As filed with the Securities and Exchange Commission on February 22, 2021

 

 

 

1933 Act File No. 333-239784

1940 Act File No. 811-23586

 

U.S. Securities and Exchange Commission

Washington, D.C. 20549

 

FORM N-2

 

(Check appropriate box or boxes)

 

[X] Registration Statement Under the Securities Act of 1933
[X] Pre-Effective Amendment No. 3
[   ] Post-Effective Amendment No. _

 

and

 

[X] Registration Statement Under the Investment Company Act of 1940
[X] Amendment No. 3

 

RiverNorth Flexible Municipal Income Fund II, Inc.

Exact Name of Registrant as Specified in Charter

 

325 North LaSalle Street, Suite 645, Chicago, Illinois 60654

Address of Principal Executive Offices (Number, Street, City, State, Zip Code)

 

(312) 832-1440

Registrant’s Telephone Number, including Area Code

 

Marcus L. Collins, Esq.

RiverNorth Capital Management, LLC

325 North LaSalle Street, Suite 645

Chicago, Illinois 60654

 

Name and Address (Number, Street, City, State, Zip Code) of Agent for Service

 

Copies of Communications to:

 

Morrison C. Warren, Esq. Allison Fumai
Walter L. Draney, Esq. Dechert LLP
E. Roy Kim, Esq. 1095 Avenue of the Americas
Chapman and Cutler LLP New York, New York 10036
111 West Monroe Street  
Chicago, Illinois 60603  

 

 

 

Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement

_______________

 

[   ] Check box if the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans.

 

[   ] Check box if any securities being registered on the Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933 (“Securities Act”), other than securities offered in connection with a dividend reinvestment plan.

 

[   ] Check box if this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto.

 

[   ] Check box if this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act.

 

[   ] Check box if this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act.

 

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

 

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

 

If appropriate, check the following box:

 

[   ] This [post-effective] amendment designates a new effective date for a previously filed [post-effective amendment] [registration statement].

 

[   ] This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: ______.

 

[   ] This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: ______.

 

[   ] This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: ______.

 

Check each box that appropriately characterizes the Registrant:

 

[X] Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (“Investment Company Act”))

 

[   ] Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act).

 

-2

 

[   ] Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act).

 

[   ] A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form).

 

[   ] Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act).

 

[   ] Emerging Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 (“Exchange Act”).

 

[   ] If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act.

 

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

_______________

 

Calculation of Registration Fee Under the Securities Act of 1933

 

 

 

Title of Securities

Being Registered

Amount Being

Registered(2)

Proposed

Maximum

Offering Price
Per Unit

Proposed

Maximum

Aggregate Offering Price(1)

Amount of

Registration Fee(3)

Common Stock, $0.0001 par value 25,000,000 $20.00 $500,000,000 $54,550

 

(1) Estimated solely for the purpose of determining the registration fee.

 

(2) This number includes all shares that may be issued pursuant to the Underwriters’ over-allotment option.

 

(3) $1.30 of which has been previously paid.

 

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 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 dates as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

-3

 

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.

 

PROSPECTUS

Subject to Completion, Dated February 22, 2021

                    Shares

RiverNorth Flexible Municipal Income Fund II, Inc.

Common Stock

$20.00 per Share

 

 

 

The Fund. RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”) is a newly organized, diversified, closed-end management investment company.

 

Investment Objectives. The Fund’s primary investment objective is current income exempt from regular U.S. federal income taxes (but which may be includable in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective is total return. There is no assurance that the Fund will achieve its investment objectives.

 

Principal Investment Strategies. Under normal market conditions, the Fund will seek to achieve its investment objectives by investing, directly or indirectly, at least 80% of its Managed Assets (as defined below) in municipal bonds, the interest on which is, in the opinion of bond counsel to the issuers, generally excludable from gross income for regular U.S. federal income tax purposes, except that the interest may be includable in taxable income for purposes of the Federal alternative minimum tax (“Municipal Bonds”).

