund or a Subsidiary (or a nominee) or a copy (which may be a facsimile copy) of an assignment agreement in favor of the Fund or Subsidiary as assignee; and (B) in the case of a Participation, a copy of the related participation agreement; provided, however, that if a Noteless Loan is an Electronic Loan or a Participation is in electronic form, delivery shall be through an Electronic Loan Delivery Method and in addition to the copy of the loan register a copy of all other Electronic Loan Documents associated with the Loan shall be delivered as provided in subsection (ii), above, and held as set forth in Paragraph 3.1.

 

(v) The Custodian agrees that it will act as custodian and bailee (for purposes of all applicable sections of the Uniform Commercial Code (“UCC”) or any law applicable to the security interest, if any, of the Fund or a Subsidiary in the Loans (such UCC provisions and other applicable laws, collectively “Security Interest Laws”); provided that Custodian makes no representation or warranty with respect to the Security Interest Laws) for the Fund or a Subsidiary for purposes of establishing possession on behalf of the Fund or a Subsidiary in order to evidence the ownership of each Loan by the Fund or Subsidiary and to perfect tire security interest, if any, of the Fund or Subsidiary in such Loan, including all of the related Required Loan Documents. The Custodian shall not release any of the Required Loan Documents to any Person unless tire Custodian shall have first received prior written consent of the Fund in tire form of written Proper Instructions from an Authorized Person. Except as otherwise expressly permitted hereunder, or as may be specifically ordered by a court or regulatory authority of competent jurisdiction, the Custodian hereby agrees not to surrender control and/or possession of, sell, encumber, or otherwise dispose of the Required Loan Documents, or take any other action which would compromise such ownership and any perfected security interest(s). The Custodian shall not be deemed to have provided a distribution or a release in the situation, if any, where a Loan was sold without the knowledge or consent of the Custodian. The Custodian will have no obligation to: (x) determine whether any related instrument, security, credit agreement, assignment agreement and/or other agreements or documents, if any (collectively, “Financing Documents”) may exist for any Loan; (y) obtain any Financing Document that is not delivered or transmitted by the Fund or a Subsidiary to the Custodian; or (z) examine the contents or determine the sufficiency of any Financing Document received by it. The Custodian will be entitled to assume the genuineness, sufficiency and completeness of any such Financing Document it may receive and the genuineness and due authority of any signatures appearing thereon, and shall be entitled to assume that each such Financing Document it may receive is what it purports to be.

 

 

(vi) Contemporaneously with the acquisition of any Loan, the Fund and its Subsidiaries shall: (A) cause the Required Loan Documents and/or the Data File evidencing such Loan to be delivered to the Custodian; (B) provide to the Custodian any other information reasonably requested by the Custodian in order to perform its duties under this Agreement; (C) take all actions necessary for the Fund or Subsidiary to acquire good title to such Loan; and (D) take all actions as may be necessary (including appropriate payment notices and instructions to bank agents or other applicable paying agents) to cause (I) all payments in respect of the Loan to be made to the Custodian or other custodian, and (II) all notices, solicitations and other communications in respect of such Loan to be directed to the Fund. The Custodian shall have no liability for any delay or failure on the part of the Fund or a Subsidiaiy to provide necessary information to the Custodian, or for any inaccuracy therein or incompleteness thereof, or for any delay or failure on the part of the Fund or a Subsidiaiy to give such effective payment instruction . to bank agents and other paying agents, in respect of the Loans. With respect to each sucli Loan, the Custodian shall be entitled to rely on any information and notices it may receive from time to time from the related bank agent, obligor or similar party with respect to the related Loan, or from the Fund or a Subsidiary, and shall be entitled to update its records (as it may deem necessary or appropriate) on the basis of such information or notices received, without any obligation on its pail independently to verify, investigate or recalculate such information.

 

3.4 Release of Assets.

 

(a)

The Custodian shall sell and/or release and deliver, or direct its agents or any Subcustodian appointed by it pursuant to Section 2.4 hereof to sell and/or release and deliver, as the case may be, Assets, including Required Loan Documents of the Fund or a Subsidiaiy held by the Custodian, its agents or any such Sub-custodian from time to time upon receipt of Proper Instructions (which shall, among other things, specify the Assets or Required Loan Documents to be released, with such delivery and other information as may be necessaiy to enable the Custodian to perform), which may be standing instructions (in form acceptable to the Custodian) in the following cases:

 

(i)

upon sale of such Assets by or on behalf of the Fund or a Subsidiary, against receipt, of payment therefor or, if otherwise directed by Proper Instructions:

 

(A)

in accordance with the customary or established practices and procedures in the jurisdiction or market where the transactions occur, including delivery to the purchaser thereof or to a dealer therefor (or an agent of such purchaser or dealer) against expectation of receiving later payment;

 

or

 

(B)

in the case of a sale effected through a Securities System, in accordance with the rules governing the operations of the Securities System;

 

(ii)

upon the receipt of payment by or on behalf of the Fund or a Subsidiaiy in connection with any repurchase agreement related to such Assets;

 

(iii)

to a depositary agent in connection with tender or other similar offers for securities;

 

 

(iv)

to the issuer thereof or its agent when such Assets are called, redeemed, retired or otherwise become payable (unless otherwise directed by Proper Instructions, the cash or other consideration is to be delivered to the Custodian, its agents or its subcustodian, or other custodians);

 

(v)

to an issuer thereof, or Its agent, for transfer into the name of the Custodian or into the name of any nominee of the Custodian or into the name of any of its agents or sub-custodian or their nominees or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units, provided that, in any such case, the new Assets are to be delivered to the Custodian;

 

(vi)

to brokers, clearing banks or other clearing agents for examination in accordance with the Street Delivery Custom, against delivery to the Custodian of a receipt for such Assets, provided that, in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such Securities prior to the Fund’s receipt of payment for such Securities;

 

(vii)

for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities by their issuer, or pursuant to any deposit agreement (unless otherwise directed by Proper Instructions, the new securities and cash, if any, are to be delivered to the Custodian, its agents or any Sub-custodian);

 

(viii)

in the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities (unless otherwise directed by Proper Instructions, the new securities and cash, if any, are to be delivered to the Custodian, its agents or any Sub-custodian, or other custodians); and/or

 

(ix)

for any other proper corporate purpose of the Fund or a Subsidiary, but only upon receipt of written Proper Instructions and an officer’s certificate signed by an officer of the Fund (which officer shall not have been the Authorized Person providing the Proper Instructions) stating (A) the specified Assets to be delivered, (B) the purpose, for such delivery, (C) that such purpose is a proper corporate purpose and (D) naming the person or persons to whom delivery of such securities shall be made and attaching a certified copy of a resolution of the Board of Trustees of the Trust or an authorized committee thereof approving the delivery of such Proper Instructions.

 

3,5 Registration of Assets. Assets held by the Custodian, its agents or any Sub-custodian (other than bearer securities, securities held in a Securities System or securities that are Noteless Loans or Participations) shall be registered in the name of the Custodian for the benefit of the Fund or a Subsidiaiy; or, at the option of the Custodian, in the name of the Custodian or in the name of any nominee of the Custodian or any nominee of any Sub-custodian, or in the name of its agents or any Sub-custodian or their nominees; or if directed by the Fund by Proper Instructions, may be maintained in Street Name. The Custodian, its agents and any Subcustodian shall not be obligated to accept Assets on behalf of the Fund or a Subsidiary under the terms of this Agreement unless such Assets are in the name of the Custodian for the benefit of the Fund or a Subsidiary, Street Name or other good deliverable form as determined in the Custodian’s sole discretion.

 

 

3.6 [Reserved][

 

3.7 [Reserved]

 

3.8 Reconciliation, The Custodian shall provide daily records to other custodians or other Fund service providers for purposes of reconciliation by the Fund or its other custodians or service providers, in such form and manner as is reasonably agreed to by the Fund and the Custodian.

 

3.9 [Reserved]

 

3.10 Establishment of Segregated Account Upon receipt of Proper Instructions, the Custodian shall establish and maintain on its books a segregated account or accounts for and on behalf of the Fund or a Subsidiary, into which account or accounts may be transferred Assets:

 

(a)

in accordance with the provisions of any agreement among the Fund or a Subsidiary, the Custodian and such other party regarding escrow or other arrangements in connection with transactions by the Fund or a Subsidiary;

 

(b)

which constitute collateral for a borrowing by the Fund or Subsidiary;

 

(c)

for purposes of compliance by the Fund with requirements under the 1940 Act for the maintenance of segregated accounts by registered investment companies in connection with reverse repurchase agreements and when-issued, delayed delivery and firm commitment transactions; and

 

(d)

for other proper custody purposes, but only upon receipt of Proper Instructions.

 

Each segregated account established under this Section 3.10 shall be established and maintained for the Fund or its Subsidiary only and not for any other client of the Custodian. The Fund, and not the Custodian, shall be responsible for determining whether such segregated account meets any applicable regulatory, contractual or other purpose for which the account was created.

 

3.11 Voting and Other Action. The Custodian shall promptly deliver any notices, proxies, or proxy soliciting materials received by the Custodian to the Fund, but without indicating the manner in which any such proxies are to be voted. Neither the Custodian nor any nominee of , the Custodian shall vote any of the securities held hereunder by or for the account of the Fund or a Subsidiary, except in accordance with Proper Instructions of the Fund. In the absence of such Proper Instructions, or in the event that such Proper Instructions are not received in a timely fashion, the Custodian shall be under no duty to act with regard to such proxies.

 

3.12 Communications Relating to Assets. The Custodian shall transmit promptly to the Fund all written information (including pendency of calls and maturities of Assets and expirations of rights in connection therewith) received by the Custodian from its agents or any Sub-custodian or from issuers of the Assets being held for the Fund or a Subsidiary. The Custodian shall have no obligation or duty to exercise any right or power, or otherwise to preserve rights, in or under any Assets unless and except to the extent it has received timely Proper Instructions from the Fund. The Custodian will not be liable for any untimely exercise of, or failure to exercise, any right or power in connection with Assets at any time held by the Custodian, its agents or subcustodian unless:

 

 

(i)

the Custodian has received Proper Instructions with regard to the exercise of any such right or power at least three (3) Business Days prior to the date on which such right or power is to be exercised; and

 

(ii)

the Custodian, or its agents or sub-custodian are in actual possession of such Assets at least three (3) Business Days prior to the date on which such right or power is to be exercised.

 

It will be the responsibility of the Fund to notify the Custodian of the Person to whom such communications must be foiwarded under this Section. For the avoidance of doubt, upon and after the effective date of any termination of this Agreement or resignation of the Custodian, the Custodian shall agree upon the manner of notifications and transmissions of any information under this Section 3.12.

 

3.13 Records. The Custodian shall create and maintain complete and accurate records that relate to the custody of the Assets, cash or other property held for the Fund and its Subsidiaries' under this Agreement as may be required by Section 31 of the 1940 Act, and, if required to be maintained by Rule 3 la-1 or Rule 3 la-2 under the 1940 Act, preserve such records for the ' periods prescribed in Rule 3 ia-2 under the 1940 Act, or such longer times as may be agreed to₁ All such records shall be the property of the Fund and shall at all times during the regular , business hours of the Custodian be open for inspection by duly authorized officers, employees. or agents of the Fund or its affiliates and employees and agents of the Securities and Exchange Commission, upon reasonable request and prior notice and at the Fund’s expense.

 

3.14 Custody of Subsidiary Assets. With respect to each Subsidiary identified to the Custodian by the Fund, there shall be established at the Custodian at the Fund’s direction a segregated custodial account to which the Custodian shall deposit and hold such Subsidiary’s Assets received by the Custodian. The parties hereto agree that the Fund shall notify the Custodian in writing as to the designation of any Subsidiary as to which the Custodian is to serve as custodian pursuant to the terms of this Agreement, identify in writing any accounts the Custodian shall be required to establish for such Subsidiary as herein provided, and identify such Subsidiary’s Authorized Persons. The provisions of this Agreement shall be applicable to any such Subsidiary,

3.15 Insurance Requirements.

 

(a)

The Custodian shall, at its own expense, procure and maintain, in the amounts shown in the schedule of insurance provided by the Custodian to the Fund prior to the effective date of this Agreement: (i) employers liability insurance, (ii) comprehensive general liability, (iii) umbrella or excess liability insurance providing coverages in excess of the coverages listed in (i) and (ii) above, (iv) errors and omission liability insurance, (v) a fidelity bond, (vi) electronic and computer crime insurance; and (vii) data breach or cyber liability insurance that covers first-party and third-party data; provided, however, that the term “Custodian” in this Section 3.15 shall not include a sub-custodian. Nothing in this Section 3.15 shall be deemed to limit the Custodian’s liability to the types or coverage amounts specified above or to limit any coverage under any of the Custodian’s insurance policies.

 

(b)

Concurrent upon the execution of this Agreement and thereafter upon the request of the > Fund (but in no event more frequently than annually), the Custodian shall provide a“certificate of insurance” to the Fund that evidences that policies, bonds, and similar agreements providing the types and amounts of coverage specified in Section 3.15(a) have been entered into and are in full force and effect and that specifies the applicable deductible amount for each policy, bond, or similar agreement.

 

 

4.

ACCESS TO CUSTODIAL ACCOUNT; REPORTS

 

(a)

The Custodian shall provide the Fund and such other Persons as the Fund shall request with secure online view-only access to: (i) the Custodial Account, or a subaccount or accounts relating to an individual Platform specifically identified by the Fund in such request, which shall identify all Assets held by the Custodian and all transactions that have occurred within the specific subaccount or accounts of the Custodial Account, and (ii) quarterly statements of the Assets held in the Custodial Account as of the end of each calendar quarter.

 

(b)

Upon the Fund’s request, the Custodian shall request on behalf of the Fund view-only access to accounts held by any Sub-custodian appointed by the Custodian pursuant to Section 2.4 hereof for the Fund, its Subsidiaries and such other Persons as the Fund shall request.

 

(c)

The Custodian shall furnish the Fund with a file containing daily Custodial Account activity (including all transfers to or from the Custodial Account on the Business Day following ; such transfers); provided, however, that to the extent such file cannot be transmitted in a ' timely manner for whatever reason, the Fund acknowledges that the information contained in such file will be available to it on an omnibus basis by Platform through the online view- only access provided to the Fund (and such other parties as the Fund shall request) pursuant to clause (a) above.

 

(d)

User access to the Electronic Loan Documents in an eVault will be monitored by the Custodian. For an eVault controlled by the Custodian, the Custodian will: (i) limit access to those Persons authenticated using a reliable credentialing method that stores credentials in encrypted or secure form; and (ii) prevent alterations to the Electronic Loan Documents that have not been properly authorized by an Authorized Person, For an eVault used but not controlled by the Custodian, the Custodian will follow the eVault provider’s procedures for limiting such access and preventing such alterations, and to the extent they do not conflict with such procedures, its own procedures.

 

(e)

The Custodian will, or will use commercially reasonable efforts to cause any eVault provider to, track access to the Electronic Loan Documents and any transactions related thereto including the adding, deleting, viewing, modifying, and transferring of Electronic Loan Documents to and from an eVault. Custodian will, and will use commercially reasonable efforts to cause any eVault provider to, make such hacked information available for review for at least seven (7) years from the date of the logged transaction or event and protect such tracked information with commercially reasonable access control measures to prevent unauthorized access or undetected alteration.

 

(f)

The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Fund to keep the books of account of the Fund and/or compute the value of the assets of the Fund. The Custodian shall take all such reasonable actions as the Fund may from time to time request to enable the Fund to obtain, from year to year, favorable opinions from the Fund’s independent registered public accounting firm with respect to the Custodian’s activities hereunder in connection with (i) the preparation of the Fund’s registration statement on Form N-2 (including any amendments thereto) and reports on Form N-SAR, Form N-CSR and any other reports required by the Securities and Exchange Commission, and (ii) the fulfillment by the Fund of any other requirements of the Securities and Exchange Commission. The Fund shall reimburse the Custodian for any extraordinary expenses it incurs in complying with this Section 4(f).

 

 

(g)

The Custodian shall have no duty or obligation to undertake any market valuation of the Assets under any circumstance.

 

(h)

Annually, and as otherwise may be reasonably requested by the Fund, but in no event more frequently than semi-annually (any such additional report to be provided at the Fund’s ' expense), the Custodian shall provide the Fund with a written report prepared by the Custodian’s independent certified public accountants with respect to the services provided by the Custodian under this Agreement, including without limitation, the internal accounting controls and procedures for safeguarding assets and cash which are employed by the Custodian. Such report shall be of sufficient scope and in sufficient detail as may be reasonably required by the Fund and as may reasonably be obtained by the Custodian.

 

5.

DEPOSIT IN U.S. SECURITIES SYSTEMS

 

The Custodian may deposit and/or maintain securities in a Securities System within the United States in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, including Rule 17f-4 under the 1940 Act, and subject to the following provisions:

 

(a)

The Custodian may keep domestic securities in a U.S. Securities System provided that such securities are represented in an account of the Custodian in the U.S. Securities System which shall not include any assets of the Custodian other than assets held by it as a custodian or otherwise for customers;

 

(b)

The records of the Custodian with respect to securities which are maintained in a U.S. Securities System shall identify by book-entry those securities belonging to the Fund or its Subsidiaries;

 

(c)

If requested by the Fund, the Custodian shall provide to the Fund copies of all notices received from the U.S. Securities System of transfers of securities for the account of the Fund and its Subsidiaries; and ;

 

(d)

Anything to the contrary in this Agreement notwithstanding, the Custodian shall not be liable to the Fund for any direct loss, damage, cost, expense, liability or claim to the Fund resulting from use of any Securities System (other than to the extent resulting from the Custodian’s breach of the standard of care set forth in Section 8 of this Agreement or breach of this Agreement, or from failure of the Custodian to enforce effectively such rights as it may have against the U.S. Securities System.)

 

 

6.

CERTAIN GENERAL TERMS

 

6.1 No Duty to Examine Underlying Instruments. Nothing herein shall obligate the Custodian to review or examine any Required Loan Document, Financing Document or any underlying instrument, certificate, credit agreement, indenture, loan agreement, promissory note, or other financing document evidencing or governing any Asset to determine the terms, validity, sufficiency, marketability or enforceability of any Asset (and shall have no responsibility for the genuineness or completeness thereof), or otherwise.

 

6.2 Resolution of Discrepancies. In the event of any discrepancy between the information set forth in any report provided by the Custodian to the Fund and any information contained in the books or records of the Fund, the Fund shall promptly notify the Custodian thereof and the parties shall cooperate to diligently resolve the discrepancy.

 

6.3 [Reserved].

 

6.4 Proper Instructions.

 

(a)

The Fund will give notice to the Custodian, in form acceptable to the Custodian, specifying the names, electronic mail addresses and specimen signatures of persons authorized to give Proper Instructions (collectively, “Authorized Persons” and each is an “Authorized Person”) which notice shall be signed by an Authorized Person previously certified to the Custodian. The Custodian shall be entitled to reasonably rely upon the identity and authority of such persons until it receives written notice from an Authorized Person of the Fund to the contrary. The initial Authorized Persons are set forth on Schedule 1 attached hereto and made a part hereof (as such Schedule 1 may be modified from time to time by written notice from the Fund to the Custodian).

 

(b)

The Custodian shall not have an obligation to act (or forebear to act) in accordance with purported instructions to the extent that they conflict, as determined in the Custodian’s sole discretion, with applicable law or regulations, local market practice or the Custodian’s operating policies and practices. The Custodian shall not have an obligation to act (or forebear to act) in accordance with oral instructions. The Custodian shall not be liable for any loss resulting from a delay while it obtains clarification of any Proper Instructions.

 

(c)

In no instance shall the Custodian be obligated to provide services pursuant to this Agreement on any day that is not a Business Day.

 

6.5 Actions Permitted Without Express Authority. The Custodian may, at its discretion, without express authority from the Fund:

 

(a)

surrender Assets in temporary form for Assets in definitive form;

 

(b)

endorse for collection checks, drafts and other negotiable instruments; and

 

(c)

in general attend to all nondiscretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the Sub-custodians, Assets, cash and other property of the Fund and its Subsidiaries.

 

6.6 Evidence of Authority. The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate, instrument or paper reasonably believed by it to be genuine and to have been properly executed or otherwise given by or on behalf of the Fund by an Authorized Person, The Custodian may receive and accept a certificate signed by any Authorized Person as conclusive evidence of:

 

(a)

the authority of any person to act in accordance with such certificate; or

 

 

(b)

any determination, direction or any action by the Fund as described in such certificate,

 

and such certificate may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary from an Authorized Person of the Fund.

 

6.7 Receipt of Communications. Any communication received by the Custodian on a day which is not a Business Day or after [6:30] p.m. Eastern time (or such other time as is agreed by the Fund and the Custodian from time to time in writing) on a Business Day will be deemed to have been received on the next Business Day.

 

7.

COMPENSATION OF CUSTODIAN

 

7.1 Fees. The Custodian shall be entitled to compensation for its services and reimbursement of expenses in accordance with the terms of that certain fee letter dated June 3,2016, between the Fund and the Custodian.

 

8.

STANDARD OF CARE

 

The Custodian shall exercise diligence, prudence, and reasonable care in carrying out all of its duties and obligations under this Agreement.

 

9.

RESPONSIBILITY OF CUSTODIAN

 

9.1 General Duties and Limitations Thereon, (a) The Custodian shall have no duties, obligations or responsibilities except for such duties as are expressly and specifically set forth in this Agreement, and the duties and obligations of the Custodian shall be determined solely by the express provisions of this Agreement. No implied duties, obligations or responsibilities shall be read into this Agreement against, or on the part of, the Custodian.

 

(b)

The Custodian shall be liable to the Fund and its Subsidiaries for all direct losses, damages, and expenses suffered or incurred by the Fund and its Subsidiaries resulting from the failure of the Custodian to exercise the standard of care set forth in Section 8. Neither the Custodian nor any of its directors, officers, employees or agents shall be liable to anyone for any error of judgment, or for any act done or step taken or omitted to be taken by it (or any of its directors, officers, employees or agents), or for any mistake of fact or law, or for anything which it may do or refrain from doing in connection herewith, unless such action constitutes a breach of the standard of care set forth in Section 8 or is a breach of the terms of this Agreement. Subject to the Custodian’s conformance to the standard of care set forth in Section 8, the Custodian shall not be liable for any action taken by it in good faith and reasonably believed by it to be within powers conferred upon it, or taken by it pursuant to any direction or instruction by which it is governed hereunder, or omitted to be taken by it by reason of the lack of direction or instruction required hereby for such action. The Custodian shall not be under any obligation at any time to ascertain whether the Fund is in compliance with the 1940 Act, the regulations thereunder, or the Fund’s investment objectives and policies then in effect.

 

 

(c)

In no event shall the Custodian be liable for any indirect, special or consequential damages (including lost profits) whether or not it has been advised of the likelihood of such damages.