 

The Fund will seek to allocate its assets among the two principal investment strategies described below:

 

Tactical Municipal Closed-End Fund Strategy (25% - 65% of Managed Assets): This strategy will seek to (i) generate returns through investments in other investment companies, consisting principally of closed-end funds and exchange-traded funds (collectively, the “Underlying Funds”), that invest, under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds, and (ii) derive value from the discount and premium spreads associated with closed-end funds that invest, under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds. The term “tactical” is used to indicate that this strategy will seek to take advantage of pricing discrepancies in the closed-end fund market (e.g., the difference between a closed-end fund’s market value and its net asset value).

 

Municipal Bond Income Strategy (35% - 75% of Managed Assets): This strategy seeks to capitalize on inefficiencies in the tax-exempt and tax-advantaged securities markets through investments in Municipal Bonds. Under normal market conditions, the Fund may not directly invest more than 25% of the Managed Assets allocated to this strategy in Municipal Bonds in any one industry or in any one state of origin, and the Fund may not directly invest more than 5% of the Managed Assets allocated to this strategy in the Municipal Bonds of any one issuer, except that the foregoing industry and issuer restrictions shall not apply to general obligation bonds and the Fund will consider the obligor or borrower underlying the Municipal Bond to be the “issuer.” The Fund may invest up to 30% of the Managed Assets allocated to this strategy in Municipal Bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax. The Fund can invest, directly or indirectly through Underlying Funds, in bonds of any maturity; however, under this strategy, it will generally invest in Municipal Bonds that have a maturity of five years or longer at the time of purchase.

 

(continued on following page)

 

No Prior History. Because the Fund is newly organized, the shares of the Fund’s common stock (the “Common Shares”) have no history of public trading. Common shares of closed-end funds frequently trade at prices lower than net asset value. The risk of loss due to this discount may be greater for initial investors expecting to sell their Common Shares in a relatively short period after the completion of this initial public offering. The Fund intends to list the Common Shares on the New York Stock Exchange (the “NYSE”), subject to notice of issuance. The trading or ticker symbol of the Common Shares is expected to be “RFMZ.” Although the Common Shares are listed on the NYSE, there may be no or limited trading volume in the Fund’s shares. Accordingly, investors may not be able to sell all or part of their Common Shares in a particular time frame.

 

     

 

You should read this Prospectus, which contains important information about the Fund, before deciding whether to invest in the Common Shares, and retain it for future reference. A Statement of Additional Information, dated                    (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 (when available) and other information about the Fund, or make shareholder inquiries, by calling (844) 569-4750, by writing to the Fund at 325 North LaSalle Street, Suite 645, Chicago, IL 60654, or by visiting the Fund’s and the Adviser’s website at www.rivernorth.com (information included on the website does not form a part of this Prospectus), or from the SEC’s website at www.sec.gov.

 

Beginning on January 1, 2021, as permitted by regulations adopted by the SEC, paper copies of the Fund’s annual and semi-annual reports to shareholders will no longer be sent by mail unless you specifically request paper copies of the reports from the Fund or from your financial intermediary (such as a broker-dealer or bank). Instead, the reports will be made available on the Fund’s website at www.rivernorth.com, and you will be notified by mail each time a report is posted and provided with a website address to access the report.

 

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by contacting your financial intermediary or, if you are a direct investor, by calling (844) 569-4750.

 

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can call (844) 569-4750 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through a financial intermediary or all funds held with the fund complex if you invest directly with the Fund.

 

Investing in the Fund’s common stock involves certain risks. See “Risks” beginning on page 29 of this Prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

   

Per Share

   

Total(1)

 
Public offering price      $20.00     $  
Sales load(2)      $0.00     $  
Proceeds, after expenses, to the Fund(3)      $20.00     $  

(notes continued on the next page)

 

 

 

The underwriters expect to deliver the Common Shares to purchasers on or about

 

  ii  

 

UBS Investment Bank      
  Wells Fargo Securities    
    RBC Capital Markets  
      Stifel

B. Riley Securities Bancroft Capital Brookline Capital Markets, a division of Arcadia Securities, LLC
D.A. Davidson & Co. GMS Group, LLC Hilltop Securities Inc.
Incapital Janney Montgomery Scott JonesTrading
Ladenburg Thalmann Maxim Group LLC National Securities Corporation
Newbridge Securities Corporation Pershing LLC Rockefeller Capital Management
Wedbush Securities Inc.  