 

(d)

The Custodian may consult with, and obtain advice from, legal counsel selected in good faith by the Custodian with respect to any question as to any of the provisions hereof or . its duties hereunder, or any matter relating hereto. The Custodian shall be without liability for any action reasonably taken or reasonably omitted in good faith pursuant to advice (i) obtained in accordance with the preceding sentence; (ii) of counsel for the Fund, or (iii) at the expense of the Custodian of such other counsel as the Fund and the Custodian may agree upon. Any action taken or omitted to be taken upon the advice of counsel obtained as provided in this Section 9.1(d) shall be performed in conformity with the standard of care set forth in Section 8.

 

(e)

No provision of this Agreement shall require the Custodian to expend or risk its own funds, or to take any action (or forbear from action) hereunder which might in its judgment involve any expense or any financial or other liability unless it shall be furnished with acceptable indemnification.

 

(f)

The permissive right of the Custodian to take any action hereunder shall not be construed as duty.

 

(g)

The Custodian may act or exercise its duties or powers hereunder through agents or attorneys, provided that the appointment of any such agents or attorneys shall be at the Custodian’s expense and shall not relieve the Custodian of any of its obligations or liabilities under this Agreement.

 

9.2 Instructions.

 

(a)

The Custodian shall be entitled to refrain from taking any action unless it has Proper Instructions from the Fund as it reasonably deems necessary, and shall be entitled to require, upon notice to the Fund, that Proper Instructions to it be in writing. The Custodian shall have no liability for any action (or forbearance from action) taken pursuant to the Proper Instructions of the Fund.

 

(b)

Whenever the Custodian is entitled or required to receive or obtain any communications or information pursuant to or as contemplated by this Agreement, it shall be entitled to receive the same in writing, in form, content and medium reasonably acceptable to it and otherwise in accordance with any applicable terms of this Agreement; and whenever any report or other information is required to be produced or distributed by the Custodian it shall be in form, content and medium reasonably acceptable to it and the Fund, and otherwise in accordance with any applicable terms of this Agreement.

 

9.3 Data Security:

 

(a)

The Custodian represents and warrants as follows:

 

(i)

The Custodian maintains and will during the term of this Agreement maintain an Information Security Program;

 

(ii)

The Custodian’s collection, storage, processing, use, transmission and disclosure of any Loan Files, Personal Information or other sensitive information regarding natural Persons, their employment, family, health, racial or financial status, comply with all privacy policies, contractual obligations, and other Privacy Requirements;

 

 

(iii)

To the Custodian’s knowledge, there has been no loss, unauthorized access, or unauthorized use of any such Personal Information , and there have been no breaches or lapses in the security of any information technology systems or facilities storing or processing any such information; and

 

(iv)

If Custodian knows or reasonably believes that there has been any loss, breach or unauthorized access or provision to, or use of any Loan File or Personal Information relating to the Loans, Custodian shall promptly notify the Fund; take steps to remedy the circumstances that permitted any such unauthorized access or provision to occur; if requested by the Fund, share with the Fund or its representatives the results of any computer forensics analysis of any unauthorized access; and, to the extent required by the Privacy Requirements, other applicable law or regulation or court or regulatory order, make any public notice announcement, notice to regulator, contact with law enforcement or other third party disclosure of any such incident and defend, indemnify and hold the Fund harmless from any costs or liabilities (including attorney’s and expert’s fees) arising out or related to any such loss, breach or unauthorized access or provision; and

 

(v)

The Custodian will restrict from, and not otherwise provide, the Fund, its investment adviser and its affiliates, and their representatives, access to any Personal Information, other than upon a specific and verified request by Proper Instructions and with any such Personal Information then encrypted, password protected, and transmitted by a secure, also encrypted means, at all times in accordance with applicable Privacy Requirements.

 

9.4 Indemnification; Custodian’s Lien.

 

(a)

The Fund shall and does hereby fully indemnify, hold harmless and defend the Custodian for and from any and all costs and expenses (including reasonable attorney’s fees and expenses), and any and all losses, damages, claims and liabilities whether or not involving a third party (collectively, “Damages”), that may arise, be brought against or incurred by the Custodian as a result of, relating to, or arising out of this Agreement, or the administration or performance of the Custodian’s duties hereunder, or the relationship between the Fund (including, for the avoidance of doubt, any Subsidiary) and the Custodian created hereby, other than as provided in this Agreement or such liabilities, losses, damages, claims, costs and expenses as are caused by the Custodian’s breach of the standard of care in Section 8 of this Agreement or breach of this Agreement.

 

(b)

The Custodian shall and does hereby fully indemnify, hold harmless and defend the Fund and its Subsidiaries for and from any and all Damages that may arise, be brought against or incurred by the Fund and its Subsidiaries as a result of the failure of the Custodian to exercise the standard of care set forth in Section 8, provided that such indemnity shall not apply to such liabilities, losses, damages, claims, costs and expenses that result from the negligence, misfeasance, or misconduct of the Fund or its Subsidiaries or breach of this ' Agreement by the Fund or its Subsidiaries.

 

(c)

In the case of a claim for indemnification under clause (a) or (b) above that is or is expected to become the subject of any litigation or proceeding, a party (the “Indemnifying Party”) shall not be required to indemnify the other party (the “Indemnified Party”) under this Agreement unless the Indemnified Party shall have promptly notified the Indemnifying Party in writing of the commencement of any litigation or proceeding brought against the Indemnified Party in respect of which indemnity may be sought. With respect to claims in such litigation or proceedings for which indemnity by the Indemnifying Party may be sought and subject to applicable law and the ruling of any court of competent jurisdiction, the Indemnifying Party shall be entitled to participate in any such litigation or proceeding and, after written notice from the Indemnifying Party to the Indemnified Party, the Indemnifying Party may assume the defense of such litigation or proceeding with counsel of its choice at its own expense in respect of that portion of the litigation for which the Indemnifying Party may be subject to an indemnification obligation; provided however, the Indemnified Party shall be entitled to participate in (but not control) at its own cost and expense, the defense of any such litigation or proceeding if the Indemnifying Party has not acknowledged in writing its obligation to indemnify the Indemnified Party with respect to such litigation or proceeding. If the Indemnifying Party is not permitted to participate or control such litigation or proceeding under applicable law or by a ruling of a court of competent jurisdiction, the Indemnified Party shall reasonably prosecute such litigation or proceeding. The Indemnified Party shall not consent to the entry of any judgment or enter into any settlement in any such litigation or proceeding without providing the Indemnifying Party with adequate notice of any such settlement or judgment, and without the Indemnifying Party’s prior written consent, The Indemnified Party shall submit written evidence to the Indemnifying Party with respect to any cost or expense for which it is seeking indemnification in such form and detail as the Indemnifying Party may reasonably request.

 

 

(d)

In the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee’s own breach of the standard of care in Section 8 of this Agreement or breach of the terms of this Agreement, or if the Fund fails to compensate the Custodian pursuant to Section 7 hereof, cash, up to the extent of such liability at any time held for the account of the Fund and its Subsidiaries, shall be security therefor and should the Fund fail to repay the Custodian promptly folio whig notice by the Custodian to the Fund, the Custodian shall be entitled to utilize available cash to the extent necessary to obtain reimbursement.

 

9.5

Fund’s Right to Proceed. Notwithstanding anything to the contrary contained herein, the Fund or a Subsidiary shall have, at its election upon reasonable notice to the Custodian, the right to enforce, to the extent permitted by any applicable agreement and applicable law, the Custodian’s rights against any Sub-custodian, Securities System, Securities Depository or other Person for any liabilities, losses, damages, claims, costs and expenses caused the Fund or a Subsidiary by such Sub-custodian, Securities System, Securities Depository or other Person, and shall be entitled to enforce the rights of the Custodian with respect to any claim against such Sub-custodian, Securities System, Securities Depository or other Person, which the Custodian may have as a consequence of any such liabilities, losses, damages, claims, costs and expenses, if and to the extent that the Fund or a Subsidiary has not been made whole for any such liabilities, losses, damages, claims, costs and expenses. If the Custodian makes the Fund or a Subsidiary whole for any such liabilities, losses, damages, claims, costs and expenses, the Custodian shall retain the ability to enforce its rights directly against such Sub-custodian, Securities System, Securities Depository or other Person. Upon the Fund’s or a Subsidiary’s election to enforce any rights of the Custodian under this Section 9.5, the Fund or its Subsidiary shall reasonably prosecute all actions and proceedings directly relating to the rights of the Custodian in respect of the liabilities, losses, damages, claims, costs and expenses' incurred by the Fund or its Subsidiary; provided that, so long as the Fund has acknowledged in writing its obligation to indemnify the Custodian under Section 9.4(a) of this Agreement with respect to such claim, the Fund shall retain the right to settle, compromise and/or terminate any action or proceeding in respect of the liabilities, losses, damages, claims, costs and expenses incurred by the Fund or a Subsidiary without the Custodian’s consent and provided further, that if the Fund has not made an acknowledgment of its obligation to indemnify, the Fund shall not settle, compromise or terminate any such action or proceeding without the written consent of the Custodian, which consent shall not be unreasonably withheld or delayed. The Custodian agrees to cooperate with the Fund and take all actions reasonably requested by the Fund in connection with the Fund’s or a Subsidiary’s enforcement of any rights of the Custodian, The Fund agrees to reimburse the Custodian for all reasonable out-of- pocket expenses incurred by the Custodian on behalf of the Fund in connection with the fulfillment of its obligations under this Section 9.5; provided, however, that such reimbursement shall not apply to expenses occasioned by or resulting from the failure of the Custodian to exercise the standard of care set forth in Section 8 hereof.

 

 

9.6 Force Majeure. Without prejudice to the generality of the foregoing, the Custodian shall be without liability to the Fund or a Subsidiary for any damage or loss resulting from or caused by events or circumstances beyond the Custodian’s reasonable control including (a) nationalization, expropriation, currency restrictions, the interruption, disruption or suspension of the normal procedures and practices of any securities market, power, mechanical, communications or other technological failures or interruptions, computer viruses or the like, fires, floods, earthquakes or other natural disasters, civil and military disturbance, acts of war or terrorism, riots, revolution, acts of God, work stoppages, strikes, national disasters of any kind, or other similar events or acts; (b) errors by the Fund (including any Authorized Person) in its instructions to the Custodian; or (c) changes in applicable law, regulation or orders.

 

10.

SECURITY CODES

 

If the Custodian issues to the Fund security codes, passwords or test keys in order that it may verify that certain transmissions of information, including Proper Instructions, have been originated by the Fund, the Fund shall safeguard any security codes, passwords, test keys or other security devices which the Custodian shall make available, and shall be liable for any damages resulting from the failure to so safeguard or use by unauthorized Persons.

 

11-

TAX LAW

 

The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund, a Subsidiary, or the Custodian as custodian of the Assets, cash, or the Proceeds, by the tax law of the United States or any state or political subdivision thereof, or of countries other than the United States or any political subdivision thereof. The Custodian shall have no liability, and the Fund shall indemnify the Custodian, for such obligations including but not limited to taxes (but excluding any income taxes assessable in respect of compensation paid to the Custodian pursuant to this agreement), withholding, certification and reporting requirements, claims for exemption or refund, additions for late payment interest, penalties and other expenses (including legal expenses) that may be assessed against the Fund, a Subsidiaiy, or the Custodian as custodian of the Assets, cash, or Proceeds.

 

 

12.

EFFECTIVE PERIOD, TERMINATION AND AMENDMENT

 

12.1 Effective Date. This Agreement shall become effective as of the date first stated above. This Agreement shall continue in full force and effect until terminated as hereinafter provided. This Agreement may only be amended by mutual written agreement of the parties hereto. This Agreement may be terminated by the Custodian or the Fund pursuant to Section 12,2.

 

12.2 Termination.

 

(a)

Discretionary Termination; Acquisition, Merger or Consolidation. The parties may terminate this Agreement without cause as follows: (i) by the Custodian upon one hundred eighty (180) days advance written notice to the Fund, or (ii) by the Fund upon ninety (90) days advance written notice to the Custodian. In addition, in the case of an acquisition, merger or consolidation of the Custodian (each, an “Ownership Event”), the Fund may terminate this Agreement upon 60 days advance written notice to the Custodian if the Custodian or the successor to the Custodian by reason of an Ownership Event prior to or within fourteen (14) days after the Ownership Event fails to confirm to the Fund in writing : (x) that it intends to continue to maintain the business of the Custodian which furnishes services to the Fund with the level of employees and support services necessary to provide those services in the manner and to the extent required by this Agreement for at least one hundred eighty (180) days following the Ownership Event; or (y) that it will agree to serve as the Fund’s Foreign Custody Manager pursuant to Section 2.5 of this Agreement. Notice of termination under this Section 12.2(a) shall be given in accordance with Section 15.

 

(b)

Termination for Cause. Either party may terminate this Agreement for a material breach of this Agreement upon sixty (60) days advance written notice to the other party, and the notified party’s failure to cure or correct the cause of the termination notice, to the reasonable satisfaction of the party giving such notice, within thirty (30) days of receipt of said notice. The Fund may terminate this Agreement upon the Fund’s determination that there is a reasonable basis to conclude that the Custodian is insolvent or that the financial condition of the Custodian is deteriorating in any material respect, in which case termination shall take effect upon the Custodian’s receipt of written notice of such determination or at such later time as the Fund shall designate. Notice of termination under this Section 12.2(b) shall be given in accordance with Section 15.

 

(c)

Transition Period. Upon a party’s receipt of a notice of termination pursuant to Section 12.2(a) or Section 12.2(b) above, the parties shall negotiate in good faith as to the terms and conditions of any transition period following the date of termination during which the Custodian will continue to perform its duties under this Agreement and assist in the transition of such duties to a successor custodian. Such terms and conditions shall include, but not be limited to, the Fund’s agreement to reimburse the Custodian for all reasonable expenses relating to such transition to a successor custodian,

 

12.3 Survival of Obligations. The provisions of this Section 12.3 and Section 3.13 (Records), Section 8 (General Standards of Care), Section 9.4 (Indemnification; Custodian’s Lien), Section 9.5 (Fund’s Right to Proceed), Section 16 (Choice of Law), and Section 24 (Confidentiality) and any other rights or obligations incurred or accrued by any party hereto prior to termination of this Agreement shall survive any termination of this Agreement,

 

 

12.4 Successor, Prior to the effective date of termination of this Agreement, or the effective date of the resignation of the Custodian, as the case may be, the Fund shall give Proper Instruction to the Custodian designating a successor Custodian, if applicable,

 

12.5 Payment of Fees, etc. Upon termination of this Agreement or resignation of the Custodian, the Fund shall pay to the Custodian such compensation, and shall likewise reimburse the Custodian for its costs, expenses and disbursements, as may be due as of the date of such termination or resignation (or removal, as the case may be). All indemnifications in favor of the Custodian under this Agreement shall survive the termination of this Agreement, or any resignation or removal of the Custodian.

 

13.

REPRESENTATIONS AND WARRANTIES

 

13.1 Representations of the Fund. The Fund represents and warrants to the Custodian that:

 

(a)

it has the power and authority to enter into and perform its obligations under this Agreement, and it has duly authorized and executed this Agreement so as to constitute its valid and binding obligation;

 

(b)

it is in material compliance with all applicable laws and regulations, including but not limited to the 1940 Act and rules and regulations thereunder; and

 

(c)

in giving any instructions which purport to be “Proper Instructions” under this Agreement, the Fund will act in accordance with the provisions of its certificate of incorporation and bylaws and any applicable laws and regulations.

 

13.2

Representations of the Custodian, The Custodian hereby represents and warrants to the Fund that:

 

(a)

it is qualified to act as a custodian pursuant to Section 26(a)(1) of the 1940 Act;

 

(b)

it has the power and authority to enter into and perform its obligations under this Agreement;

 

(c)

it has duly authorized and executed this Agreement so as to constitute its valid and bindin. obligations; and

 

(d)

that it maintains business continuity policies and standards that include data file backup and recovery procedures that comply with all applicable regulatory requirements,

 

14,

PARTIES IN INTEREST: NO THIRD PARTY BENEFIT

 

This Agreement is not intended for, and shall not be construed to be intended for, the benefit of any third parties and may not be relied upon or enforced by any third parties (other than successors and permitted assigns pursuant to Section 19).

 

 

15.

NOTICES

 

Any Proper Instructions shall be given to the following address (or such other address as either: pally may designate by written notice to the other party), and otherwise any notices, approvals and other communications hereunder shall be sufficient if made in writing and given to the parties at the following address (or such other address as either of them may subsequently . designate by notice to the other), given by (i) certified or registered mail, postage prepaid, (ii) recognized courier or delivery service, or (iii) confirmed telecopier or telex, with a duplicate sent on the same day by first class mail, postage prepaid:

 

(a)

if to the Fund, to: RiverNorth Marketplace Lending Corporation c/o RiverNorth Capital Management, LLC 325 North LaSalle Street, Suite 645 Chicago, Illinois 60654 Attention: Treasurer Email: jmohrhardt@rivernorth.com

 

(b)

if to the Custodian, to: Millennium Trust Company, LLC 2001 Spring Road, Suite 700 Oak Brook, IL 60523 Attention:       Email:

 

With a copy (except with respect to Proper Instructions) to:

 

Millennium Trust Company, LLC 2001 Spring Road, Suite 700 Oak Brook, IL 60523 Attention: General Counsel Email:

 

16.

CHOICE OF LAW

 

This Agreement shall be construed, and the provisions thereof interpreted under and in accordance with and governed by the laws of the State of Illinois for all purposes (without regard to its choice of law provisions); except to the extent such laws are inconsistent with federal securities laws, including the 1940 Act.

 

17.

ENTIRE AGREEMENT; COUNTERPARTS

 

17.1 Complete Agreement, This Agreement constitutes the complete and exclusive agreement of the parties with regard to the matters addressed herein and supersedes and terminates as of the date hereof, all prior agreements, agreements or understandings, oral or written between the parties to this Agreement relating to such matters.

 

17.2 Counterparts. This Agreement may be executed in any number of counterparts and all counterparts taken together shall constitute one and the same instrument.

 

 

17.3 Facsimile Signatures. The exchange of copies of this Agreement and of signature pages by electronic transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by electronic transmission shall be deemed to be their original signatures for all purposes.

 

18.

AMENDMENT; WAIVER

 

18.1 Amendment. This Agreement may not be amended except by an express written instrument duly executed by each of the Fund and the Custodian.

 

18.2 Waiver. In no instance shall any delay or failure to act be deemed to be or effective as a waiver of any right, power or term hereunder, unless and except to the extent such waiver is set forth in an expressly written instrument signed by the party against whom it is to be charged.

 

19.

SUCCESSORS AND ASSIGNS

 

Successors Bound, The covenants and agreements set forth herein shall be binding upon and inure to the benefit of each of the parties and their respective successors and permitted assigns. Neither party shall be permitted to assign their rights under this Agreement without the written consent of the other party; provided, however, that the foregoing shall not limit the ability of the Custodian to delegate certain duties or services to or perform them through agents or attorneys appointed with due care as expressly provided in this Agreement. Notwithstanding the foregoing, any entity into which the Custodian may be merged or consolidated, any entity resulting from such merger or consolidation, or any entity to which the Custodian transfers all or substantially all of its business, that in any such case is a qualified custodian under the 1940 Act, shall be the successor of the Custodian hereunder and shall succeed to all of the rights, powers and duties of the Custodian hereunder, without the execution or filing of any paper or any further act on the part of the parties hereto.

 

20.

SEVERABILITY

 

The terms of this Agreement are hereby declared to be severable, such that if any term hereof is determined to be invalid or unenforceable, such determination shall not affect the remaining terms.

 

21.

REQUEST FOR INSTRUCTIONS

 

If, in performing its duties under this Agreement, the Custodian is required to decide between alternative courses of action, the Custodian may (but shall not be obliged to) request written instructions from the Fund as to the course of action desired by it. If the Custodian does not receive such instructions within two (2) days after it has requested them, the Custodian may, but shall be under no duty to, take or refrain from taking any such courses of action. The Custodian shall act in accordance with instructions received from the Fund in response to such request after such two-day period except to the extent it has already taken, or committed itself to take, action inconsistent with such instructions.

 

22.

OTHER BUSINESS

 

Nothing herein shall prevent the Custodian or any of its affiliates from engaging in other business, or from entering into any other transaction or financial or other relationship with, or receiving fees from or from rendering services of any kind to the Fund or any other Person. Nothing contained in this Agreement shall constitute the Fund and/or the Custodian (and/or any other Person) as members of any partnership, joint venture, association, syndicate, unincorporated bus mess or similar assignment as a result of or by virtue of the engagement or relationship established by this Agreement.

 

 

23.

REPRODUCTION OF DOCUMENTS

 

This Agreement and all schedules, exhibits, attachments and amendment hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further production shall likewise be admissible in evidence.

 

24.

CONFIDENTIALITY

 

All information provided under this Agreement by a party (the “Disclosing Party”) to the other party (the “Receiving Party”) regarding the Disclosing Party’s business and operations, including any Personal Information, shall be treated as confidential. All confidential information provided under this Agreement by Disclosing Party shall be used, including authorized disclosure to third parties, by the Receiving Party, or its agents or service providers, solely for the purpose of performing or receiving the services and discharging the Receiving Party’s other obligations under the Agreement. The foregoing shall not be applicable to any information (a) that is publicly available when provided or thereafter becomes publicly available, other than through a breach of this Agreement or (b) that is independently derived by the Receiving Party without the use of any information provided by the Disclosing Party in connection with this Agreement. Notwithstanding the foregoing, the Receiving Party also may disclose confidential information (i) that is disclosed to comply with any legal or regulatory proceeding, investigation, audit, examination, subpoena, civil investigative demand or other similar process, (ii) that is disclosed as required by operation of law or regulation or as required to comply with the requirements of any market infrastructure that the Disclosing Party or its agents direct the Custodian or its affiliates to employ (or which is required in connection with the holding or settlement of instruments included in the assets subject to this Agreement), or (iii) where the party seeking to disclose has received the prior written consent of the party providing the information, which consent shall not be unreasonably withheld.

 

25.

SHAREHOLDER COMMUNICATIONS ELECTION

 

SEC Rule 14b-2 requires custodians which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the custodian unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs the Fund to indicate whether it authorizes the Custodian to provide the Fund’s or a Subsidiaiy name, address, and share position to requesting companies whose securities the Fund and its Subsidiaries own, If the Fund tells the Custodian “no”, the Custodian will not provide this information to requesting companies. If the Fund tells the Custodian “yes” or does not check either “yes” or “no” below, the Custodian is required by the rule to treat the Fund and its Subsidiaries as consenting to disclosure of this information for all securities owned by the Fund and its Subsidiaries or any funds or accounts established by the Fund. For the Fund’s protection, the Rule prohibits the requesting company from using the Fund’s name and address for any purpose other than corporate communications. Please indicate below whether the Fund consents or objects by checking one of the alternatives below.

 

 

YES

[ ]

The Custodian is authorized to release the Fund’s name, address, and share positions.

 

NO

[ ]

The Custodian is not authorized to release the Fund’s or Subsidiaries’ name, address, and share positions.

 

[PAGE INTENTIONALLY ENDS HERE. SIGNATURES APPEAR ON NEXT PAGE.]

 

 

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed and delivered by a duly authorized officer^ intending the same to take effect as of the 13th day of September, 2016.

 

RIVERNORTH MARKETPLACE LENDING CORPORATION			MILLENNIUM TRUST COMPANY
By:	/s/ Marcus Collins		By:	/s/ Meg Zwick
Name:	Marcus Collins		Name:	Meg Zwick
Title:	Secretary and Chief Compliance Officer		Title:	mzwick@mtrustcompany.com

 

 

Attach:

 

SCHEDULE 1 – Initial Authorized Persons

 

 

 

Committed Facility Agreement

 

 

BNP PARIBAS PRIME BROKERAGE INTERNATIONAL, LTD. (“PBI”) and each customer listed on Annex I hereto, severally and not jointly (each, a “Customer”), hereby enter into this Committed Facility Agreement (this “Agreement”), dated as of the date specified on the signature page. This Agreement shall be deemed to have been entered into as separate agreements between PBI and each Customer and, accordingly, no Customer shall be liable to PBI or a party to any agreement entered into between another Customer and PBI.

 

Whereas BNPP PB and each Customer have entered into the U.S. PB Agreement, dated as of the date listed next to each Customer in Annex I (the “U.S. PB Agreement”),

 

Whereas PBI and each Customer have entered into the PBI Agreement, dated as of the same date as the US PB Agreement (the “PBI Agreement” and, together, with the U.S. PB Agreement and this Agreement, collectively, the “40 Act Financing Agreements”).

 

Whereas this Agreement supplements and forms part of the other 40 Act Financing Agreements and sets out the terms of the commitment of PBI to provide financing to Customer under the 40 Act Financing Agreements.

 

Now, therefore, in consideration of the foregoing promises and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties agree as follows:

 

1.

Definitions -

 

(a)

Capitalized terms not defined in this Agreement have the respective meaning assigned to them in the U.S. PB Agreement. The 40 Act Financing Agreements are included in the term “Contract,” as defined in the U.S. PB Agreement.

 

(b)

“Account Agreement” means the Account Agreement attached as Exhibit A to the U.S. PB Agreement.

 

(c)

“BNPP Downgrade Event” means on any day (the “Date of Determination”), BNP Paribas’ long-term credit rating has declined to a level three or more notches below its highest rating by any of Standard & Poor’s Ratings Services, Moody’s Investor Service, Inc. or Fitch Ratings, Ltd. during the period beginning on and including date of this Agreement and ending on and including such Date of Determination.

 

(d)

“Borrowing” means a draw of cash financing by Customer from PBI pursuant to Section 2 of this Agreement.

 

(e)

“Closing Date” means the date listed under the heading “Closing Date” opposite the relevant Customer on Annex I hereto.

 

(f)

“Collateral Requirements” means the collateral requirements set forth in Section 1 of Appendix A attached hereto.

 

(g)

“Custodian” means State Street Bank and Trust Company.

 

(h)

“Funding Event” means that as of any day (each such day, a “Date of Determination”) either (i) the average Funding Spread over the ten (10) Business Days immediately prior to the Date of Determination is greater than 300 basis points (the “Funding Event Increased Spread Event”) or (ii) the Funding Spread is not published by Bloomberg on the Date of Determination.

 

(i)

“Funding Event Increased Spread” shall mean the amount that the Funding Spread during a Funding Event Increased Spread Event exceeds 300 basis points.

(j)

“Funding Spread” means, as of any day, the “Index OAS to Treasury”, as published by Bloomberg by reference to the ticker “LGAFTRUU” and under the page “I03438USD Index” or any successor ticker or page thereto.

 

(k)

“Initial NAV” means the Net Asset Value of Customer as of the date of execution hereof (“Initial NAV Date”).

 

(l)

“Maximum Commitment Financing” means the amount specified as applicable to each Customer on Annex I hereto.

 

(m)

“Net Asset Value” means, with respect to Customer, the aggregate net asset value of the common stock issued by Customer calculated in accordance with U.S. generally accepted accounting principles.

 

(n)

“Net Asset Value Floor” means, with respect to Customer, an amount equal to 50% of the Initial NAV of such Customer (such 50% amount, the “Execution Date NAV Floor”); provided, however, that following the date hereof, the Net Asset Value Floor shall be the greater of (i) the Execution Date NAV Floor or (ii) 50% of the Net Asset Value of Customer, calculated based on the Customer’s Net Asset Value as of its most recent fiscal year end subsequent to the date hereof.

 

(o)

“Outstanding Debit Financing” means the aggregate net cash balance (excluding current short sale proceeds) held under this Agreement if such net cash balance is a debit, or zero if such aggregate net cash balance is a credit. For the purposes of calculating such aggregate net cash balance, if Customer holds credit or debit cash balances in non-USD currencies, PBI will convert each of these balances into USD at prevailing market rates to determine Customer’s aggregate net cash balance.

 

(p)

“Portfolio Gross Market Value” means the Gross Market Value (as defined in Appendix A attached hereto) of all of Customer’s Positions that are Eligible Securities (as defined in Appendix A attached hereto).

 

(q)

“1940 Act” means the Investment Company Act of 1940, as amended.

 

2.

Borrowings -

 

Subject to Section 7, PBI shall make available cash financing under this Agreement in an amount up to the relevant Maximum Commitment Financing. Such cash financing shall be made available in immediately available funds. Customer may borrow under this Section 2, prepay pursuant to Section 4 and reborrow under this Section 2 without penalty. For the avoidance of doubt, any cash financing in excess of the Maximum Commitment Financing shall not be subject to the commitment in Section 6.

 

On the Closing Date, PBI shall make funds available to Customer in an amount up to the Maximum Commitment Financing. Each subsequent Borrowing (not to exceed the Maximum Commitment Financing) shall be made on written notice, given by Customer to PBI not later than 11:00 A.M. (New York City time) on the Business Day immediately preceding the date of the proposed Borrowing (which must be a Business Day) by Customer. Subject to Section 7, PBI shall, before 11:00 A.M. (New York City time) on the date of such Borrowing, make available to Customer the amount of such Borrowing (provided that, the Outstanding Debit Financing does not exceed the Maximum Commitment Financing) payable to the account designated by the Customer in such notice of borrowing.

 

3.

Repayment -

 

(a)

Upon the occurrence of a Facility Termination Event, an event described in Section 16(a) hereof, or the date specified in the Facility Modification Notice as described in Section 6, all Borrowings (including all accrued and unpaid interest thereon and all other amounts owing or payable hereunder) may be recalled by the BNPP Entities in accordance with Section 1 of the U.S. PB Agreement.

(b)

Upon the occurrence of a Default, the BNPP Entities shall have the right to take any action described in section 13(b) hereof.

 

4.

Prepayments -

 

Customer may, upon at least one (1) Business Days’ notice to PBI stating the proposed date and aggregate principal amount of the prepayment, prepay all or any portion of the outstanding principal amount of the Outstanding Debit Financing, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided that Customer shall continue to be obligated to pay the commitment fee as set forth in Appendix B in respect of any undrawn Maximum Commitment Financing.

 

5.

Interest -

 

Customer shall pay interest on the outstanding principal amount of each Borrowing from the date of such Borrowing until such principal amount shall be paid in full, at the rates specified on Appendix B attached hereto; provided that, upon the occurrence of a Funding Event Increased Spread Event, PBI may immediately increase the interest rate by an amount equal to the Funding Event Increased Spread. For the avoidance of doubt, if on any day, a Funding Event is not occurring, this Agreement has not been terminated and the commitment herein has not otherwise expired, the interest rate shall be the rate specified in Appendix B. Such interest shall be payable monthly, and if not paid when due, any unpaid interest shall be capitalized on the principal balance; provided that, notwithstanding such capitalization, the failure by Customer to pay such interest when due, shall be a failure of Customer to comply with an obligation under this Agreement.

 

6.

Scope of Committed Facility -

 

Subject to Section 7, PBI shall make available cash financing under this Agreement up to the relevant Maximum Commitment Financing, and may not take any of the following actions except upon at least ninety (90) calendar days’ prior notice (the “Facility Modification Notice”):

 

(a)

modify the Collateral Requirements; other than in accordance with the terms of Appendix A;

 

(b)

recall or cause repayment of any Borrowings under this Agreement;

 

(c)

modify the interest rate spread on Borrowings under this Agreement, as set forth in Appendix B attached hereto;

 

(d)

modify the fees, charges or expenses other than those described in clause (b) above, as set forth in Appendix B attached hereto (the “Fees”) provided that PBI may modify any Fees immediately if (i) the amount of such Fees charged to PBI, as the case may be, have been increased by the provider of the relevant services or (ii) consistent with increases generally to customers, or

 

(e)

terminate this Agreement.

 

Notwithstanding the foregoing or anything to the contrary herein, upon the occurrence of a BNPP Downgrade Event, this Agreement shall terminate.

Upon written notice, Customer may terminate this Agreement. Such termination notice will be effective on the day it is received and acknowledged by PBI.

 

7.

Conditions for Committed Facility -

 

The commitment as set forth in Section 6 only applies so long as –

 

(a)

Customer satisfies the Collateral Requirements;

 

(b)

no Default or Facility Termination Event has occurred; and

 

(c)

there has not occurred any automatic termination as provided under Section 14.

 

8.

Arrangement, Renewal and Commitment Fees -

 

Customer shall pay when due (subject to Section 2(d) of the PBI Agreement) a commitment fee as set forth in Appendix B.

 

9.

Substitution -

 

(a)

After the BNPP Entities sends a Facility Modification Notice, Customer may not substitute any collateral, provided that Customer may purchase and sell portfolio securities in the ordinary course of business consistent with its investment restrictions; provided further that the BNPP Entities may permit substitutions upon request, which permission shall not be unreasonably withheld; provided further that for substitutions of rehypothecated collateral, such collateral shall be returned for substitution within a commercially reasonable period (in any event no sooner than the standard settlement period applicable to such collateral).

 

(b)

Prior to the BNPP Entities sending a Facility Modification Notice, Customer may substitute collateral, provided that for substitutions of rehypothecated collateral, such collateral shall be returned for substitution within a reasonable period (in any event no sooner than the standard settlement period applicable to such collateral).

 

10.

Collateral Delivery -

 

As provided for in Section 1 of the U.S. PB Agreement.

 

11.

Representations and Warranties -

 

Customer hereby makes all the representations and warranties set forth in Section 5 of the Account Agreement, which are deemed to refer to this Agreement, and such representations and warranties shall survive each transaction and the termination of the 40 Act Financing Agreements.

 

12.

Financial Information -

 

Customer shall provide the BNPP Entities with copies of –

 

(a)

the most recent annual report of Customer containing financial statements certified by independent certified public accountants and prepared in accordance with generally accepted accounting principles in the United States, as soon as available and in any event within 90 calendar days after the end of each fiscal year of Customer;

 

(b)

the most recent monthly financial statement of Customer, including performance returns and net asset value of Customer, as soon as available and in any event within 30 calendar days after the end of each month; and

(c)

other information respecting Customer’s financial position or business, as BNPP may reasonably request from time to time.

 

13.

Termination -

 

(a)

Upon the occurrence of a Facility Termination Event, BNPP shall have the right to terminate this Agreement, recall any Outstanding Debit Financing, modify Collateral Requirements and modify any interest rate spread, fees, charges, or expenses, in each case, in accordance with the timeframes specified in the U.S. PB Agreement.

 

(b)

Upon the occurrence of a Default, the BNPP Entities may terminate any of the 40 Act Financing Agreements and take Default Action.

 

(c)

Each of the following events constitutes a “Default”:

 

i.

Customer fails to meet the Collateral Requirements within the time periods set forth in Section 1 of the U.S. PB Agreement;

 

ii.

Customer fails to deliver the financial information within the time periods set out in Section 12 and such failure continues for one (1) Business Day after receipt of written notice from the BNPP Entities of such failure;

 

iii.

the Net Asset Value of Customer declines below the Net Asset Value Floor;

 

iv.

any representation or warranty made or deemed made by Customer to the BNPP Entities under any 40 Act Financing Agreements (including under Section 11 herein) proves false or misleading in a material respect (unless such representation or warranty already includes a materiality standard and it being understood that any representation regarding the Customer’s ERISA status and all representations relating to tax will be deemed to have a material effect) when made or deemed made;

 

v.

Customer fails to comply with or perform any other agreement or obligation under this Agreement or the other 40 Act Financing Agreements and such failure continues for 15 calendar days after receipt of written notice from BNPP of such failure;

 

vi.

Customer becomes bankrupt, insolvent, or subject to any bankruptcy, reorganization, insolvency or similar proceeding or all or substantially all its assets become subject to a suit, levy, enforcement, or other legal process where a secured party maintains possession of such assets, has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger), seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets, has a secured party take possession of all or substantially all its assets, or takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or

 

vii.

the occurrence of a repudiation, misrepresentation, material breach or the occurrence of a default, termination event or similar condition (howsoever characterized, which, for the avoidance of doubt, includes the occurrence of an Additional Termination Event under an ISDA Master Agreement between Customer and a BNPP Entity, if applicable) by Customer under any contract with a BNPP Entity or affiliate of a BNPP Entity; or

 

viii.

Customer fails to comply with the provisions set forth in Section 8.

(d)

Each of the following events constitutes a “Facility Termination Event”:

 

i.

the occurrence of a repudiation, misrepresentation, material breach or the occurrence of a default, termination event or similar condition (howsoever characterized, which, for the avoidance of doubt, includes the occurrence of an Additional Termination Event under an ISDA Master Agreement) by Customer under any contract with a third party entity, where the aggregate principal amount of any such contract (which, for the avoidance of doubt, includes any obligations with respect to borrowed money or other assets in connection with such contract) is not less than $10,000,000;

 

ii.

there occurs any change in the BNPP Entities’ interpretation of any Applicable Law or the adoption of or any changes in the same that, in the reasonable opinion of counsel to the BNPP Entities, has the effect with regard to the BNPP Entities of impeding or prohibiting the arrangements under the 40 Act Financing Agreements (including, but not limited to, imposing or adversely modifying or affecting the amount of regulatory capital to be maintained by the BNPP Entities);

 

iii.

(A) as of any day, the Net Asset Value of Customer has declined by twenty-five percent (25%) or more from the highest Net Asset Value in the preceding one-month period then ending; or (B) as of any day, the Net Asset Value of Customer has declined by thirty-five percent (35%) or more from the highest Net Asset Value in the preceding three-month period then ending; or (C) as of any day, the Net Asset Value of Customer, has declined by forty-five percent (45%) or more from the highest Net Asset Value in the preceding 12-month period then ending; (for purposes of (A), (B) and (C), any decline in the Net Asset Value shall take into account any positive or negative change caused by capital transfers, such as redemptions, withdrawals, subscriptions, contributions or investments, howsoever characterized, and all amounts set forth in redemption notices received by or on behalf of Customer (notwithstanding the date the actual redemption shall occur));

 

iv.

the investment management agreement between Customer and its investment advisor (“Advisor”) is terminated or the Advisor otherwise ceases to act as investment advisor of Customer; provided, however, such termination or cessation shall not constitute a Facility Termination Event if there is a replacement investment advisor appointed immediately with the consent of the BNPP Entities, such consent shall not be unreasonably withheld;

 

v.

A violation of Section 18 of the Investment 1940 Act; except reliance by Customer on any exemptive relief granted to it by the Securities and Exchange Commission will not be considered a violation of Section 18;

 

vi.

Customer fails to make any filing necessary to comply with the rules of any exchange in which its shares are listed;

 

vii.

Customer’s classification under the 1940 Act becomes something other than as a “closed-end company” as defined under Section 5 of the 1940 Act;

 

viii.

Customer enters into any additional indebtedness with a party other than a BNPP Entity or its affiliates beyond the financing provided hereunder through the 1940 Act Financing Agreements, including without limitation any further borrowings constituting ‘senior securities’ (as defined for purposes of Section 18 of the 1940 Act) or any promissory note or other evidence of indebtedness, whether with a bank or any other person excluding issuances of preferred stock (it being understood that such preferred stock retains all characteristics of an equity security and is not a security that could reasonably be characterized as a debt security);

ix.

Customer materially changes, amends, alters or modifies, either formally or informally, its investment policies without prior written notice to a BNPP Entity;

 

x.

Customer pledges to any other party, other than a BNPP Entity or its affiliates, any securities owned or held by Customer over which Custodian has a lien; or

 

xi.

PBI or BNPP PB ceases to conduct a prime brokerage business; provided that the BNPP Entities shall provide no less than twenty-nine (29) days’ prior written notice of such cessation.

 

14.

[Reserved.] -

 

15.

Notices -

 

Notices under this Agreement shall be provided pursuant to Section 12(a) of the Account Agreement.

 

16.

Compliance with Applicable Law -

 

(a)

Notwithstanding any of the foregoing, if required by Applicable Law –

 

i.

the BNPP Entities may terminate any 40 Act Financing Agreement and any Contract;

 

ii.

the BNPP Entities may recall any outstanding loan under the 40 Act Financing Agreements;

 

iii.

the BNPP Entities may modify the Collateral Requirements; and

 

iv.

the BNPP Entities may take Default Action.

 

(b)

This Agreement will not limit the ability of the BNPP Entities to change the product provided under this Agreement and the 40 Act Financing Agreements as necessary to comply with Applicable Law.

 

(c)

The BNPP Entities may exercise any remedies permitted under the Contracts if Customer fails to comply with Applicable Law.

 

17.

Miscellaneous -

 

(a)

In the event of a conflict between any provision of this Agreement and the other 40 Act Financing Agreements, this Agreement prevails.

 

(b)

This Agreement is governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflict of laws doctrine.

 

(c)

Section 16(c) of the Account Agreement is hereby incorporated by reference in its entirety and shall be deemed to be a part of this Agreement to the same extent as if such provision had been set forth in full herein.

 

(d)

This Agreement may be executed in counterparts, each of which will be deemed an original instrument and all of which together will constitute one and the same agreement.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of March 9, 2023.

 

	Each Customer identified in Annex I, severally and not jointly
	By: RiverNorth Capital Management, LLC as Investment Manager
	By:	/s/ Marcus Collins
		Name: Marcus Collins
		Title: General Counsel
	BNP PARIBAS PRIME BROKERAGE INTERNATIONAL, LTD.
	By:	/s/ Michael Krzewicki
		Name: Michael Krzewicki
		Title: Managing Director
	By:	/s/ Robert Lakeman
		Name: Robert Lakeman
		Title:    Director

 

 

AGREEMENT FOR PRIME BROKERAGE

 

Office BX8003002

 

Account(s): RiverNorth Specialty Finance Corporation

 

This Agreement for Prime Brokerage and all annexes hereto (together, this “Agreement”) is entered into with the undersigned (“Client”) and Pershing LLC (“Pershing”). Capitalized terms used in this Agreement and not otherwise defined are defined in Section V. Paragraph 33. Definitions. In consideration of Pershing opening and/or maintaining one or more deposit, custody, securities or other accounts (“Account”) for Client, Client agrees as follows:

 

I.

PRIME BROKERAGE SERVICES

 

In addition to maintaining the Account with Pershing and executing transactions therein, Client maintains brokerage accounts with a number of other brokers and may, from time to time, place orders to be executed by one or more of these brokers designating Pershing as Client's prime broker in accordance with the letter dated January 25, 1994 from the Division of Market Regulation of the Securities and Exchange Commission (or, if applicable, any subsequent amending or superseding letter or order, rule or regulation) (the “No-Action Letter”). Subject to the terms and conditions set forth herein, Pershing agrees to act as prime broker for Client and to perform certain settlement and clearance services in connection with such transactions (“Prime Brokerage Transactions”).

 

1. Applicable Transactions; Limitations. The terms of this Section I shall apply only to Prime Brokerage Transactions executed by Client with such brokers as Client may designate to Pershing and which are acceptable to Pershing. Such brokers will either be self-clearing executing brokers or introducing executing brokers. If the latter, Client will provide to Pershing the name of the firm clearing for Client's introducing executing broker. In either case, the self-clearing executing broker and/or the clearing firm of the introducing executing broker, is referred to herein as the “Executing Broker”. Client and Pershing may each add to or delete from the list of Executing Brokers by not less than one (1) Business Day’s prior notice to the other party, provided that no addition may be made without Pershing’s consent (which shall not be unreasonably withheld) nor will any addition be effective until all documentation required by Pershing in its discretion has been completed. Notwithstanding the forgoing, Pershing may delete an Executing Broker from the list immediately upon notice if in Pershing’s discretion Pershing deems it advisable for its protection.

 

The terms as set forth in this Agreement shall apply only to Prime Brokerage Transactions in debt and equity securities cleared and settled through United States clearance and settlement systems and in such other securities and instruments as are otherwise specifically approved by Pershing for clearance for the purposes of being governed by the terms as set forth in this Section I (all such securities and instruments, being “Covered Securities”). It is expressly understood and agreed that, with respect to Prime Brokerage Transactions in non-Covered Securities, Pershing shall have no obligation to Client or to any third party to clear or settle trades executed by Client, and Client shall inform its Executing Brokers that the Executing Broker may look only to Client for the settlement of such Prime Brokerage Transactions and the resolution of any claim or dispute relating thereto. In the event that Pershing facilitates transactions in non-Covered Securities, Client understands that settlement and processing practices with regard to such securities may differ, including transactions which may involve a process other than delivery vs. payment, and Pershing shall not be responsible for any Losses related thereto, including but not limited to late delivery, late receipt, non-delivery or non-receipt of assets and Client agrees to indemnify and hold harmless Pershing for any Losses in connection therewith unless arising from Pershing’s gross negligence or willful misconduct.

 

2. Client Acknowledgement. Client acknowledges that Prime Brokerage Transactions are subject to Applicable Law and to the requirements of the No-Action Letter. Client further acknowledges that Pershing will, as required by the No-Action Letter and Applicable Law, enter into contractual arrangements pertaining to Prime Brokerage Transactions for Client’s account (“Contractual Arrangements”) with the Executing Brokers identified on the list described above. Client acknowledges and agrees that Pershing shall have no suitability obligation or liability to Client in connection with trades placed by Client or for Client by an investment adviser or other agent or for complying with such Contractual Arrangements. Client agrees to indemnify and hold harmless Pershing for any Losses related thereto unless arising as a result of Pershing’s gross negligence or willful misconduct.

 

3. Accounts with Executing Brokers. Client shall not begin to effect Prime Brokerage Transactions with an Executing Broker until Client advises Pershing of its intent to do so and Pershing thereafter advises Client that Pershing and the Executing Broker have executed the appropriate Contractual Arrangements with respect thereto. Client understands and agrees that the Contractual Arrangements may affect Pershing’s dealings with Clients. Client agrees to accept any restrictions or limitations affecting its Account with Pershing that may result from such Contractual Arrangements and Pershing’s dealings with Executing Brokers. Pershing reserves the right at any time to place a limit on the type or size of Prime Brokerage Transactions which may be effected by Client with Executing Brokers generally or with any particular Executing Broker. Client acknowledges that Pershing has not recommended or endorsed any Executing Brokers and Pershing shall not be responsible or liable for any acts or omissions of any Executing Broker or its employees. Client agrees that, as between Pershing and Client, any Losses resulting from any action or failure to take action by an Executing Broker or its agents or other third party with respect to Client or its Accounts, including, without limitation, the insolvency of any such party or the failure of any such party to fulfill its settlement obligations, will be borne solely by Client and Client agrees to indemnify Pershing, and to hold Pershing harmless, in connection therewith, unless such Losses are a result of Pershing’s gross negligence or willful misconduct.

 

 

4. Communications with Executing Brokers. Client understands and agrees that Pershing may be required by the No-Action Letter, Applicable Law or by the Contractual Arrangements, or that Pershing may otherwise reasonably deem it necessary or appropriate, to communicate information concerning Client and the Account to Executing Brokers. Such information may include: (i) whether the net equity in the Account falls below certain minimums as set forth in the No-Action Letter and established by Pershing; (ii) information regarding the allocation of Prime Brokerage Transactions to sub-accounts, if applicable; (iii) other matters requested by Executing Brokers; and (iv) such other information as Pershing may reasonably deem necessary or appropriate for Pershing’s own protection, provided the release of such information is in accordance with Applicable Law, and, to the extent such information is Confidential Information (defined below), Pershing’s Privacy Policy. Client hereby consents to, and agrees to hold Pershing harmless with respect to, the release to Executing Brokers of any and all information regarding Client and the Account in accordance with the foregoing absent the gross negligence or willful misconduct of Pershing.

 

5.a. Reporting of Trade Information. Client agrees to notify Pershing (or cause Pershing to be notified by persons it has authorized in writing to do so) by 5:30 P.M. (Eastern Time) on any trade date of the details of all Prime Brokerage Transactions effected by or on behalf of Client through Executing Brokers for such date. Client will supply Pershing with the following information to the extent known for each transaction: (a) Account Name; (b) Name of Executing Broker (and clearing broker, if different); (c) Security name, quantity and security symbol (or CUSIP number if no security symbol exists or is known); (d) Whether transaction is a buy, buy to cover, sell, sell short exempt or sell short transaction; (e) Price per share or other unit (if a trade is to be reported on an average price basis, Client must compute the average price to four decimal places); (f) Exchange or other market where executed; (g) Commission rate; (h) Total execution and commission costs; (i) If an options transaction is involved, whether the transaction is an opening or closing transaction; (j) The trade date and settlement date; (k) For trades in non-U.S. markets, all other information required for Pershing to settle such trades; and (1) settlement instructions.

 

Client understands and agrees that, subject to the provisions of this Agreement and Pershing’s internal policies and procedures, Pershing will affirm and settle transactions with an Executing Broker only to the extent that the information provided by such Executing Broker matches the trade information submitted to Pershing by Client. If Client has provided information to Pershing that does not match the information provided to Pershing by the Executing Broker, and if time permits, Pershing will make a reasonable attempt to contact Client so that Client can reconcile the differences in the reported information. If such contact and reconciliation is not made, Pershing may, in Pershing’s discretion choose to settle such Prime Brokerage Transactions on Client's behalf if, in Pershing’s sole judgment, the differences between Client’s report and the Executing Broker’s report are not material. Client expressly acknowledges and agrees that Pershing shall have no responsibility or liability and Client shall indemnify and hold Pershing harmless with respect to any trade data that is not accurate or received by Pershing in the manner provided above.

 

5.b. Short Sales. Client further understands and agrees that if Pershing is responsible for settling a short sale on behalf of Client, or if Client fails to deliver any securities it has sold in a long sale, Pershing is authorized to borrow or obtain the securities necessary to enable Pershing to make delivery. Client agrees to be responsible for any cost, fee or loss associated with sourcing or maintaining the borrow, or the actual cost Pershing incurs in obtaining the securities if Pershing is unable to borrow such securities.

 

5.c. Prime Broker Ceasing to Act. Client understands and agrees that Pershing may, (a) at any time, cease to act as prime broker for Client's Account, (b) decline to affirm, clear and settle any Prime Brokerage Transaction for any reason it reasonably deems advisable for its protection, (c) at any time decline to affirm, clear and settle any transactions effected by an Executing Broker other than a Prime Brokerage Transaction or (d) in accordance with the terms hereof, terminate this Agreement. Pershing will make a reasonable effort to provide notice of such action, provided that failure to provide such notice shall not be a condition precedent to Pershing’s right to take such action.

 

 

5.d. Affirmation and Settlement. Client further acknowledges that, Pershing may, in its sole discretion, decline to settle Client's Prime Brokerage Transactions. In any such case, Pershing will use reasonable efforts to so advise Client promptly and Pershing will “DK” or disaffirm such transaction or transactions in accordance with the terms of the No-Action Letter, the Contractual Arrangements, and applicable rules and procedures of any clearing agency registered pursuant to Section 17A of the Securities Exchange Act of 1934 (the “Exchange Act”) that Pershing has agreed to use with Client and its Executing Brokers. Failure to so advise Client shall not be a condition precedent to Pershing’s rights to “DK” or disaffirm such transaction(s). Under such circumstances, Client acknowledges that it will be obligated to settle the Prime Brokerage Transactions directly with the Executing Broker.

 

6. Confirmations. If Client has instructed Executing Brokers to send trade confirmations to Client in care of Pershing, Pershing agrees that such confirmations will be made available to Client, without charge, upon its request. On the day following Pershing’s receipt of information from Client regarding any Prime Brokerage Transaction, Pershing agrees to send to Client a notification of each such trade based on the information supplied to Pershing by Client. Any trade notifications issued by Pershing as prime broker shall indicate the name of the Executing Broker involved and the other information required by the No-Action Letter, provided that Pershing shall have received such information in the manner and to the extent provided herein from Client. Client acknowledges that Pershing has requested that Client supply Pershing with all information required by Rule 10b- 10 under the Exchange Act with respect to each Prime Brokerage Transaction. Client understands and agrees that the notifications sent by Pershing will be based solely upon the information supplied by Client and that Client will be solely responsible therefore. Client agrees that Pershing assumes no responsibility, and Client will indemnify and hold Pershing harmless in connection therewith absent Pershing’s gross negligence or willful misconduct.

 

7. Status of Client. Client represents and warrants to Pershing that no one except Client has a direct beneficial interest in the Account. In the event that Client is represented by an investment advisor or other agent, Client acknowledges and agrees that such agent is authorized to instruct Pershing with respect to Client's Prime Brokerage Transactions and shall have all powers necessary in connection therewith, including, without limitation, full access, personally or through its agents, to Client's Account information through whatever medium Pershing may choose for transmitting such information pursuant to Pershing’s agreement with such agent. Client further acknowledges that Prime Brokerage Transactions authorized by such an agent may, at such agent's instruction, be commingled with those of other customers of the agent for settlement as a single bulk trade with Pershing, may be reported on an average price basis, and may later be allocated by such agent among such customers. Client acknowledges that if any such customer’s account fails to satisfy the minimum net equity requirements in the No-Action Letter, Pershing may not be able to effectuate the entire bulk trade, and upon such event, Client agrees that the agent may resubmit the bulk trade excluding any such customer’s account within any required deadlines. Client agrees that Pershing shall in no event be responsible for making any determination relating to the suitability of any transaction for Client's Account.

 

8. Minimum Net Equity. Client shall, at all times, maintain in the Account a minimum net equity with Pershing of that required (i) in the No-Action Letter and (ii) by Pershing. Client shall maintain such minimum net equity in cash or securities with a ready market and shall, upon Pershing’s request, promptly (but no later than within five (5) Business Days) restore such net equity if it should fall below such minimum. Client understands and agrees that failure to maintain a minimum net equity at least equal to that required by the No-Action Letter, after giving effect to any applicable grace period, will require Pershing promptly to inform Executing Brokers that Pershing is no longer acting as prime broker for Client and that Pershing will “DK” or disaffirm any Prime Brokerage Transactions commenced thereafter by or on behalf of Client.

 

9. Restricted Securities. Prior to instructing the delivery into Client’s Account (by purchase or otherwise) of any securities (i) subject to Rule 144 or Rule 145(d) or Regulation S under the Securities Act of 1933, (ii) subject to any Applicable Law restricting or limiting transfer or distribution thereof, (iii) subject to any other Applicable Law relating to restricted or control securities or (iv) that are otherwise contractually restricted (“Restricted Securities”), Client agrees that it is responsible for ensuring that Client’s Account is eligible to receive such Restricted Securities. Additionally, prior to placing an order for the sale or transfer of any Restricted Securities, Client agrees that it will advise the relevant Executing Broker of the status of the securities and furnish such Executing Broker with the necessary documents (including opinions of legal counsel, if it so requests) to satisfy legal transfer requirements. These securities may not be sold or transferred until they satisfy legal transfer requirements. Client agrees that even if the necessary documents are furnished by it in a timely manner, there may be delays in the delivery of securities and the subsequent crediting of cash by Pershing to Client’s Account. Client is responsible for any delays, expenses, and Losses associated with compliance or failure to comply with any and all of the requirements and rules relating to Restricted Securities and agrees to hold Pershing harmless in connection therewith.

 

 

10. Timely Settlement. Client agrees that it is responsible to Pershing for timely payment and delivery in connection with the settlement of all Prime Brokerage Transactions for which Pershing becomes responsible pursuant to the Contractual Arrangements. Client agrees to cooperate with Pershing in resolving disputes with Executing Brokers related to settlement of Prime Brokerage Transactions. Client will be responsible for any Losses, including but not limited to those resulting from buy-ins or sell-outs of securities, resulting from failure to timely settle such transactions and will hold Pershing harmless in connection therewith, absent Pershing’s gross negligence or willful misconduct.

 

11. Provisional Credits. Client understands and agrees that although Pershing may credit or debit Client's account on or about the settlement date with respect to a transaction executed by an Executing Broker, such credit is conditional and may be reversed upon the failure of the Executing Broker's delivery against payment or payment against delivery, as applicable. Any Losses resulting from the Executing Broker's failure to consummate any such transaction will, as between Pershing and Client, be borne solely by Client and Pershing shall have no responsibility or liability to Client or any third party with respect thereto, and Client shall indemnify and hold harmless Pershing with respect to the foregoing, absent Pershing’s gross negligence or willful misconduct.

 

12. Security. Client shall be responsible for safeguarding any testkeys, identification codes or other security devices which Pershing shall make available to Client, including any of the foregoing used to transmit instructions, and Pershing shall have no liability for any loss incurred by Client arising out of any failure or misuse of SWIFT, tested telex or any “on-line” system used to transmit instructions.

 

13. Capital Introduction and Consulting Services. Client understands and agrees that Pershing may provide capital introduction services and consulting services to Client’s Investment Advisor and/or Sub-Advisor (the “Advisor”). Capital introduction services involve Pershing introducing potential investors to Advisor. Consulting services may take the form of, but are not limited in scope to, assistance with identifying technology and design and build professional service providers, assistance with facilities management requirements, applications and business processes and service providers, property searches, information technology project management and office design and build project management.

 

By executing this Agreement and continuing to receive prime brokerage services from Pershing, Client is acknowledging that from time to time Pershing may be subject to actual or potential conflicts of interest arising out of the provision of these services to Advisor, including, for example, that the fees, commissions and other revenues Pershing earns or expects to earn through an Account may be a significant factor in Pershing’s determining whether Advisor receives capital introduction services or receives consulting services from Pershing.

 

Client also acknowledges that in the event that Pershing has provided or provides consulting services to Advisor, Pershing has or may develop business relationships with, and earn fees, commissions and other revenues from, third party service providers brought to the attention of Advisor by Pershing. Such relationships with third party service providers may conflict with any relationship Pershing has or may develop with Client or Advisor.

 

In the event Pershing provides capital introduction or consulting services to Advisor, such services will be in complement to, and not in place of, the services provided by Advisor’s independent professional advisors and service providers. The capital introduction or consulting services that may be provided by Pershing to Advisor do not form any part of the prime brokerage services provided to Client by Pershing and no fees are payable by Client or Advisor in respect of such services.

 

Client should not construe Advisor’s receipt of capital introduction services or consulting services as an approval or endorsement of Advisor or any of its advisory Clients. Pershing shall be under no obligation to disclose to Client any information it obtains in the course of providing capital introduction or consulting services to Advisor.

 

II.

ELECTRONICALLY PROVIDED SERVICES AND INFORMATION

 

Pursuant to the terms and conditions of this Agreement, Pershing may allow access to Pershing’s proprietary platform, currently named NetX360 (the “Pershing Platform”). The Pershing Platform may permit Client’s Users (defined below) to (i) enter, facilitate or route orders or trading in Client’s Account, (ii) access and use software, system, network, website, or similar facilities or services, (iii) access research reports or materials, market data (including valuations of securities or other assets), news, documents and other information reports, analytics, calculators, data or content, or (iv) view and/or download information about Client’s Account with Pershing or activity therein. The foregoing are collectively referred to as the “Electronic Services”. Pershing will require Client to complete and execute an Electronic Access Form from time to time to obtain access to the Electronic Services for Client’s designated users. Such Electronic Access Form to supplement and form part of this Agreement. Client agrees to use the Electronic Services in accordance with the terms of this Agreement and the Electronic Access Form.

 

Client may also from time to time execute an Authorization for Electronic Delivery. Such Authorization for Electronic Delivery to supplement and form part of this Agreement. If Client executes the Authorization for Electronic Delivery, Pershing may deliver prospectuses, disclosure documents, monthly account statements, confirmations and other communications (collectively, the “Delivered Documents”) electronically, in accordance with the terms of the Authorization for Electronic Delivery. All documents delivered pursuant to the Authorization for Electronic Delivery are referred to as the “Electronically Delivered Documents”.

 

 

Any information obtained via either the use of the Electronic Services or from Electronically Delivered Documents is referred to herein as the “Electronic Services Data”.

 

Client is responsible for having any necessary hardware, software or other technology to access the Electronic Services and any Electronically Delivered Documents and to print, download and store any information that Client may wish to retain.

 

If Client does not elect to enter into either the Electronic Access Form or Authorization for Electronic Delivery, Pershing will send or will have a third party send paper copies of any information that the law requires Pershing to provide. Pershing may charge a reasonable service charge for the delivery of paper copies. Client agrees, however, that neither Client’s request for, nor Pershing’s delivery of, a paper copy will imply that any previous electronic delivery of documents or information did not constitute good and effective delivery.

 

Capitalized terms used but not defined herein shall have the meanings set forth in the Electronic Access Form and the Authorization for Electronic Delivery.

 

1. Electronic Services. Client acknowledges and agrees that the Electronic Services may only be used by a User to whom Pershing has issued a User ID and a Password, in accordance with the Electronic Access Form. Client acknowledges and agrees that only persons to whom Pershing has issued a User ID may use the Electronic Services under such User ID. Client shall not permit any User, and shall ensure that its Users do not, share any User IDs or Passwords with others, and must notify Pershing immediately if it knows or suspects that the confidentiality of any Password has been compromised. Client agrees to be bound by any transactions in Client’s Account, the terms of this Agreement any agreements related to the Electronic Services and Client is fully responsible for all acts and omissions relating to the use of the Electronic Services for its Account and the use of information and documentation provided thereby. Client agrees that it is fully responsible for any acts and omissions relating to the Electronic Services by any person who uses the User ID and Password of any of Client’s Users, whether or not authorized to use any User ID or Password. Client further agrees to abide by all other rules and procedures regarding the use of the Electronic Services that Pershing may establish from time to time. Client agrees that Pershing may communicate such rules and procedures by posting them on the Pershing Platform that Pershing uses to deliver the Electronic Services. Pershing reserves the right to terminate, suspend or change any User ID or Password and to limit or restrict, in its sole discretion, the Electronic Services or Electronic Services Data offered to Client or any User. Unless authorized by Pershing, the Electronic Services may only be used by Users located in the United States who reside within the United States.

 

2. Information Made Available Through The Electronic Services.

Subject to any restrictions on use of Market Data that appear on the Electronic Services or are otherwise provided to Client, Client is permitted to store, display, analyze, modify, reformat and print the Electronic Services Data only for its own use. Client agrees not to publish, transmit or otherwise distribute the Electronic Services Data (other than Client specific Account and holdings information), in whole or in part, or in any format to any third party without the express written consent of Pershing. Client further agrees not to alter, obscure or remove any copyright, trademark or any other notices that are provided to Client in connection with the Electronic Services Data. Pershing reserves the right, at any time, to add, modify or remove any of the Electronic Services Data. Pershing will make reasonable efforts to notify Client prior to taking such actions if practical under the circumstances. However, such notice is not a condition precedent to taking such actions. Other than the limited permissions stated in this Agreement, Client does not receive any rights in or to the Electronic Services or Electronic Services Data, by implication, estoppel or otherwise. Pershing and its third party providers retain all right, title and interest in and to the Electronic Services and Electronic Services Data.

 

3. Representation and Warranties. Client represents and warrants that: (a) Client will not use the Electronic Services or any Electronic Services Data in contravention of the terms of this Agreement, Pershing’s rules and procedures regarding the use of the Electronic Services, the Electronic Access Form, the Authorization for Electronic Delivery or any applicable rules and regulations, (b) Client will use the Electronic Services and Electronic Services Date only for the benefit of Client’s Account and not on behalf of any other party, (c) with the exception of Web browser software and other applications specifically approved by Pershing in writing, Client agrees not to use (or allow another person to use) any software, program, application or other device, directly or indirectly, to access or obtain information through the Electronic Services or to automate the process of accessing or obtaining such information through the Electronic Services, and (d) any information that Client provides to Pershing will be accurate and complete in all material respects. Neither Pershing nor any third party provider make any warranty whatsoever, express or implied, to Client or to any other persons as to the Electronic Services or Delivered Documents. Client expressly acknowledges and agrees that the Electronic Services and Delivered Documents are provided by Pershing and its third party providers on an “as is” basis at Client’s sole risk and that Pershing and its third party providers expressly disclaim any implied warranties of merchantability, noninfringement or fitness for a particular purpose, including any warranty regarding the use or the results of the use of the services with respect to their correctness, completeness, quality, reliability and performance. Neither Pershing, nor any third party contributing in any manner to the Electronic Services or Delivered Documents will have any responsibility to maintain the Electronic Services or Delivered Documents or to provide any corrections, updates or releases in connection with them.

 

 

4. Limitation of Liability; Indemnity.

a. Except as otherwise provided by law, Pershing shall not be liable for any Losses by or with respect to any matters pertaining to the Electronic Services, except to the extent that such Losses are actual Losses and are determined by a court of competent jurisdiction or an arbitration panel in a final non-appealable judgment or order to have resulted from Pershing’s gross negligence or willful misconduct.

 

b. Client agrees that, absent Pershing’s gross negligence or willful misconduct, Pershing will have no liability, contingent or otherwise, to Client or any of Client’s Users: (i) for the correctness, completeness, quality, reliability, performance or continued availability of the Electronic Services or Delivered Documents, (ii) for any special, punitive, indirect, incidental or consequential damages (including lost profits, trading losses and damages) that may be incurred or experienced on account of Client’s or Delivered Documents even if Pershing has been advised of the possibility of such damages, (iii) for any failure to inform Client of difficulties (including systems delays) experienced by Pershing or third party providers with respect to the use of the Electronic Services or Delivered Documents, (iv) to verify, correct, complete or update any information made available via the Electronic Services or Delivered Documents, or (v) for the failure of any connection to the Electronic Services to provide or maintain Client’s access to the Electronic Services, or for any interruption or disruption of such access or any erroneous communications between Pershing and Client, regardless of whether the connection or communication service is provided by Pershing or a third party. For the avoidance of doubt, Pershing shall not in any event, including but not limited to Pershing’s gross negligence, be liable for any special, punitive, indirect, incidental or consequential damages (including lost profits, trading losses and damages).

 

c. Furthermore, Client agrees that the liability of Pershing arising from a failure of the Electronic Services will not exceed $100,000, except to the extent that such liability is determined by a court of competent jurisdiction or an arbitration panel in a final non-appealable judgment or order to have resulted from such Pershing entity’s gross negligence or willful misconduct. Notwithstanding the forgoing, Pershing’s liability shall be limited to actual and direct damages. Pershing shall, in no way, be liable for special, punitive, indirect, incidental or consequential damages (including lost profits, trading losses and damages).

 

d. Client agrees to indemnify and hold harmless Pershing from and against any and all Losses, as incurred, arising from Client’s or any of Client’s Users’ actions: (i) alleging a false or misleading statement in any of the representations and warranties provided by Client in this Section II of the Agreement or (ii) arising out of a material violation of this Section II of the Agreement.

 

As used in this Paragraph 5, the term Pershing includes all of the third party providers who provide Pershing with or otherwise assist it with any portion of the Electronic Services. Such third party providers will have no liability to Client for monetary damages on account of the Electronic Services provided to Client under this Section II of the Agreement.

 

5. Internet Communications. Client acknowledges, that with regard to the services and documentation provided in this Agreement, including services in other sections of this Agreement, the Internet is not a secure network and that communications transmitted over the Internet may be accessed by unauthorized or unintended third parties. Client further acknowledges that Pershing may be unable to assist with problems that result from difficulties that Client may encounter while logging on to or accessing the Electronic Services or other services, documents or communications pursuant to this Agreement.

 

III.

MARGIN FINANCING

 

If Client intends to borrow funds in connection with Client’s Account, Client must open a margin account with Pershing. By applying for a margin account or placing an order on margin, Client acknowledges receipt of Pershing’s Margin Disclosure Statement.

 

1. Risk Factors. Client agrees to carefully consider Client’s own financial condition, tolerance for risk and investment objectives, as well as market conditions, before Client decides to use margin credit or short selling strategies. Client acknowledges that Pershing has made available to Client certain information relating to margin trading and that before submitting Client’s application for a margin account, Client represents and warrants to Pershing that Client has had an opportunity to discuss with Pershing the risks associated with the use of margin and that the use of margin is consistent with Client’s investment objectives as provided to Pershing. “Margin” shall mean all funds, securities, or other property constituting Collateral required to be provided by Applicable Law or Pershing in connection with any Obligation, Account or Contract.

 

Client remains solely liable for any deficiencies arising from the use of margin in its Account.

 

 

2. Margin Account Operation. Client agrees, with respect to the Account, as Pershing may, in its sole discretion require Client to (i) deposit such Margin, (ii) maintain such Collateral, and (iii) pay any amount that may become due for additional deposits or “marks to market” for any transaction, including those involving foreign exchange and unissued securities Client may purchase or sell. Client agrees to deposit, maintain or pay such amounts in accordance with the On Demand timing requirements.

 

3. Rehypothecation and Use. Client agrees that Collateral in Client’s Account may be carried in Pershing’s general loans and may be pledged, repledged, hypothecated, rehypothecated, sold, lent, used or otherwise transferred separately or in common with other securities for the sums due to Pershing thereon or for a greater sum, as permitted by law. Client acknowledges that Collateral may be used for, among other things, settling short sales and lending the securities for short sales, and as a result, Pershing may receive compensation in connection therewith. Provided, however, that, for the avoidance of doubt, nothing herein shall be deemed to grant authority to Pershing to loan, pledge, hypothecate, re-hypothecate, sell or re-register “fully paid securities” or “excess margin securities”, as such terms are defined in Rule 15c3-3. Pershing does not lend fully paid for securities without Client’s written permission.

 

Client understands (i) that Pershing might not retain, in its possession or control for delivery a like amount of similar securities; and (ii) that certain rights of ownership, including the right to vote such securities or the right to receive dividends directly from the issuing company, may be transferred to Pershing or by Pershing to others and that, as a consequence, Client may not maintain the voting rights in such securities and may receive payments-in-lieu of dividends which may not be eligible for certain dividend tax benefits based on current tax laws.

 

Client agrees that Pershing may, in its sole discretion, transfer Collateral held in Client’s Account, including Client’s cash account, to Client’s margin account. Any Collateral so transferred may be pledged or rehypothecated by Pershing as provided in this Agreement.

 

4. Margin Loan. The parties acknowledge that the cash loans provided hereunder are each a “margin loan” as used in the definition of “securities contract” in the United States Bankruptcy Code (11 U.S.C. Section 741).

 

IV.

INTEREST CHARGES DISCLOSURE STATEMENT

 

Client agrees to pay interest charges which may be imposed by Pershing in accordance with the terms this Section, in conjunction with any transaction, including for securities purchased in Client’s Account and prepayments in Client’s Account (i.e., the crediting of the proceeds of sale prior to settlement date or prior to receipt by Pershing of the item sold in good deliverable form). Client acknowledges review of the terms of this Section.

 

1. Interest Rates. Pershing in its sole discretion will charge interest on any debit balances in the Account. Interest charged on any debit balances in cash accounts or credit extended in margin accounts shall consist of the Base Rate plus or minus the interest rate spread for that currency as determined by Pershing. The Base Rate for each currency will be set with reference to commercially recognized interest rates, industry conditions relating to the extension of credit, and general credit market conditions. For a loan in a currency other than U.S. dollars, the Base Rate will be set based on the above-referenced criteria in the country whose currency is the basis of the loan. The Base Rate and interest rate spread for each currency may change without prior notice. When the Base Rate for a particular currency or interest rate spread changes during an interest period, interest will be calculated according to the number of days each rate is in effect during that period.

 

2. Interest Period. The interest period begins on the 20th of each month and ends on the 19th of the following month. Accordingly, the interest charges for the period as shown on Client’s monthly statement are based only on the daily net debit and credit balances for the interest period.

 

3. Method of Interest Computation and Related Charges. At the close of each interest period during which credit was extended to Client, an interest charge is computed by multiplying the average daily debit balance for that currency by the applicable schedule rate and by the number of days during which a debit balance was outstanding and then dividing by 360. If there has been a change in the rate that currency, separate computations will be made with respect to each rate of charge for the appropriate number of days at each rate during the interest period. If not paid, the interest charge for credit extended to Client’s account at the close of the interest period is added to the opening debit balance for that currency for the next interest period.

 

With the exception of credit balances in Client’s short account, all other credit and debit balances in the same currency will be combined daily and interest will be charged on the resulting average daily net debit balances for that currency for the interest period. Credit balances in one currency will not be combined or netted with debit balances in a different currency. If there is a debit in Client’s cash account and Client holds a margin account, interest will be calculated on the combined debit balance for that currency and charged to the margin account. Any credit balance in Client’s short account is disregarded because such credit collateralizes the stock borrowed for delivery against the short sale. Such credit is disregarded even if Client should be long the same position in Client’s margin account (for instance, short sale against the box). If the security that Client sold short (or sold short against the box) appreciates in market price over the selling price, interest will be charged in U.S. dollars or any other currency on the appreciation in value.

 

 

Correspondingly, if the security that Client sold short depreciates in market price, the interest charged will be reduced since Client’s average debit balance will decline. This practice is known as “marking-to-the-market.” All short positions will be “marked to market” on a daily basis. A closing price is issued and reconciled daily to determine any appreciation or deprecation in the security sold short.

 

V.

GENERAL PROVISIONS

 

1. Obligations. Upon written or oral demand confirmed in writing as promptly as practicable by Pershing, Client shall pay Pershing in immediately available U.S. funds, any principal balance of, accrued but unpaid interest on, any Obligation.

 

Client authorizes Pershing to automatically debit Client’s Account in payment of any Obligations.

 

2. Automated Systems. Client consents to the use of automated systems or service bureaus by Pershing in conjunction with Client’s Account, including, but not limited to, automated order entry and execution, recordkeeping, reporting and account reconciliation and risk management systems (collectively “Automated Systems”). Client understands that the use of Automated Systems entails risks, such as interruption or delays of service, system failure and errors in the design or functioning of such Automated Systems (collectively, a “System Failure”) that could cause substantial damage, expense or liability to Client.

 

3. Exchange or Market. Client’s Account and transactions effected and/or executed through the Account will be subject to and shall be in accordance with the rules and customs of any applicable national securities exchange, electronic communication network, national securities association, alternative trading system, contract market, derivatives transaction execution facility or other exchange or market (domestic or foreign) (each an “Exchange” and collectively “Exchanges”) and their respective clearing houses, as well as any applicable self- regulatory organization, if any, where the transactions are executed, or that otherwise apply to Client’s Account or transactions, and in conformity with Applicable Law and regulations of governmental authorities and future amendments or supplements thereto, and Client agrees to use the Accounts only in accordance with such rules, customs, laws and regulations. Client understands that the Exchanges have the right to break any executed transaction on various grounds, including if the executed transaction was, in their opinion, “clearly erroneous,” and Pershing will not be liable for such broken transactions unless such broken transactions are caused in whole or part by Pershing’s gross negligence or willful misconduct.

 

4. General Lien; Delivery of Collateral. Client hereby grants a continuing first priority perfected security interest in, lien in and right to net and setoff against, all Collateral as security for the performance of all of Client’s Obligations to Pershing. Client shall execute such documents and take such other action as Pershing shall request in order to perfect Pershing’s rights with respect to any such Collateral. In addition, Client appoints Pershing as Client’s attorney-in-fact to act on Client’s behalf to sign, seal, execute and deliver all documents, and do all acts, as may be required, or as Pershing shall determine to be advisable, to perfect the security interests created hereunder in, to provide for Pershing control of, or to realize upon any rights of Pershing in, any or all of the Collateral. Client further agrees that Pershing may, in its discretion at any time, require Client to make a payment of Margin or deliver Collateral and secure Client’s performance of any obligations to Pershing. Such payment of Margin or delivery of Collateral shall be, in such amount and form and to such account or recipient as Pershing shall specify, in accordance with On Demand requirements. All Collateral delivered to Pershing shall be free and clear of all prior liens, claims and encumbrances and Client will not cause or allow any of the Collateral to be subject to any adverse claims, liens, security interests, mortgages or encumbrances of any nature (other than solely in Pershing’s favor).

 

The security interest, lien and right of set-off granted herein shall (i) remain in full force and effect until the full and final payment, performance and discharge by Client of all of its Obligations, and the termination of this Agreement by the parties, (ii) be binding upon Client, its successors and permitted assigns, and (iii) inure the benefit of, and be enforceable by, Pershing and its respective successors, transferees and assigns.

 

Pershing may, in its sole discretion and without notice to Client, deduct any amounts from Client’s Account and apply or transfer any of the Collateral interchangeably between any Accounts in which Client has an interest, each of which constitutes unconditional security for all Obligations of Client to Pershing. With respect to Collateral, Pershing shall have the right, but in no event the obligation, to apply all or any portion of such Collateral to Client’s Obligations to Pershing under a Contract. Under no circumstances shall any Collateral pledged principally to secure certain Obligations to Pershing under a Contract be required to be applied or transferred to secure other Obligations to Pershing or to be released if Pershing determines that subsequent to such transfer Pershing would be undersecured with respect to any Obligations of Client (whether or not contingent or matured).

 

Client and Pershing agree that all cash, securities and other property held in or credited to the Account will be treated as “financial assets” under the New York Uniform Commercial Code (“UCC”) and that the Account shall be a securities account under Article 8 of the UCC. For purposes of Articles 8 and 9 of the UCC, to the extent that Client has any control with respect to any such assets, upon the occurrence of a Close-Out Event or Termination Event as defined below, Client shall no longer have any control over such assets.

 

 

5. Close-Out Event; Termination Event. If (i) Client fails to make, when due, any payment or delivery to satisfy any Obligation; (ii) Client defaults in the performance of any other obligation under any transaction or Contract; (iii) any representation or warranty made by Client under any Contract or transaction between the parties is materially incorrect or untrue when made, repeated or deemed to have been made or repeated; or (iv) Client becomes bankrupt, insolvent or subject to any voluntary or involuntary bankruptcy, reorganization, insolvency, levy of attachment or similar proceeding; each such occurrence of default shall be a “Close-Out Event”. If (i) the security interest hereunder is not or ceases to be a first priority perfected security interest; (ii) Pershing ceases to conduct a prime broker business or maintain direct Client accounts; or (iii) for any reason Pershing in its commercially reasonable discretion deems it advisable for its protection, each such occurrence shall be a “Termination Event”. Upon the occurrence of a CloseOut Event or a Termination Event, Pershing may (i) cancel, terminate, accelerate, liquidate and/or close-out any or all Contracts and transactions between Client and Pershing,

 

(ii) sell or otherwise transfer any securities or other property which Pershing may hold for Client or which is due to Client (either individually or jointly with others) and apply the proceeds to the discharge of Client’s Obligations,

 

(iii) purchase or retain any Collateral and/or set-off, net and recoup any obligations (whether physical or financial and whether or not then due) to Client against any Obligations,

 

(iv) exercise all rights and remedies in respect of all Collateral under the UCC (whether or not the UCC is otherwise applicable in the relevant jurisdiction) (v) cover any open positions of Client (by buying in or borrowing securities or otherwise) and (vi) take such other actions as Pershing deems reasonably appropriate; provided that if Applicable Law would stay or otherwise impair the ability of Pershing to take any such action upon any such bankruptcy, reorganization, insolvency or similar proceeding, Pershing will be deemed to have taken such action immediately prior to such bankruptcy, reorganization, insolvency or similar proceeding. Client shall remain liable for any deficiency and shall promptly reimburse Pershing for any Losses incurred thereby, including Losses sustained by reason of an inability to borrow any securities or other property sold for Client’s Account. Client agrees to notify Pershing upon the occurrence of a Close-Out Event and the parties agree to promptly notify each other upon the occurrence of a a Termination Event, but the failure to provide such notice shall not prejudice Pershing’s right to determine that a Close-Out Event or Termination Event has occurred.

 

6. Payments, Fees, Taxes. In addition to the obligation to make payments and deliveries of Margin, Collateral and interest, Client agrees to promptly pay any Obligations with respect to the Account. Except as required by Applicable Law, each payment by Client, and all deliveries of Margin or Collateral, under this Agreement shall be made, and the value of any Margin or Collateral shall be calculated, without withholding or deducting any taxes (including taxes imposed pursuant to sections 1471-1474 of the Internal Revenue Code of 1986, as amended, any regulations promulgated thereunder or any intergovernmental agreement in respect thereof (“FATCA”)), levies, imposts, duties, charges, assessments or fees of any nature, including interest, penalties and additions thereto that are imposed by any taxing authority (“Taxes”). If any Taxes are required to be withheld or deducted, Client shall pay such additional amounts as necessary to ensure that the actual net amount received by Pershing is equal to the amount that Pershing would have received had no such withholding or deduction been required. With respect to amounts paid or credited to Client under this Agreement, Client will provide Pershing with any forms, certificates, documentation or other information reasonably requested by and acceptable to Pershing in order to reduce or eliminate withholding Taxes thereon or comply with any applicable reporting requirements. Pershing is hereby authorized to withhold Taxes from any amounts paid or credited hereunder and remit such Taxes to the relevant taxing authorities to the extent required by Applicable Law. Client acknowledges and agrees that they are familiar with FATCA and as such, are responsible for all FATCA onboarding, tax reporting, withholding and compliance activities, except as otherwise provided in this Agreement. Client further represents (which representation shall be deemed repeated on each day on which this Agreement is in effect) that no amounts paid or credited to Client under this Agreement are subject to any withholding Taxes under FATCA. In addition, Client agrees that if (i) Client either has knowledge of, or the Internal Revenue Service or any other governmental authority notifies Client that Client is not in compliance with any applicable requirements under FATCA, (ii) any Global Intermediary Identification Number provided to Pershing by Client ceases to be valid or fails to appear on any “IRS FFI list” (within the meaning of FATCA), or (iii) any amounts paid or credited to Client may be subject to any withholding Taxes under FATCA, Client will promptly notify Pershing of such fact and take any and all necessary actions such that Pershing is not required to withhold any Taxes under FATCA from any amounts paid or credited to Client under this Agreement.

 

As applicable, Client shall comply with provisions of (i) the intergovernmental agreement entered into by the United States and the jurisdiction of its organization (“IGA”),(ii) UK FATCA or UK CDOT, (iii) the Common Reporting Standard (“CRS”) the standard for automatic exchange of financial account information (“AEOI”) developed by OECD and (iv) the tax laws, rules and regulations of any relevant non-U.S. jurisdiction in which the Client is organized or transacting any business (“Other Non-U.S. Tax Laws”). It is expressly understood and agreed that Pershing will apply only the tax information reporting, withholding and depositing rules that are the responsibility of a US withholding agent under U.S. federal income tax law, rules, regulations and other published guidance and not any provision of the IGA, UK FATCA/UK CDOT, CRS and/or Other Non-U.S. Tax Laws. Upon reasonable request by Pershing, Client shall furnish information and documentation that demonstrates it is compliant with the IGA, UK FATCA/UK CDOT, CRS and/or Other Non-U.S. Tax Laws.

 

 

7. Orders. Except as provided in the next sentence, the giving of each sell order by Client shall constitute a designation of the sale as “long” and a certification that the securities to be sold are owned by Client and, if such securities are not in Pershing’s possession, the placing of such order shall constitute a warranty and covenant by Client that Client shall deliver such securities to Pershing on or before settlement date. If Client maintains a margin account, Client agrees to designate all sell orders as “long”, “short”, or “short exempt”. Client agrees that Pershing may cancel or “buy-in” any sell order, if such securities are not in the Account, are not timely delivered or are not in “good deliverable form.” In a “buy-in,” the party that failed to deliver the securities, or failed to deliver the securities in good deliverable form, is accountable for any resulting Losses. Prior to placing an order for the sale or transfer of Restricted Securities, Client agrees that it will advise Pershing of the status of the securities as Restricted Securities, the nature of such restrictions and furnish Pershing with the necessary documents (including opinions of legal counsel, if Pershing so requests) to satisfy legal transfer requirements. Restricted Securities are subject to the requirements and procedures set forth in Section 1.9. Restricted Securities.

 

Client acknowledges that when Client or Pershing sends an order for Client’s Account to an Exchange for execution, such order may be matched with a bid or offer by affiliated entities of Pershing that are specialists, market-makers and traders of these products on exchanges and in other marketplaces. Client hereby consents to the execution of all or part of Client’s orders with such entities.

 

8. Orders, Average Price Trades. Client acknowledges that Pershing may, in its sole discretion and without prior notice to Client, refuse to accept or execute or clear or settle any order from Client and, in such case, Pershing shall endeavor to give Client prior notice of such refusal. However, prior notice is not a condition precedent to taking such actions. Client agrees that Pershing, in its reasonable discretion, may, but is not required to combine or “bunch” orders for Client’s account with orders for other Clients’ accounts or accounts in which Pershing has beneficial interest and allocate the securities as proceeds acquired among the participating accounts in a manner that Pershing believes is fair and equitable, and in accordance with directions of Client’s agents, if applicable. In addition, there may be circumstances in which Pershing does not obtain the same price or execution for all of Client’s order or for the bunched order described above. In either event, Client will receive an average price for these transactions, unless Client’s agent otherwise instructs. Client agrees that the Pershing confirmation price for such transactions will reference an average price execution and that details will be furnished upon request.

 

Cancellation of any order is not guaranteed and is rarely possible. An order will only be cancelled if the request is received by the market center to which the order was routed and matched with the order to be cancelled before it is executed. Client should not assume that any order has been executed or cancelled until it has received a transaction or cancellation confirmation from Pershing. Any reporting or posting of errors, including execution prices, will be corrected to reflect what actually occurred in the marketplace. A transaction may, under Applicable Laws, be cancelled on the grounds that it was “clearly erroneous” and Pershing shall have no liability for any loss either as a result of any such cancelled transaction or Client’s reliance on such confirmation. System response times may vary due to market conditions, system performance, Internet traffic or other factors. During times of heavy trading volume, orders or cancellation requests received through the Services may take longer to execute or cancel, and orders that are executed may be at prices that diverge significantly from the market price quoted or displayed at the time the order was entered. Absent Pershing’s gross negligence or willful misconduct, Pershing shall have no liability for such delays.

 

9. Pershing is not Providing Advice or Acting as a Fiduciary. Client acknowledges that, unless Pershing has expressly agreed in writing otherwise, Pershing is acting in the capacity of Client’s broker or dealer in connection with any transaction executed for or with Client’s Account and not as a financial adviser or a fiduciary, and no information or services provided by Pershing has formed or shall form a primary basis for any investment decision by or on behalf of Client. Pershing may make available certain information about securities and investment strategies, including its own research reports and market commentaries as well as materials prepared by others. None of this information is personalized or in any way tailored to reflect Client’s personal financial circumstances or investment objectives and the securities or investment strategies discussed might not be suitable for Client. Therefore, Client should not view the fact that Pershing is making this information available as a recommendation to Client of any particular security or investment strategy. To the extent that Client’s transactions differ from a specific recommendation made by Pershing, if any, to Client with respect to the security, size, price and timing of a recommended transaction, or to the extent there have been variations in the facts relevant to the transaction, Client agrees that Pershing has no responsibility for determining the suitability of these transactions to Client

 

 

10. Information, Reports, Statements. Upon Pershing’s reasonable request, Client will promptly furnish to Pershing any information that is reasonably accessible to Client about Client (including financial information) Pershing believes necessary to evaluating Pershing’s relationship with Client. Client represents (which representation shall be deemed repeated on each day on which this Agreement is in effect) that Client’s financial statements or similar documents previously or hereafter provided to Pershing (i) do or will fairly present the financial condition of Client as of the date of such financial statements and the results of its operations for the period for which such financial statements are applicable, (ii) have been prepared in accordance with generally accepted account principles consistently applied and, (iii) if audited, have been certified without reservation by a firm of independent public accountants.

 

Reports or confirmations of the execution of orders and statements of Client’s Account shall be conclusive if not objected to in writing within ten (10) Business Days after forwarding by Pershing to Client by mail, web-reporting or otherwise.

 

Pershing shall be under no obligation to review with Client or confirm to Client any information reporting with respect to Taxes (including Forms 1099-B) provided to Client. Client agrees to promptly notify Pershing in writing if Client makes or revokes any election pursuant to section 475(f) of the Internal Revenue Code of 1986, as amended.

 

11. Custodial Arrangements. If Pershing acts as custodian for the securities and other property in Client’s Account, Pershing is authorized to register such securities and other property in the name of Pershing, or any nominee, including sub-custodians, or cause such securities and other property to be registered in the name of, or in the name of the nominee of, a recognized depository or clearing organization. Client understands that when Pershing holds on Client’s behalf bonds or preferred stocks that are callable in part by the issuer, such securities will be subject to an impartial lottery allocation system in which the probability of Client’s securities being selected as called is proportional to the holdings of all Clients of such securities held in bulk by or for Pershing. Client further understands that Pershing may withdraw such securities from any depository prior to the first date on which such securities may be called unless such depository has adopted an impartial lottery system which is applicable to all participants. Pershing is authorized to withdraw securities sold or otherwise disposed of, and to credit Client’s Account with the proceeds thereof or make such other disposition thereof as Client may direct. Pershing is further authorized to collect all income and other payments which may become due on Client’s securities, to surrender for payment maturing obligations and those called for redemption and to exchange certificates in temporary form for like certificates in definitive form, or, if the par value of any shares is changed, to effect the exchange for new certificates. It is understood and agreed by Client that although Pershing will use reasonable efforts to effect the authorization set forth in the preceding sentence, Pershing will incur no liability absent Pershing’s gross negligence or willful misconduct for its failure to do so. Pershing is subject to Exchange rules and regulations that may require it to forward to its Clients certain written materials relating to the securities and other property in such Client’s account (including proxy materials). Except as otherwise required by these rules and regulations, Pershing is not otherwise responsible for obtaining, notifying Client of its receipt of, or forwarding to Client, any written materials relating to the securities and other property in Client’s Account.

 

Under Rule 15c3-3 of the Exchange Act (“Rule 15c3-3”), Pershing is required to obtain and, thereafter, to maintain possession or control of Client fully-paid securities and excess margin securities, as such terms are defined in that rule. If Pershing determines that it does not have sufficient securities under its possession or control as required (such a condition is referred to as a segregation deficiency), it is required by Rule 15c3-3 to take certain steps to obtain possession or control within that certain period of time set forth in the rule, including, without limitation, by recalling securities from loans. To the extent that Pershing has a segregation deficiency in shares over a record date for a vote, dividend or other corporate action or distribution, Pershing will allocate such deficiency to either (a) the customer(s) to whom such a deficiency is attributed (if any); or (b) if the deficiency cannot practically be attributed to any particular customer, Pershing will allocate such deficiency to its customers using a random impartial lottery. Client understands and agrees that Pershing may change its allocation method at any time. Clients to whom such deficiency is allocated will be unable to vote or give consent in respect of such corporate action.

 

12. Short Sales and Locates of Borrowable Securities. Short sales are sales of a security that Client does not own, or any sale completed by the delivery of a security borrowed by the seller, usually from a broker. Thus, if Client either does not own the security being sold or owns the security but does not believe the security will be in the physical possession or control of Pershing prior to settlement date, Client must so inform Pershing, who will mark such sales “short.” Short sales are authorized only in margin accounts, and only where Pershing can make arrangements to borrow the security. In order to complete a short sale, Pershing must be able to borrow any security that Client does not own.

 

Any interest or rebate of interest or other benefit Pershing may receive in connection with the loan of Client’s securities or in connection with Client’s short sale shall be exclusively for the account of Pershing.

 

Client agrees that no short sales will be effected by it through an Executing Broker as part of a Prime Brokerage Transaction or through Pershing in a non-Prime Brokerage Transaction unless a “locate” or “pre-borrow”, as applicable, for such security has been obtained. Pershing shall have discretion in the selection of sources to cover any short sales, including sourcing the securities from any other department within Pershing or from any affiliate. If the securities are not available for borrowing for any reason by the settlement date, Client, as the seller, will “fail to deliver” to the purchaser. A purchaser or securities lender may, in addition to other remedies and at any time after the giving of any required notice, buy-in the securities that were not timely delivered and Client will be responsible for all Losses including the costs of the buy-in. Pershing is authorized to borrow the securities necessary to enable Pershing to make delivery. Client agrees to be responsible for any cost or loss Pershing may incur in sourcing and maintaining the borrow, or the cost Pershing may incur in obtaining the securities if Pershing is unable to borrow such securities. Client hereby authorizes Pershing to complete all such transactions and authorizes Pershing to make advances and expend monies as are required.

 

 

In respect of short positions maintained by Client over a corporate action record date, Pershing will, on the relevant payment date for such corporate action, if any, charge Client’s Account for money or property equal in value to the cost of such corporate action attributable to Client’s short position, including the costs of any lost tax benefits for the lenders. Client is ultimately responsible for the delivery of securities on the settlement date, the consequences of a failure to deliver, the timely return of securities borrowed on Client’s behalf, and all costs associated with such borrowings, including costs relating to any corporate actions.

 

13. Buy-in of Government Securities. Regulations issued under the Government Securities Act of 1986 require Pershing to initiate buy-in procedures for mortgage-backed securities that have been purchased for Client and that remain in a fail-to-receive status for more than 60 calendar days (referred to below as “fully paid fails”). Mandatory buy-ins are also required to complete a sale by Client (referred to below as “sell order fails”) of government securities which have not been received from Client within 30 calendar days after the settlement date (or in the case of mortgage-backed securities, 60 calendar days after settlement date). The Bond Market Association Buyin Procedures for Mortgage Backed Securities and the Bond Market Association Buy-in Procedures for Government Securities permit the use of alternatives other than purchasing securities (e.g., securities may be borrowed, substituted or bought back) in closing out fully paid fails and sell order fails and also provide an exemption for short sales.

 

14. Notice of Bankruptcy, Insolvency, Reorganization, Dissolution, Termination, Incompetence & Death. In the event of any change which affects the manner in which the securities and other property in the Account is held (including, as applicable and without limitation, the death, resignation or incompetence of a joint owner or general partner or the bankruptcy, insolvency, reorganization, or dissolution of Client or other similar event that affects Client’s legal standing), Client shall promptly give Pershing written notice thereof and, in addition to the actions permitted under this Agreement and any Contract, Pershing is authorized to take such action, require such documents and tax waivers, and retain such portion of or restrict transactions in the Account, all as Pershing may reasonably deem advisable.

 

15. Use of Name. Each party agrees not to use the other’s name for any purpose without prior written consent, including, but not limited to, in any advertisement, publication or offering material; provided, however, that Pershing consents to Client’s stating in its offering documents that Pershing is its prime broker so long as such statement is factually accurate at the time the statement is made and it is made clear in such disclosure that Pershing has no responsibility for the preparation and accuracy of such offering documents.

 

16. Background Check. Client authorizes Pershing and any agent or service provider to use, verify and confirm any of the information that Client or its agent provides, including obtaining reports concerning Client’s (and its principals’) background, credit standing and business conduct and to share all such information with their successors, assigns, agents and service providers to determine Client’s eligibility for an Account or any feature or otherwise.

 

17. Confidential Information. If a party has disclosed information to the other party pursuant to a confidentiality agreement or non-disclosure agreement in anticipation of negotiating or entering into this Agreement, such information will now be governed by the confidentiality terms in this Agreement.

 

“Confidential Information” of a party shall mean all data and information relating to a party, its representatives and its employees submitted to the other party or obtained by the other party in connection with this Agreement and the services provided hereunder, including, without limitation, Non-Public Personal Information (“NPPI”) as that term is defined in Title V of the Gramm-Leach-Bliley Act of 1999 or any successor federal statute, and any rules and regulations thereunder, all as may be amended or supplemented from time to time, that relates to the customers of either party (“GLBA”), technology, products, services and other proprietary information.

 

Notwithstanding the foregoing, Confidential Information shall not include information which (i) was rightfully in the receiving party’s possession without restriction prior to the disclosure of such information by the disclosing party; (ii) is or subsequently becomes publicly available without restriction through no fault of the receiving party or its representatives; (iii) is disclosed by the owner of such information to a third party free of any obligation of confidentiality; (iv) is received by the receiving party without restriction from a third party lawfully in possession of such information and lawfully empowered to disclose such information; or (v) is independently developed by the Receiving Party without reference to the Disclosing Party’s Confidential Information.

 

 

The receiving party will protect the disclosing party’s Confidential Information from unauthorized access, and maintain the confidentiality of the disclosing party’s Confidential Information using procedures no less rigorous than those the receiving party uses to protect and preserve the confidentiality of its own Confidential Information of a similar nature, but in no event shall the receiving party use less than a reasonable degree of care to protect the disclosing party’s Confidential Information. The receiving party shall take all reasonable measures to ensure that Confidential Information of the other party is not disclosed, duplicated, or used in any manner, in contravention of the provisions of this Agreement by such Permitted Recipients.

 

The receiving party is permitted to disclose and use Confidential Information: (i) to the extent such disclosure is not prohibited by GLBA, to its and its affiliates’ personnel, officers, agents, subcontractors, partners, advisors, counsel, financial advisors and employees and third party service providers (“Permitted Recipients”) for the purposes of providing services or fulfilling obligations under this Agreement, or otherwise as permitted by Applicable Law,; or (ii) pursuant to any order of any court or government agency, regulatory, self-regulatory, or supervisory authority with appropriate jurisdiction (provided that the disclosing party shall give prompt notice to the non-disclosing party of such order, unless such information is provided to a governmental, regulatory or self-regulatory authority, in the course of a routine audit, examination or inspection).

 

Except as provided herein, neither party shall disclose, publish, release, transfer or otherwise make available Confidential Information of the other party in any form to, or for the use or benefit of, any person or entity without the other party’s consent. If the GLBA or other Applicable Law now or hereafter in effect imposes a higher standard of confidentiality to the Confidential Information, such standard shall prevail over the provisions of this Agreement.

 

Client understands that The Bank of New York Mellon Corporation is a global financial organization that operates in and provides services and products to clients through affiliates and subsidiaries located in multiple jurisdictions (the “BNY Mellon Group”). Client also understands that the BNY Mellon Group may centralize in one or more affiliates, subsidiaries or unaffiliated service providers certain activities, including audit, accounting, administration, risk management, legal, compliance, sales, marketing, relationship management, and the storage, maintenance, aggregation, processing and analysis of information and data regarding Client and the Account(s) and Pershing may provide Confidential Information regarding the Client to the BNY Mellon Group for the purposes of managing, delivering or making available products and services of members of the BNY Mellon Group to Client. Client hereby consents and authorizes Pershing to disclose to the BNY Mellon Group information and data regarding Client, its employees and representatives, and the Account(s) established pursuant to this Agreement provided that to the extent such information is Confidential Information, such affiliates are directed to keep any such information confidential. Client represents and warrants that it is authorized to provide the foregoing consents and authorizations and that the disclosure of such information to Pershing will comply with the relevant data protection legislation. Client acknowledges and agrees that information concerning Client may be disclosed (i) to unaffiliated service providers who are required to maintain the confidentiality of such information, (ii) to governmental and regulatory authorities in jurisdictions where the BNY Mellon Group operates, and (iii) otherwise as required by Applicable Law.

 

Client acknowledges that the services Pershing provides hereunder involve Client access to proprietary technology, trading and other systems, and that techniques, algorithms and processes contained in such systems and shall be safeguarded by Client, and that Client shall exercise reasonable care to protect Pershing’s interest therein. Client agrees to make the proprietary nature of such systems known to those of its consultants, staff, agents or Clients who may come into contact with such systems. Client agrees that any breach of this confidentiality provision may result in its being liable for damages as provided by law including injunctive or equitable relief.

 

Subsequent to the termination of this Agreement, upon request of the disclosing party, the receiving party shall return or certify destruction of all originals, copies, reproductions and summaries of Confidential Information, provided that the receiving party may retain, subject to the confidentiality obligations set forth herein, copies of the Confidential Information required for compliance with any Applicable Law to the receiving party is subject and to fulfill its internal record keeping requirements and shall not be required to erase, expunge or destroy any electronic copies of Confidential Information created as a result of automatic back-up procedures.

 

Client acknowledges and agrees that Pershing shall be permitted to compile and aggregate data which does not identify, directly or indirectly, Client or any of its customers (“Aggregated Data”), and use such Aggregated Data for its analytical business purposes without limitation or notice to Client.

 

 

18. Disclaimer of Liability. Except as otherwise provided by law or otherwise provided herein, Pershing shall not be liable for Losses by or with respect to any matters pertaining to the Account, except to the extent that such Losses are actual and direct Losses and are determined by a court of competent jurisdiction or an arbitration panel in a final non-appealable judgment or order to have resulted from Pershing’s gross negligence or willful misconduct. Notwithstanding the forgoing, Pershing shall, in no way, be liable for special, punitive, indirect, incidental or consequential damages (including lost profits, trading losses and damages).

Except as otherwise provided herein or by law, Client agrees that, even if Pershing has been advised of the possibility of damages, Pershing will have no liability to Client or to third parties, or responsibility whatsoever, for:

 

(a) Losses resulting from a cause over which Pershing does not have direct control, including the failure of mechanical equipment, unauthorized access, theft, operator errors, government restrictions, force majeure (i.e., earthquake, flood, severe or extraordinary weather conditions, or other act of God, fire, war, insurrection, riot, labor dispute, strike, or similar problems, accident, action of government, communications, power failure or equipment or software malfunction), Exchange or market rulings or suspension of trading, (b) any special, punitive, indirect, incidental, consequential, punitive or exemplary damages (including lost profits, trading losses and damages) that Client may incur in connection with Client’s use of the brokerage and other services provided by Pershing under this Agreement, or (c) the performance or non-performance by any Exchange, market, settlement or netting system, book entry participant, entity that Pershing uses based on customary market practice, or clearing organization, clearing firm or other third party (including banks and sub-custodians) of its or their obligations relative to any securities or other property of Client.

 

19. Indemnification. In addition, absent Pershing’s gross negligence or willful misconduct, Client agrees to indemnify and hold Pershing harmless from, all Losses arising in connection with or related to the Account or this Agreement including but not limited to: (a) Client’s, Client’s Users’ or its agent’s misrepresentation, act or omission or alleged misrepresentation, act or omission, or material violation of any term of this Agreement, (b) Pershing following Client’s or its agent’s directions or failing to follow Client’s or its agent’s unlawful or unreasonable directions, (c) any activities or services of Pershing in connection with the Account (including, without limitation, any technology services, reporting, trading, research or capital introduction services) and (d) the failure by any person not controlled by Pershing to perform any obligations to Client.

 

20. ERISA. If part or all of the assets of Client constitute the assets of an employee benefit plan subject to Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or Section 4975 of the Internal Revenue Code of 1986 (the “Code”) or of a “plan” subject to the prohibited transaction provisions of Section 4975 of the Code by reason of Section 3(42) of ERISA or otherwise, Client represents and warrants on each day during the life of this Agreement and any transactions entered into hereunder, both in its individual and fiduciary capacities that: (i) no transaction engaged in by Client will constitute a non-exempt “prohibited transaction” within the meaning of Section 4975 of the Code or Section 406 of ERISA and Client shall enter into any transaction hereunder solely on the basis of determining that Client (and each employee benefit plan which constitutes the assets of Client) will receive no less and pay no more than “adequate consideration” (within the meaning of Section 408(b)(17)(B) of ERISA); (ii) Client’s investment manager will be eligible to act as a “qualified professional asset manager” within the meaning of Department of Labor Prohibited Transaction Class Exemption 84-14 with respect to Client and each employee benefit plan the assets of which constitute the assets of Client; (iii) Client’s investment manager will at all times meet the requirements of Section 412 of ERISA; (iv) neither this Agreement nor any transaction entered into or contemplated hereunder will violate any Applicable Law, rule, regulation or constitutional provision applicable to Client, and (v) Pershing has not provided nor will provide any information or service that has constituted or will constitute a primary basis of any investment decision by or on behalf of Client, and Pershing is not nor shall Pershing become a fiduciary with respect to Client by reason of its services provided hereunder. Each of Pershing and Client (and each person acting on Client’s behalf) agrees that they shall not treat the assets pledged as Collateral by Client in connection with any transaction entered into under this Agreement as “plan assets” under ERISA or Section 4975 of the Code.

 

21. Power and Authority. As of the date hereof and on each date on which a transaction is in effect for Client’s Account, a Contract is in effect or an Obligation is outstanding, Client represents and warrants that (a) Client is duly organized and validly existing under the laws of the jurisdiction of its organization; (b) Client has all necessary power and authority to execute and perform the Contracts and that the execution and performance of the Contracts will not cause Client to violate any provisions in its charter, by-laws, partnership agreement, trust agreement or other constituent agreement or instrument, and that neither any Contract nor any transaction entered into or contemplated under any Contract will violate any Applicable Law (including, without limitation, any provision of ERISA, Section 4975 of Code or any tax “qualification” rule under the Code or, if applicable, Section 17 or 18 of the Investment Company Act of 1940); (c) Client will not transact on the base of, or in reliance on, material nonpublic information; (d) the Contracts, as amended from time to time, are a legal, valid and binding obligations, enforceable against Client in accordance with their terms; and (e) no litigation, arbitration or administrative or self- regulatory proceeding or claim or governmental investigation is in progress, pending, or, to Client’s knowledge, threatened to which Client or any of its representatives or any of its properties is or would be subject. Each of the persons executing this Agreement on Client’s behalf represents that he or she acting alone has full power and authority to deal with Pershing on Client’s behalf without notice to Client or any other undersigned person. Client agrees that Pershing will be entitled to act upon the instructions of any officer, director, agent or employee of Client having actual or apparent authority to act on behalf of Client.

 

 

22. Entire Agreement. This Agreement, including the Special Custody and Pledge Agreement dated as of May , 2020 as amended, and all related documentation hereto constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by either party hereto. The rights and remedies set forth in this Agreement are intended to be cumulative and not exclusive. Neither this Agreement nor any provision hereof is intended to confer upon any person other than the parties hereto any rights or remedies hereunder. The fulfillment of any and all obligations of Pershing to Client hereunder is contingent upon there being no breach, repudiation, misrepresentation, Close-out Event, Termination Event or default or potential default (however characterized) by Client under this Agreement or any Contract. Governing Law, Successor and Assigns, Waiver. This Agreement and its enforcement, and each transaction entered into hereunder and all matters arising in connection with this Agreement and transactions hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, without reference to its choice of law doctrine, and its provisions shall cover individually and collectively all Accounts which Client may maintain with Pershing, provided, however, this shall not otherwise limit Pershing from exercising rights available under any other agreement or by operation of law or otherwise. As between Client and Pershing, both agree that the securities intermediary’s jurisdiction, within the meaning of Section 8-110(e) of the UCC, in respect of the Account is the State of New York and the law applicable to all the issues specified in Article 2(1) of the Hague Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary (“Hague Securities Convention”) is the law in force in the State of New York and agree that none of them has or will enter into any agreement to the contrary. Client understands that federal and state laws, and the rules and regulations of Exchanges and self-regulatory organizations, are subject to change, and therefore Pershing may be required to change its procedures to conform to Applicable Law. This Agreement is binding upon and inures to the benefit of Pershing, Client and our respective legal representatives, successors and permitted assigns. Neither Pershing nor Client may assign its rights or delegate its obligations under this Agreement, in whole or in part, without the prior written consent of the other party, except for an assignment and delegation by Pershing of all of Pershing’s rights and obligations hereunder to any affiliate or successor, which may be undertaken by giving Client prior notice. Notwithstanding the foregoing, any actions taken by or authorized to be taken by Pershing under this Agreement may be taken by or through the use of agents of Pershing. No waiver of any provision of this Agreement shall be deemed a waiver of any other provision, or a continuing waiver of the provision or provisions so waived. All waivers and modifications must be in writing. Any purported assignment in violation of this Paragraph will be void.

 

24. Modification and Termination.

Client agrees that upon a change in Applicable Law or Pershing’s interpretation thereof or otherwise upon 30 days’ prior notice, Pershing may modify the terms of this Agreement. By continuing to accept the services hereunder, Client has indicated acceptance of any such modification. If Client does not accept such modification, Client must notify Pershing in writing and this Agreement and any Accounts hereunder may be terminated by Pershing after which Client agrees to remain liable for all outstanding Obligations. Otherwise this Agreement may not be modified unless agreed by the parties in writing.

 

Each party agrees that this Agreement and the Accounts maintained hereunder may be terminated by either party at any time effective upon the giving of notice of such termination to the other party. The following paragraphs shall survive the termination of this Agreement: V.17 Confidentiality, V.18 Disclaimer of Liability, and V.19 Indemnity. Without limiting the foregoing, upon any such termination, the provisions of this Agreement shall remain in effect with respect to all securities and other property then held in such Accounts, all assets subject to the security interest hereunder, all transactions and Contracts then outstanding between Client and Pershing and all outstanding Obligations of Client to Pershing (which include any Obligations that may arise as a result of any action or any failure to act pursuant to this Agreement during the term of this Agreement).

 

25. Severability. If any provision of this Agreement shall be held to be invalid, void or unenforceable, the validity or enforceability of the remaining provisions and conditions shall not be affected thereby.

 

 

26. Headings. Headings herein are for convenience only and are not of substantive effect.

 

27. Non-Exclusivity of Remedies. The enumeration herein of specific remedies shall not be exclusive of any other remedies. Any delay or failure by a party to this Agreement to exercise any right, power, remedy, or privilege herein contained, or now or hereafter existing under any applicable statute or law, shall not be construed to be a waiver of such right, power, remedy, or privilege. No single, partial, or other exercise of any such right, power, remedy, or privilege shall preclude the further exercise thereof or the exercise of any other right, power, remedy, or privilege.

 

28. Arbitration. This Agreement contains a predispute arbitration clause. By signing an arbitration agreement, the parties agree as follows:

 

(a) All parties to this Agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.

 

(b) Arbitration awards are generally final and binding; a party’s ability to have a court reverse or modify an arbitration award is very limited.

 

(c) The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings.

 

(d) The arbitrators do not have to explain the reason(s) for their award unless, in an eligible case, a joint request for an explained decision has been submitted by all parties to the panel at least 20 days prior to the first scheduled hearing date.

 

(e) The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.

 

(f) The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.

 

(g) The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this Agreement. Client agrees that any and all controversies that may arise between Client and Pershing, including, but not limited to, those arising out of or relating to the transactions contemplated hereby, the Accounts established hereunder, any activity or claim related to Client's Accounts or the construction, performance, or breach of this Agreement shall be determined by arbitration conducted before The Financial Industry Regulatory Authority ("FINRA"), or, if FINRA declines to hear the matter, before the American Arbitration Association, in accordance with their arbitration rules then in force.

 

The arbitrator(s) may not grant an award of attorneys’ fees to or against any party, unless specifically agreed to in writing by the parties to the arbitration or as may be specifically permitted by Applicable Law.

 

The award of the arbitrator(s) shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction.

 

No person shall bring a putative or certified class action to arbitration, nor seek to enforce any pre-dispute arbitration agreement against any person who has initiated in court a putative class action or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until:

 

(i) the class certification is denied;

(ii) the class is decertified; or

(iii) Client is excluded from the class by the court.

 

Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this Agreement except to the extent stated herein.

 

29. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute a single agreement.

 

30. Notices. All notices and other communications provided to Client hereunder shall be in writing and either posted onto the Internet in a form agreed to by the parties or mailed, electronically mailed, faxed, or delivered to the address of the intended recipient specified on the signature page or to such other address as such intended recipient may provide, provided that Pershing has received such address and had a reasonable time to act on any notice of a change. All communications sent to Client, whether through the Internet, or by mail, fax, messenger or otherwise, shall be deemed received as of the date of delivery or the date delivery was attempted; provided that delivery was attempted between 9am-5pm Eastern Standard Time on a Business Day. Otherwise delivery shall be deemed effective as of 9am Eastern Standard Time on the following Business Day. Any notice or communication to Pershing provided under this Agreement shall be addressed to the manager of the Pershing department or office handling the Account.

 

31. Limited Recourse. Any amounts owed or liabilities incurred by Client in respect of any transaction entered into under this Agreement may be satisfied solely from Client’s assets. Without limiting the generality of the foregoing, in no event shall Pershing have recourse, whether by setoff or otherwise, with respect to any amount owed or liabilities incurred by Client or on Client’s behalf, to or against (a) any assets of any person or entity (including without limitation, any person or entity whose account is under the management of the Advisor) other than Client, (b) any assets of the Advisor or any affiliate of Advisor or (c) any assets of any member, shareholder, partner, principal or controlling person of Client or Advisor. Provided, however, nothing herein shall be construed to as a waiver of any valid claim or cause of action Pershing may have against any person or other entity, independent of Client’s obligation hereunder.

 

 

32. Opt-In to U.S. Special Resolution Regimes. Notwithstanding any other term in this Agreement, in the event Pershing becomes subject to a proceeding under a U.S. special resolution regime, the transfer of this Agreement (and any interest and obligation in or under, and any property securing, this Agreement) from Pershing will be effective to the same extent as the transfer would be effective under the U.S. special resolution regime if the Agreement (and any interest and obligation in or under, and any property securing, the Agreement) were governed by the laws of the United States or a state of the United States; and in the event Pershing or any of its affiliates becomes subject to a proceeding under a U.S. special resolution regime, default rights with respect to this Agreement that may be exercised against Pershing are permitted to be exercised to no greater extent than the default rights could be exercised under the U.S. special resolution regime if this Agreement were governed by the laws of the United States or a state of the United States.

 

33. Definitions.

 

“Applicable Law” means all laws, rules and regulations, of all U.S. and if applicable, non-U.S., federal state and local governmental authorities, self-regulatory organizations, markets, exchanges, depositories and clearing corporations where Client’s transactions are executed, cleared or settled, as in effect at any time.

 

“Authorization for Electronic Delivery” means the document executed by Client for the electronic delivery of certain documents and information. The Authorization for Electronic Delivery shall supplement and form part of this Agreement.

 

“Base Rate” means the base interest rate established by Pershing for Client used in the calculation of interest charges and credits relating to positions in Client’s Account.

 

“Business Day” means any day on which both (i) the New York Stock Exchange is open and conducting business and (ii) The Bank of New York Mellon, located in New York City, is open and conducting business.

 

“Collateral” means (i) each deposit, custody, securities or other account for Client with, carried by or through Pershing or otherwise subject to the control of Pershing, including all Accounts and, if applicable, any Special Custody Accounts established by Pershing, Client and a custodian (ii) cash, securities, other financial instruments and other property and assets, which may be deposited, credited, held or carried in any Account, (iii) all of Client’s rights, title or interest in, to or under any Contract including all rights against Pershing, and (iv) all security entitlements, income and profits, voting rights, redemption rights, proceeds, dividends, interest and other payments and distributions with respect to the foregoing, which are deposited in or credited to, or held, carried, or maintained by Pershing or in the possession or control of Pershing or which are, or may become, due to Client (either individually or jointly with others or in which Client has any interest).

 

“Contract” means an agreement between Client and Pershing to which Client has any obligations or holds any rights, including this Agreement.

 

“Electronic Access Form” means the document executed by Client to provide access to the Electronic Services for Client’s designated users. The Electronic Access Form shall supplement and form part of this Agreement.

 

“Losses” means any expense, losses, damages, liabilities, demands, charges, claims, penalties, fines and excise taxes of any kind or nature (including legal expenses and attorneys’ fees related to enforcing any rights to indemnification or otherwise).

 

“Obligation” means any obligation liability owing with respect of, any Account or any Contract (whether or not mature or contingent), including, without limitation: (i) all brokerage charges, commissions and service fees, (ii) all contract market exchange, sub-custodian or clearinghouse fees or other charges and losses in any Account, (iii) any principal balance of any advances made by Pershing to or for the benefit of Client, (iv) any debit balance owing with respect to the Account, (v) any obligation to deliver Margin, (vi) any obligation to deliver or return Collateral, (vii) any deficiency in any Account, (viii) any taxes, fees, fines, penalties or other charges imposed by any governmental or self-regulatory authority, taxing authority or court of competent jurisdiction, (ix) any charge or clawback owing as a result of corporate actions related to positions in the Account, and (x) all payment and delivery, repayment, delivery, costs to cover and extension of credit obligations and all indebtedness, obligations and potential obligations, whether or not mature or contingent, related to the clearance and settlement of orders or the purchase, sale, transfer or loan of securities or other assets (including any failure of the foregoing) pursuant to the Account or this Agreement, as well as reasonable legal and other expenses incurred in connection with the enforcement of this Agreement.

 

“On Demand” means (1) if a demand is made by 10:00 a.m. Eastern Standard Time, payment or delivery shall be made by 5:00 p.m. that Business Day; and (2) if a demand is made after 10:00 a.m. Eastern Standard Time, payment or delivery shall be made by 12:00 p.m. Eastern Standard Time on the following Business Day.

 

 

VI.

SIGNATUREPAGE

 

Confidential

 

Terms and Conditions

 

By signing below, the Client, or its Advisor on behalf of the Client, pursuant to a certain Third-Party Authorization, agrees to the terms and conditions set forth herein, including the following:

 

1. THE SECURITIES IN CLIENT’S MARGIN ACCOUNT(S) AND ANY SECURITIES FOR WHICH CLIENT HAS NOT FULLY PAID, TOGETHER WITH ALL ATTENDANT OWNERSHIP RIGHTS, MAY BE LOANED TO PERSHING OR LOANED OUT TO OTHERS; AND

 

2. THIS AGREEMENT CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE AT SECTION V, PARAGRAPH 28 OF THIS AGREEMENT.

 

CLIENT

 

By.	RiverNorth Specialty Finance Corporation		11/13/2020
	Printed Name of Client		Date
	Jon Mohrhardt		Treasurer and Chief Financial Officer
	Printed Name of Authorized Signer for Client		Printed Title of Authorized Signer for Client
	/s/ Jon Mohrhardt
	Signature

 

AGENT (if applicable)

 

By.
	Printed Name of Agent		Printed Name of Client’s Agent
	Printed Name of Authorized Signer for Agent		Printed Title of Authorized Signer for Agent
	Signature		Date

  

PRIME BROKER

 

By.	Pershing, LLC		11/30/2020 04:33 Pivl EST
	Printed Name of Prime Broker		Date
	Peter R, Murphy		Managing Director
	Printed Name of Authorized Signer for Prime Broker		Printed Title of Authorized Signer for Prime Broker
	/s/ Peter R. Murphy
	Signature

 

 

Faegre Drinker Biddle & Reath LLP

320 South Canal Street, Suite 3300

Chicago, IL 60606

(312) 569-1100 (Phone)

(312) 569-3107 (Facsimile)

www.faegredrinker.com

 

October 22, 2024

 

RiverNorth Capital and Income Fund, Inc.

360 South Rosemary Avenue, Suite 1420

West Palm Beach, FL 33401

 

Re:

RiverNorth Capital and Income Fund, Inc.

 

Ladies and Gentlemen:

 

We have acted as counsel for RiverNorth Capital and Income Fund, Inc. (the “Fund”) in connection with the Registration Statement on Form N-2 (the “Registration Statement”) (File Nos. 333-281399; 811-23067) filed by the Fund with the Securities and Exchange Commission (the “SEC”) on August 8, 2024, under the Securities Act of 1933, as amended (the “Securities Act”), as amended by pre-effective Amendment No. 1 to the Registration Statement filed by the Fund on October 22, 2024. The Registration Statement relates to the issuance and sale by the Fund from time to time, pursuant to Rule 415 of the General Rules and Regulations of the SEC promulgated under the Securities Act (the “Rules and Regulations”), of up to $150,000,000 of (i) shares of its common stock, $0.0001 par value per share (“Common Shares”), (ii) shares of its preferred stock (“Preferred Shares”), and/or (iii) subscription rights to purchase Common Shares, Preferred Shares or both (“Rights” and, together with the Common Shares and Preferred Shares, “Shares”).

 

We have examined the originals or copies, certified or otherwise identified to our satisfaction, of the Fund’s Articles of Incorporation and By-Laws, the Registration Statement, and the resolutions adopted by its Directors (the “Resolutions”) relating to the authorization of the sale and issuance of the Shares, and have considered such other legal and factual matters as we have deemed appropriate.

 

In all cases, we have assumed the legal capacity of each natural person signing the Registration Statement, the genuineness of signatures, the authenticity of documents submitted to us as originals, the conformity to authentic original documents of documents submitted to us as copies and the accuracy and completeness of all corporate records and other information made available to us by the Fund. As to questions of fact material to this opinion, we have relied upon the accuracy of any certificates and other comparable documents of officers and representatives of the Fund, upon statements made to us in discussions with the Fund’s management and upon statements and certificates of public officials.

 

This opinion is based exclusively on the substantive laws of the State of Maryland and the federal laws of the United States of America. In rendering our opinion, we have relied on the opinion of Shapiro Sher Guinot & Sandler, P.A. expressed in a letter to us dated October 22, 2024 to the extent that any matter which is the subject of this opinion is governed by the laws of the State of Maryland. We express no opinion as to the laws of any state other than the State of Maryland or as to state securities laws, including the securities laws of the State of Maryland.

 

Based upon the foregoing and subject to the qualifications, limitations and assumptions stated herein and therein, we are of the opinion that the issuance of the Shares has been duly authorized and, when and if issued against payment of net asset value therefor in accordance with the Resolutions and the Registration Statement, the Shares will be validly issued, fully paid and non-assessable.

 

We hereby consent to the filing of this opinion with the SEC as part of the Fund’s Registration Statement on Form N-2.

 

We hereby consent to the use of our name and to the references to our Firm under the caption “Legal Matters” in the Prospectus and the caption “Legal Counsel” in the Statement of Additional Information included in the Registration Statement. In consenting to the use of our name and the references to our Firm under such caption, however, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the SEC thereunder.

 

	Very truly yours,
	/s/ FAEGRE DRINKER BIDDLE & REATH LLP
	FAEGRE DRINKER BIDDLE & REATH LLP

 

 

 

 

October 22, 2024

 

RiverNorth Capital and Income Fund, Inc.

360 South Rosemary Avenue

Suite 1420

West Palm Beach, Florida 33401

 

	Re:	Registration Statement on Form N-2:
		1933 Act File No.: 333-281399
		1940 Act File No.: 811-23067

 

Ladies and Gentlemen:

 

We have served as Maryland counsel to RiverNorth Capital and Income Fund, Inc., a Maryland corporation registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a closed-end management investment company (the “Fund”), in connection with certain matters of Maryland law arising out of the registration of the following securities of the Fund having an aggregate initial offering price of up to $150,000,000 (collectively, the “Securities”): (a) shares of common stock, $0.0001 par value per share (“Common Stock”); (b) shares of preferred stock, $0.0001 par value per share (“Preferred Stock”); (c) subscription rights (“Common Stock Subscription Rights”) to purchase shares of Common Stock; (d) subscription rights (“Preferred Stock Subscription Rights”) to purchase shares of Preferred Stock; and (e) subscription rights (the “Common Stock & Preferred Stock Subscription Rights” and, together with the Common Stock Subscription Rights and the Preferred Stock Subscription Rights, the “Subscription Rights”) to purchase shares of Common Stock and Preferred Stock, in each case, covered by the above-referenced Registration Statement (the “Registration Statement”), filed by the Fund with the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933 Act”), and the 1940 Act. This opinion is being furnished to you at your request.

 

I. Documents Reviewed and Matters Considered

 

In connection with our representation of the Fund, and as a basis for the opinions hereinafter set forth, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (collectively, the “Documents”):

 

(i)  the Registration Statement and the related form of prospectus included therein, substantially in the form transmitted to the Commission under the 1933 Act and the 1940 Act;

 

(ii) the charter of the Fund (the “Charter”), certified by the Maryland State Department of Assessments and Taxation (the “SDAT”);

 

RiverNorth Capital and Income Fund, Inc.

 

October 22, 2024

Page 2

 

(iii) the Bylaws of the Fund (the “Bylaws”), certified as of the date hereof by an officer of the Fund;

 

(iv) a Certificate of Status of the SDAT to the effect that the Fund is in good standing, dated October 15, 2024;

 

(v) resolutions (the “Resolutions”) adopted by the Board of Directors of the Fund relating to the registration and issuance of the Securities, certified as of the date hereof by an officer of the Fund;

 

(vi) a certificate executed by an officer of the Fund, dated as of the date hereof, as to such matters as we deem necessary and appropriate to enable us to render this opinion letter; and

 

(vii) such other documents and matters as we have deemed necessary or appropriate to express the opinions set forth in this letter, subject to the assumptions, qualifications, and limitations stated herein.

 

II. Assumptions

 

In expressing the opinions set forth below, we have assumed the following:

 

(a) Each individual executing any of the Documents, whether on behalf of such individual or another person, is legally competent to do so.

 

(b) Each individual executing any of the Documents on behalf of a party (other than the Fund) is duly authorized to do so.

 

(c) Each of the parties (other than the Fund) executing any of the Documents has duly and validly executed and delivered each of the Documents to which such party is a signatory, and such party’s obligations set forth therein are legal, valid and binding and are enforceable in accordance with all stated terms.

 

(d) All Documents submitted to us as originals are authentic. The form and content of all Documents submitted to us as unexecuted drafts do not differ in any respect relevant to this opinion from the form and content of such Documents as executed and delivered. All Documents submitted to us as certified, photostatic, or other copies conform to the original documents. All signatures on all such Documents are genuine. All public records reviewed or relied upon by us or on our behalf are true and complete.

 

(e) All representations, warranties, statements and information contained in the Documents are accurate and complete.

 

RiverNorth Capital and Income Fund, Inc.

 

October 22, 2024

Page 3

 

(f) There has been no oral or written modification of or amendment to any of the Documents, and there has been no waiver of any of the provisions of the Documents, by actions or omission of the parties or otherwise.

 

(g) Each individual executing a certificate is authorized to do so and has knowledge about all matters stated therein. The contents of each such certificate are accurate and complete and remain so as of the date of this letter.

 

(h) Upon the issuance of any Securities that are Common Stock (“Common Securities”), including Common Securities which may be issued upon conversion or exercise of any other Securities convertible into or exercisable for Common Securities, the total number of shares of Common Stock issued and outstanding will not exceed the total number of shares of Common Stock that the Fund is then authorized to issue under the Charter.

 

(i) Upon the issuance of any Securities that are Preferred Stock (“Preferred Securities”), including Preferred Securities which may be issued upon conversion or exercise of any other Securities convertible into or exercisable for Preferred Securities, the total number of issued and outstanding shares of Preferred Stock, and the total number of issued and outstanding shares of the applicable class or series of Preferred Stock designated pursuant to the Charter, will not exceed the total number of shares of Preferred Stock or the number of shares of such class or series of Preferred Stock that the Fund is then authorized to issue under the Charter.

 

(j) The issuance, and certain terms, of the Securities to be issued by the Fund from time to time will be authorized and approved by the Board, or a duly authorized committee thereof, in accordance with the Maryland General Corporation Law, the Charter, the Bylaws, the Registration Statement and the Resolutions; and with respect to any Subscription Rights, a Subscription Rights Certificate representing such Subscription Rights (the “Subscription Rights Certificate”) will be duly authorized by all necessary corporate action of the Fund and the specific terms of such Subscription Rights will be duly established by the Board, and such Subscription Rights will be duly distributed by the Fund, in accordance with the Charter, the Bylaws, the Registration Statement and the Resolutions; and, with respect to any Preferred Securities, Articles Supplementary setting forth the number of shares and the preferences and other terms of any class or series of Preferred Stock to be issued by the Fund will be filed with and accepted for record by the SDAT prior to their issuance (such approvals and, if applicable, acceptance for record, referred to herein as the “Corporate Proceedings”).

 

III. Opinions

 

Based upon the foregoing, and subject to the assumptions, qualifications, and limitations stated herein, it is our opinion that:

 

1. The Fund is a corporation duly incorporated and existing under and by virtue of the laws of the State of Maryland and is in good standing with the SDAT.

 

RiverNorth Capital and Income Fund, Inc.

 

October 22, 2024

Page 4

 

2. Upon the completion of all Corporate Proceedings relating to the Common Securities, the issuance of the Common Securities will be duly authorized and, when and if issued and delivered against payment therefor in accordance with the Registration Statement, the Resolutions and the Corporate Proceedings, the Common Securities will be validly issued, fully paid and nonassessable.

 

3. Upon the completion of all Corporate Proceedings relating to the Preferred Securities, the issuance of the Preferred Securities will be duly authorized and, when and if issued and delivered against payment therefor in accordance with the Registration Statement, the Resolutions and the Corporate Proceedings, the Preferred Securities will be validly issued, fully paid and nonassessable.

 

4. Upon the completion of all Corporate Proceedings relating to the Subscription Rights, the issuance of the Subscription Rights will be duly authorized and when issued and paid for in accordance with the applicable Subscription Rights Certificate, the Subscription Rights will be valid and binding obligations of the Fund, enforceable against the Fund in accordance with their terms.

 

IV. Qualifications and Limitations

 

(A) In addition to the assumptions and qualifications set forth above, and without limiting the generality of such assumptions and qualifications, the opinion expressed in Paragraph III.4 above is also subject to (a) the effect of bankruptcy, insolvency, reorganization, preference, fraudulent transfer, moratorium or other similar laws relating to or affecting the rights and remedies of creditors, (b) the effect of general principles of equity, whether considered in a proceeding in equity or at law (including the possible unavailability of specific performance or injunctive relief), concepts of materiality, reasonableness, good faith and fair dealing, and the discretion of the court before which a proceeding is brought and (c) the invalidity under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy.

 

(B) The foregoing opinions are limited to the laws of the State of Maryland and we do not express any opinions herein concerning any other law. We express no opinion as to the applicability or effect of the 1940 Act or other federal securities laws, or state securities laws, including the securities laws of the State of Maryland, or as to federal or state laws regarding fraudulent transfers. To the extent that any matter as to which our opinion is expressed herein would be governed by the laws of any jurisdiction other than the State of Maryland, we do not express any opinion on such matter. The opinions expressed herein are subject to the effect of judicial decisions which may permit the introduction of parol evidence to modify the terms or the interpretation of agreements.

 

(C) The opinions expressed in this letter are limited to the matters specifically set forth in this letter, and no other opinions shall be implied or inferred beyond the matters expressly stated. We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if we become aware of any fact that might change the opinion expressed herein after the date hereof.

 

RiverNorth Capital and Income Fund, Inc.

 

October 22, 2024

Page 5

 

(D) This opinion is being furnished to you for submission to the Commission as an exhibit to the Registration Statement. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of the name of our firm therein. In giving this consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the 1933 Act.

 

	Very truly yours,
	/s/ SHAPIRO SHER GUINOT & SANDLER, P.A.
	SHAPIRO SHER GUINOT & SANDLER, P.A.

 

 

	KPMG LLP Suite 500 191 West Nationwide Blvd. Columbus, OH 43215-2568

 

Consent of Independent Registered Public Accounting Firm

We consent to the use of our report dated August 29, 2024, with respect to the financial statements and financial highlights of RiverNorth Capital and Income Fund, Inc., incorporated herein by reference, and to the references to our firm under the headings “Financial Highlights” and “Senior Securities” in the Prospectus, and “Independent Registered Public Accounting Firm” and “Financial Statements” in the Statement of Additional Information filed on Form N-2.

Columbus, Ohio
October 17, 2024

KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.

v3.24.3

N-2 - shares	Oct. 22, 2024	Aug. 31, 2024
Cover [Abstract]
Entity Central Index Key	0001644771
Amendment Flag	false
Entity Inv Company Type	N-2
Securities Act File Number	333-281399
Investment Company Act File Number	811-23067
Document Type	N-2/A
Document Registration Statement	true
Pre-Effective Amendment	true
Pre-Effective Amendment Number	1
Investment Company Act Registration	true
Investment Company Registration Amendment	true
Investment Company Registration Amendment Number	25
Entity Registrant Name	RiverNorth Capital and Income Fund, Inc.
Entity Address, Address Line One	360 South Rosemary Avenue
Entity Address, Address Line Two	Suite 1420
Entity Address, City or Town	West Palm Beach
Entity Address, State or Province	FL
Entity Address, Postal Zip Code	33401
City Area Code	312
Local Phone Number	832-1440
Approximate Date of Commencement of Proposed Sale to Public	As soon as practicable after the effective date of this Registration Statement.
Dividend or Interest Reinvestment Plan Only	false
Delayed or Continuous Offering	true
Primary Shelf [Flag]	true
Effective Upon Filing, 462(e)	false
Additional Securities Effective, 413(b)	false
Effective when Declared, Section 8(c)	false
Registered Closed-End Fund [Flag]	true
Business Development Company [Flag]	false
Interval Fund [Flag]	true
Primary Shelf Qualified [Flag]	true
Entity Well-known Seasoned Issuer	No
Entity Emerging Growth Company	false
New CEF or BDC Registrant [Flag]	false
Other Transaction Expenses [Abstract]
Annual Expenses [Table Text Block]	Summary Of Fund Expenses   The information in “Summary of Fund Expenses” is set forth in the Fund’s most recent annual report on Form N-CSR for the year ended June 30, 2024 in the section entitled “Summary of Fund Expenses”, which is incorporated by reference into this Prospectus, and in any future filings we may file with the SEC that are incorporated by reference into this Prospectus. See “Incorporation by Reference” below for more information.
Financial Highlights [Abstract]
Senior Securities [Table Text Block]	Senior Securities   The information in "Senior Securities" and the report of the Fund's independent registered public accounting firm, KPMG LLP, thereon, contained in the following document filed by the Fund with the SEC, is hereby incorporated by reference into this Prospectus: the annual report for the year ended June 30, 2024 contained in the Fund's Form N-CSR filed with the SEC on September 6, 2024.
General Description of Registrant [Abstract]
Investment Objectives and Practices [Text Block]	Investment Objective, Strategies and Policies   The information in “Investment Objective, Strategies and Policies” is set forth in the Fund’s annual report on Form N-CSR for the year ended June 30, 2024 in the section entitled “Summary of Updated Information Regarding the Fund,” which is incorporated by reference into this Prospectus, and in any future filings we may file with the SEC that are incorporated by reference into this Prospectus. See “Incorporation by Reference” below for more information.   Investment Philosophy and Process   The Adviser believes that the recent and continuing growth of the online and mobile alternative credit industry has created a relatively untapped and attractive investment opportunity, with the potential for large returns. The Adviser seeks to capitalize on this opportunity by participating in the evolution of this industry, which has served as an alternative to, and has begun to take market share from, the more traditional lending operations of large commercial banks. The ability of borrowers to obtain loans through alternative credit with interest rates that may be lower than those otherwise available to them (or to obtain loans that would otherwise be unavailable to them) has contributed to the significant rise of the use of Alternative Credit. At the same time, alternative credit has also enabled investors to purchase or invest in loans with interest rates and credit characteristics that can offer attractive returns.   In selecting the Fund’s Alternative Credit investments, the Adviser employs a bottom-up approach to evaluate the expected returns of loans by loan segment (e.g., consumer, SME and student loans) and by platform origination (as discussed below), as well as a top-down approach to seek to identify investment opportunities across the various segments of the alternative credit industry. In doing so, the Adviser conducts an analysis of each segment’s anticipated returns relative to its associated risks, which takes into consideration for each segment duration, scheduled amortization, seniority of the claim of the loan, prepayment terms and prepayment expectations, current coupons and trends in coupon pricing, origination fees, servicing fees and anticipated losses based on historical performance of similar credit instruments. The Adviser then seeks to allocate Fund assets to the segments identified as being the most attractive on a risk-adjusted return basis.   Within each segment, the Adviser conducts a platform-specific analysis, as opposed to a loan-specific analysis, and, as such, the Adviser’s investment process does not result in a review of each individual Alternative Credit investment to which the Fund has investment exposure. Instead, the Adviser generally seeks loans that have originated from platforms that have met the Adviser’s minimum requirements related to, among other things, loan default history and overall borrower credit quality. In this regard, the Adviser engages in a thorough and ongoing due diligence process of each platform to assess, among other things, the viability of the platform to sustain its business for the foreseeable future; whether the platform has the appropriate expertise, ability and operational systems to conduct its business; the financial condition and outlook of the platform; and the platform’s ability to manage regulatory, business and operational risk. In addition, the Adviser’s due diligence efforts include reviews of the servicing and underwriting functions of a platform (as further described below) and/or funding bank (as applicable), the ability of a platform to attract borrowers and the volume of loan originations, and loan performance relative to model expectations, among other things. In conducting such due diligence, the Adviser has access to, and reviews, the platform’s credit models as well. Moreover, the Adviser visits each platform from time to time for on-site reviews of the platform, including discussions with each of the significant business units within the platform (e.g., credit underwriting, customer acquisition and marketing, information technology, communications, servicing and operations).   As part of the foregoing due diligence efforts, the Adviser monitors on an ongoing basis the underwriting quality of each platform through which it invests in Alternative Credit, including (i) an analysis of the historical and ongoing “loan tapes” that includes loan underwriting data and actual payment experience for all individual loans originated by the platform since inception that are comparable to the loans purchased, or to be purchased, by the Fund, (ii) reviews of the credit model used in the platform’s underwriting processes, including with respect to the assignment of credit grades by the platform to its Alternative Credit and the reconciliation of the underlying data used in the model, (iii) an assessment of any issues identified in the underwriting of the Alternative Credit and the resulting remediation efforts of the platform to address such issues, and (iv) a validation process to confirm that loans purchased by the Fund conform with the terms and conditions of any applicable purchase agreement entered into with the platform.   Although the Adviser does not review each individual Alternative Credit investment prior to investment, it is able to impose minimum quantitative and qualitative criteria on the loans in which it will invest by limiting the Fund’s loans to the loan segments and platforms selected by the Adviser, as noted above. In effect, the Adviser adopts the minimum investment criteria inherent in a loan segment or imposed by a platform that it has identified as having the appropriate characteristics for investment. Furthermore, each platform assigns the Alternative Credit it originates a platform-specific credit grade reflecting the potential risk-adjusted return of the loan, which may be based on various factors such as: (i) the term, interest rate and other characteristics of the loans; (ii) the location of the borrowers; (iii) if applicable, the purpose of the loans within the platform (e.g., consumer, SME or student loans); and (iv) the credit and risk profile of the borrowers, including, without limitation (to the extent applicable based on the type of loan), the borrower’s annual income, debt-to-income ratio, credit score (e.g., FICO score), delinquency rate and liens. In purchasing Alternative Credit from a platform, the Fund provides the applicable platform with instructions as to which platform credit grades are eligible for purchase (or, conversely, which platform credit grades are ineligible for Fund purchase). The Adviser performs an ongoing analysis of each of the criteria within a platform’s credit grades to determine historical and predicted prepayment, charge-off, delinquency and recovery rates acceptable to the Adviser. While, under normal circumstances, the Adviser does not provide instructions to the platforms as to any individual criterion used to determine platform-specific grades prior to purchasing Alternative Credit (except as noted below), the Adviser does retain the flexibility to provide more specific instructions (e.g., term; interest rate; geographic location of borrower) if the Adviser believes that investment circumstances dictate any such further instructions. Specifically, the Adviser instructs platforms that the Fund will not purchase any Alternative Credit that are of “subprime quality” (as determined at the time of investment). Although there is no specific legal or market definition of subprime quality, it is generally understood in the industry to signify that there is a material likelihood that the loan will not be repaid in full. The Fund considers an SME loan to be of “subprime quality” if the likelihood of repayment on such loan is determined by the Adviser based on its due diligence and the credit underwriting policies of the originating platform to be similar to that of consumer loans that are of subprime quality. In determining whether an SME loan is of subprime quality, the Adviser generally looks to a number of borrower-specific factors, which will include the payment history of the borrower and, as available, financial statements, tax returns and sales data.   The Adviser will not invest the Fund’s assets in loans originated by platforms for which the Adviser cannot evaluate to its satisfaction the completeness and accuracy of the individual Alternative Credit investment data provided by such platform relevant to determining the existence and valuation of such Alternative Credit investment and utilized in the accounting of the loans (i.e., in order to select a platform, the Adviser must assess that it believes all relevant loan data for all loans purchased from the platform is included and correct).   The Adviser significantly relies on borrower credit information provided by the platforms through which they make the Fund’s investments. The Adviser receives updates of such borrower credit information provided by independent third party service providers to the platforms and therefore is able to monitor the credit profile of its investments on an ongoing basis. See “Net Asset Value.”   The Adviser invests in Alternative Credit through the use of a web-based service that provides direct access to platforms and facilitates the loan acquisition process by retrieving for the Adviser data such as bidding and listing information. Given the increased reliance on the use of information technology in alternative credit, the Adviser conducts due diligence on the platforms through which it seeks its Alternative Credit investments, including a review of each platform’s information technology security, fraud protection capabilities and business continuity plan. The Adviser generally requires a platform to have, among other things, industry standard data backup protections, including off-site backup datacenters and state of the art data encryption, and appropriate cybersecurity measures. In addition, the Adviser has adopted various protections for itself, including a business continuity plan which provides procedures related to the recovery and restoration of its business, particularly with respect to any critical functions and systems of the Adviser, following an interruption in service or disaster.
Risk Factors [Table Text Block]	Risks   The information in “Risks” is set forth in the Fund’s most recent annual report on Form N-CSR for the year ended June 30, 2024 in the section entitled “Summary of Updated Information Regarding the Fund – Risk Factors”, which is incorporated by reference into this Prospectus, and in any future filings we may file with the SEC that are incorporated by reference into this Prospectus. See “Incorporation by Reference” below for more information.
Effects of Leverage [Text Block]	Use Of Leverage   The information in “Use of Leverage” is set forth in the Fund’s most recent annual report on Form N-CSR for the year ended June 30, 2024 in the section entitled “Summary of Updated Information Regarding the Fund,” which is incorporated by reference into this Prospectus, and in any future filings we may file with the SEC that are incorporated by reference into this Prospectus. See “Incorporation by Reference” below for more information.
Share Price [Table Text Block]	Market and Net Asset Value Information   The information in “Market and Net Asset Value Information” is set forth in the Fund’s most recent annual report on Form N-CSR for the year ended June 30, 2024 in the section entitled “Market and Net Asset Value Information”, which is incorporated by reference into this Prospectus, and in any future filings we may file with the SEC that are incorporated by reference into this Prospectus. See “Incorporation by Reference” below for more information.
Capital Stock, Long-Term Debt, and Other Securities [Abstract]
Outstanding Securities [Table Text Block]	The following table provides information about the Fund’s outstanding securities as of August 31, 2024:   Title of Class Amount Authorized Amount Held by the Fund or for its Account Amount Outstanding Common Shares 38,344,000 0 3,862,917 Series A Preferred Stock 1,656,000 0 1,656,000
Business Contact [Member]
Cover [Abstract]
Entity Address, Address Line One	360 South Rosemary Avenue
Entity Address, Address Line Two	Suite 1420
Entity Address, City or Town	West Palm Beach
Entity Address, State or Province	FL
Entity Address, Postal Zip Code	33401
Contact Personnel Name	Marcus L. Collins, Esq.
Common Shares [Member]
Capital Stock, Long-Term Debt, and Other Securities [Abstract]
Capital Stock [Table Text Block]	Description Of The Fund’s Securities   The following summary of the terms of the common shares of the Fund does not purport to be complete and is subject to and qualified in its entirety by reference to the Maryland General Corporation Law, and to the Fund’s Charter and the Fund’s Bylaws, copies of which are filed as exhibits to the Registration Statement.   The Fund is a corporation organized under the laws of Maryland. The Fund is authorized to issue 38,344,000 common shares, $0.0001 par value per share, and the Board of Directors, without obtaining shareholder approval, may increase the number of authorized common shares. As of the date of this prospectus, the Adviser did not own of record or beneficially any of the common shares.   In general, shareholders or subscribers for the common shares have no personal liability for the debts and obligations of the Fund because of their status as shareholders or subscribers, except to the extent that the subscription price or other agreed consideration for the common shares has not been paid.   Under the Fund’s Charter, the Board of Directors is authorized to classify and reclassify any unissued common shares into other classes or series of stock and authorize the issuance of common shares without obtaining shareholder approval.   Common Stock-Shares in the Fund   The Common Shares issued in the offering are fully paid and non-assessable. Common Shares have no preemptive, conversion, exchange, appraisal or redemption rights, and each share has equal voting, dividend, distribution and liquidation rights. Shareholders are entitled to receive dividends if and when the Board of Directors declares dividends from funds legally available. Whenever preferred shares or borrowings are outstanding, common shareholders will not be entitled to receive any distributions from the Fund unless all accrued dividends on the preferred shares and interest and principal payments on borrowings have been paid, and unless the applicable asset coverage requirements under the 1940 Act would be satisfied after giving effect to the distribution as described above.   In the event of the Fund’s liquidation, dissolution or winding up, the common shares would be entitled to share ratably in all of the Fund’s assets that are legally available for distribution after the Fund pays all debts and other liabilities and subject to any preferential rights of holders of any outstanding preferred shares.   Common shareholders are entitled to one vote per share. All voting rights for the election of directors are noncumulative, which means that, assuming there are no preferred shares outstanding, the holders of more than 50% of the common shares will elect 100% of the directors then nominated for election if they choose to do so and, in such event, the holders of the remaining common shares will not be able to elect any directors.   The Fund’s Charter authorizes the Board of Directors to classify and reclassify any unissued common shares into other classes or series of stock. Prior to issuance of shares of each class or series, the Board of Directors is required by Maryland law and by the Fund’s Charter to set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of common shares with terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of the common shares or otherwise be in their best interest. As of the date of this prospectus, the Fund has no plans to classify or reclassify any unissued common shares.   The Fund’s currently outstanding common shares are, and the Common Shares offered in this Prospectus will be, subject to notice of issuance, listed on the NYSE under the trading or “ticker” symbol “RSF.” Under the rules of the NYSE applicable to listed companies, the Fund will be required to hold an annual meeting of shareholders in each year.   The provisions of the 1940 Act generally require that the public offering price (less underwriting commissions and discounts) of common shares sold by a closed-end investment company must equal or exceed the NAV of such company’s common shares (calculated within 48 hours of the pricing of such offering), unless such a sale is made in connection with an offering to existing holders of shares of common stock or with the consent of a majority of its common shareholders. The Fund may, from time to time, seek the consent of common shareholders to permit the issuance and sale by the Fund of common shares at a price below the Fund’s then-current NAV, subject to certain conditions. If such consent is obtained, the Fund may, contemporaneous with and in no event more than one year following the receipt of such consent, sell common shares at a price below NAV in accordance with any conditions adopted in connection with the giving of such consent. Additional information regarding any consent of common shareholders obtained by the Fund and the applicable conditions imposed on the issuance and sale by the Fund of common shares at a price below NAV will be disclosed in the prospectus supplement relating to any such offering of common shares at a price below NAV. See also “-Subscription Rights” below.   Preferred Stock   The Fund’s Charter authorizes the Board of Directors to classify and reclassify any unissued common shares into other classes or series of stock, including preferred stock, without the approval of the common shareholders. Prior to issuance of any preferred shares, the Board of Directors is required by Maryland law and by the Fund’s Charter to set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for such shares. Thus, the Board of Directors could authorize the issuance of preferred shares with terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for common shareholders or otherwise be in their best interest. As of January 31, 2024, 1,656,000 shares of Series A Preferred Stock were outstanding and the Fund may, from time to time, issue additional preferred shares in the future.   Any issuance of preferred shares must comply with the requirements of the 1940 Act. Specifically, the Fund is not permitted under the 1940 Act to issue preferred stock unless immediately after such issuance the total asset value of the Fund’s portfolio is at least 200% of the liquidation value of the outstanding preferred stock. Among other requirements, including other voting rights, the 1940 Act requires that the holders of any preferred stock, voting separately as a single class, have the right to elect at least two directors at all times. In addition, subject to the prior rights, if any, of the holders of any other class of senior securities outstanding, the holders of any preferred stock would have the right to elect a majority of the Fund’s directors at any time two years’ dividends on any preferred stock are unpaid.   The Fund’s preferred shares, including Series A Preferred Stock, have complete priority over the common shares as to distribution of assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Fund, preferred shareholders would be entitled to receive a preferential liquidating distribution before any distribution of assets is made to common shareholders. After payment of the full amount of the liquidating distribution to which they are entitled, preferred shareholders would not be entitled to any further participation in any distribution of assets by the Fund. A consolidation or merger of the Fund with another fund or a sale of all or substantially all of the assets of the Fund shall not be deemed to be a liquidation, dissolution or winding up of the Fund.   The Fund’s preferred shares, including Series A Preferred Stock, are required to be voting shares and to have equal voting rights with common shares. Except as otherwise indicated in this prospectus of the SAI and except as otherwise required by applicable law, holders of Series A Preferred Stock would vote together with common shareholders as a single class.   The terms of the Fund’s preferred shares, including Series A Preferred Stock, provide that they may be redeemed by the issuer at certain times, in whole or in part, at the original purchase price per share plus accumulated but unpaid dividends. Any redemption or purchase of shares of preferred stock by the Fund will reduce the leverage applicable to common shares, while any issuance of preferred stock by the Fund would increase such leverage.   The applicable prospectus supplement will set forth whether or not the Preferred Shares offered in this Prospectus will be listed or traded on any securities exchange. If the Preferred Shares are not listed on a securities exchange, there may be no active secondary trading market for such shares and an investment in such shares may be illiquid.   The terms, if any, on which the preferred stock may be exchanged for or converted into shares of common stock or any other security and, if applicable, the conversion or exchange price, or how it will be calculated, and the conversion or exchange period will also be set forth in the applicable prospectus supplement.   Subscription Rights   The Fund may issue Rights to (i) common shareholders to purchase Common Shares and/or Preferred Shares or (ii) preferred shareholders to purchase Preferred Shares (subject to applicable law). Rights may be issued independently or together with any other offered Security and may or may not be transferable by the person purchasing or receiving the Rights. In connection with a Rights offering to common and/or preferred shareholders, the Fund would distribute certificates evidencing the Rights and a prospectus supplement, containing all of the material terms of the Rights agreement relating to such Rights (the “Subscription Rights Agreement”), to the Fund’s common or preferred shareholders, as applicable, as of the record date that the Fund sets for determining the shareholders eligible to receive Rights in such Rights offering.   The applicable prospectus supplement would describe the following terms of Rights in respect of which this Prospectus is being delivered:   ● the period of time the offering would remain open (which will be open a minimum number of days such that all record holders would be eligible to participate in the offering and will not be open longer than 120 days);   ● the title of such subscription Rights;   ● the exercise price for such Rights (or method of calculation thereof);   ● the number of such Rights issued in respect of each common share;   ● the number of Rights required to purchase a single preferred share;   ● the extent to which such Rights are transferable and the market on which they may be traded if they are transferable;   ● if applicable, a discussion of the material U.S. federal income tax considerations applicable to the issuance or exercise of such Rights;   ● the date on which the right to exercise such Rights will commence, and the date on which such right will expire (subject to any extension);   ● the extent to which such Rights include an over-subscription privilege with respect to unsubscribed securities and the terms of such over-subscription privilege;   ● any termination right the Fund may have in connection with such Rights offering;   ● the expected trading market, if any, for Rights; and   ● any other terms of such Rights, including exercise, settlement and other procedures and limitations relating to the transfer and exercise of such Rights.   Exercise of Rights. Each Right would entitle the holder of the Right to purchase for cash such number of shares at such exercise price as in each case is set forth in, or be determinable as set forth in, the prospectus supplement relating to the Rights offered thereby. Rights would be exercisable at any time up to the close of business on the expiration date for such Rights set forth in the prospectus supplement. After the close of business on the expiration date, all unexercised Rights would become void.   Upon expiration of the Rights offering and the receipt of payment and the Rights certificate properly completed and duly executed at the corporate trust office of the Rights agent or any other office indicated in the prospectus supplement, the Fund would issue, as soon as practicable, the shares purchased as a result of such exercise. To the extent permissible under applicable law, the Fund may determine to offer any unsubscribed offered Securities directly to persons other than shareholders, to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable prospectus supplement.   Subscription Rights to Purchase Common and Preferred Stock   The Fund may issue Rights, which would entitle holders to purchase both Common Shares and Preferred Shares in a ratio to be set forth in the applicable prospectus supplement. In accordance with the 1940 Act, at least three subscription rights to purchase Common Shares would be required to subscribe for one Common Share. It is expected that Rights to purchase both Common Shares and Preferred Shares would require holders to purchase an equal number of Common Shares and Preferred Shares, and would not permit holders to purchase an unequal number of Common Shares or Preferred Shares, or purchase only Common Shares or only Preferred Shares. For example, such an offering might be structured such that three Rights would entitle an investor to purchase one Common Share and one Preferred Share, and such investor would not be able to choose to purchase only a Common Share or only a Preferred Share upon the exercise of his, her or its Rights.   The Common Shares and Preferred Shares issued pursuant to the exercise of any such Rights, however, would at all times be separately tradeable securities. Such Common Shares and Preferred Shares would not be issued as a “unit” or “combination” and would not be listed or traded as a “unit” or “combination” on a securities exchange, such as the NYSE, at any time. The applicable prospectus supplement will set forth additional details regarding an offering of Rights to purchase Common Shares and Preferred Shares.
Security Title [Text Block]	Common Stock
Security Dividends [Text Block]	The Common Shares issued in the offering are fully paid and non-assessable. Common Shares have no preemptive, conversion, exchange, appraisal or redemption rights, and each share has equal voting, dividend, distribution and liquidation rights. Shareholders are entitled to receive dividends if and when the Board of Directors declares dividends from funds legally available. Whenever preferred shares or borrowings are outstanding, common shareholders will not be entitled to receive any distributions from the Fund unless all accrued dividends on the preferred shares and interest and principal payments on borrowings have been paid, and unless the applicable asset coverage requirements under the 1940 Act would be satisfied after giving effect to the distribution as described above.
Security Voting Rights [Text Block]	Common shareholders are entitled to one vote per share. All voting rights for the election of directors are noncumulative, which means that, assuming there are no preferred shares outstanding, the holders of more than 50% of the common shares will elect 100% of the directors then nominated for election if they choose to do so and, in such event, the holders of the remaining common shares will not be able to elect any directors.
Security Liquidation Rights [Text Block]	In the event of the Fund’s liquidation, dissolution or winding up, the common shares would be entitled to share ratably in all of the Fund’s assets that are legally available for distribution after the Fund pays all debts and other liabilities and subject to any preferential rights of holders of any outstanding preferred shares.
Security Preemptive and Other Rights [Text Block]	Prior to issuance of shares of each class or series, the Board of Directors is required by Maryland law and by the Fund’s Charter to set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series.
Outstanding Security, Title [Text Block]		Common Shares
Outstanding Security, Authorized [Shares]		38,344,000
Outstanding Security, Held [Shares]		0
Outstanding Security, Not Held [Shares]		3,862,917
Series A Preferred Stock [Member]
Capital Stock, Long-Term Debt, and Other Securities [Abstract]
Capital Stock [Table Text Block]	Preferred Stock   The Fund’s Charter authorizes the Board of Directors to classify and reclassify any unissued common shares into other classes or series of stock, including preferred stock, without the approval of the common shareholders. Prior to issuance of any preferred shares, the Board of Directors is required by Maryland law and by the Fund’s Charter to set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for such shares. Thus, the Board of Directors could authorize the issuance of preferred shares with terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for common shareholders or otherwise be in their best interest. As of January 31, 2024, 1,656,000 shares of Series A Preferred Stock were outstanding and the Fund may, from time to time, issue additional preferred shares in the future.   Any issuance of preferred shares must comply with the requirements of the 1940 Act. Specifically, the Fund is not permitted under the 1940 Act to issue preferred stock unless immediately after such issuance the total asset value of the Fund’s portfolio is at least 200% of the liquidation value of the outstanding preferred stock. Among other requirements, including other voting rights, the 1940 Act requires that the holders of any preferred stock, voting separately as a single class, have the right to elect at least two directors at all times. In addition, subject to the prior rights, if any, of the holders of any other class of senior securities outstanding, the holders of any preferred stock would have the right to elect a majority of the Fund’s directors at any time two years’ dividends on any preferred stock are unpaid.   The Fund’s preferred shares, including Series A Preferred Stock, have complete priority over the common shares as to distribution of assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Fund, preferred shareholders would be entitled to receive a preferential liquidating distribution before any distribution of assets is made to common shareholders. After payment of the full amount of the liquidating distribution to which they are entitled, preferred shareholders would not be entitled to any further participation in any distribution of assets by the Fund. A consolidation or merger of the Fund with another fund or a sale of all or substantially all of the assets of the Fund shall not be deemed to be a liquidation, dissolution or winding up of the Fund.   The Fund’s preferred shares, including Series A Preferred Stock, are required to be voting shares and to have equal voting rights with common shares. Except as otherwise indicated in this prospectus of the SAI and except as otherwise required by applicable law, holders of Series A Preferred Stock would vote together with common shareholders as a single class.   The terms of the Fund’s preferred shares, including Series A Preferred Stock, provide that they may be redeemed by the issuer at certain times, in whole or in part, at the original purchase price per share plus accumulated but unpaid dividends. Any redemption or purchase of shares of preferred stock by the Fund will reduce the leverage applicable to common shares, while any issuance of preferred stock by the Fund would increase such leverage.   The applicable prospectus supplement will set forth whether or not the Preferred Shares offered in this Prospectus will be listed or traded on any securities exchange. If the Preferred Shares are not listed on a securities exchange, there may be no active secondary trading market for such shares and an investment in such shares may be illiquid.   The terms, if any, on which the preferred stock may be exchanged for or converted into shares of common stock or any other security and, if applicable, the conversion or exchange price, or how it will be calculated, and the conversion or exchange period will also be set forth in the applicable prospectus supplement.
Security Title [Text Block]	Preferred Stock
Security Voting Rights [Text Block]	The Fund’s preferred shares, including Series A Preferred Stock, are required to be voting shares and to have equal voting rights with common shares. Except as otherwise indicated in this prospectus of the SAI and except as otherwise required by applicable law, holders of Series A Preferred Stock would vote together with common shareholders as a single class.
Security Liquidation Rights [Text Block]	The Fund’s preferred shares, including Series A Preferred Stock, have complete priority over the common shares as to distribution of assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Fund, preferred shareholders would be entitled to receive a preferential liquidating distribution before any distribution of assets is made to common shareholders. After payment of the full amount of the liquidating distribution to which they are entitled, preferred shareholders would not be entitled to any further participation in any distribution of assets by the Fund. A consolidation or merger of the Fund with another fund or a sale of all or substantially all of the assets of the Fund shall not be deemed to be a liquidation, dissolution or winding up of the Fund.
Security Preemptive and Other Rights [Text Block]	Prior to issuance of any preferred shares, the Board of Directors is required by Maryland law and by the Fund’s Charter to set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for such shares.
Outstanding Security, Title [Text Block]		Series A Preferred Stock
Outstanding Security, Authorized [Shares]		1,656,000
Outstanding Security, Held [Shares]		0
Outstanding Security, Not Held [Shares]		1,656,000

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