 

Prospectus dated                       .

 

(notes continued from previous page)

 

 

(1) The Fund has granted the underwriters an option to purchase up to                additional Common Shares at the Public Offering Price less the Sales Load within 45 days of the date of this Prospectus, solely to cover overallotments, if any. If this option is exercised in full, the total Public Offering Price, Sales Load, and Proceeds, After Expenses, to the Fund, will be $              , $0 and $              , respectively. See “Underwriters.” Investors purchasing Common Shares in this offering will not be charged a sales load.
(2) The Adviser (as defined below), and not the Fund, has agreed to pay from its own assets (a) compensation of up to $       per Common Share to the underwriters in connection with this offering, and separately (b) a structuring fee to each of UBS Securities, LLC, Wells Fargo Securities, LLC, RBC Capital Markets, LLC and Stifel, Nicolaus & Company, Incorporated, in the amounts of $              ,$               , $ and $              , respectively, and a sales incentive fee to B. Riley Securities, Inc., Bancroft Capital, LLC, Brookline Capital Markets, a division of Arcadia Securities, LLC, D.A. Davidson & Co., GMS Group, LLC, Hilltop Securities Inc., Incapital LLC, Janney Montgomery Scott LLC, JonesTrading Institutional Services LLC, Ladenburg Thalmann & Co. Inc, Maxim Group LLC, National Securities Corporation, Newbridge Securities Corporation, Pershing LLC, Rockefeller Financial LLC and Wedbush Securities Inc. in the amounts of $ , $ , $ , $ , $ , $ , $ , $ , $ , $ , $ , $ , $ , $ , $ and $ , respectively. The sum total of all compensation to the underwriters in connection with this public offering of Common Shares, including all forms of additional compensation or structuring or sales incentive fee payments, if any, to the underwriters and other expenses, will be limited to not more than        % of the total public offering price of the Common Shares sold in this offering. See “Underwriters—Additional Underwriter Compensation.”
(3) The Adviser has agreed to pay all organizational expenses of the Fund and all offering costs associated with this offering. The Fund is not obligated to repay any such organizational expenses or offering costs paid by the Adviser. See “Summary of Fund Expenses.”

 

The Fund, or the Underlying Funds in which the Fund invests, may invest in securities of any credit quality, including, without limit, securities that are rated below investment grade, except as further set forth under “Investment Objectives, Strategies and Policies” below. Below investment grade securities are commonly referred to as “junk” and “high yield” securities and are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. See also “Risks—Investment-Related Risks—Credit and Below Investment Grade Securities Risk.”

 

“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). Such assets attributable to leverage include the portion of assets in tender option bond trusts of which the Fund owns TOB Residuals (as defined below) that has been effectively financed by the trust’s issuance of TOB Floaters (as defined below). See “Use of Leverage—Tender Option Bonds.”

 

Investment Adviser and Subadviser. The Fund’s investment adviser is RiverNorth Capital Management, LLC (the “Adviser”) and the Fund’s subadviser is MacKay Shields LLC (the “Subadviser”). The Adviser will be responsible for the day-to-day management of the Fund’s Managed Assets allocated to the Tactical Municipal Closed-End Fund Strategy. The Subadviser will be responsible for the day-to-day management of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy. See “Management of the Fund.”

 

Limited Term and Eligible Tender Offer. The Fund will terminate on or before February 26, 2036 (the “Termination Date”); provided, that if the Board of Directors of the Fund (the “Board of Directors”) believes that, under then-current market conditions, it is in the best interests of the Fund to do so, the Fund may extend the Termination Date: (i) once for up to one year (i.e., up to February 26, 2037), and (ii) once for up to an additional six months (i.e., up to August 26, 2037), in each case upon the affirmative vote of a majority of the Board of Directors and without the approval of the holders of the Common Shares of the Fund (the “Common Shareholders”).

 

In addition, as of a date within twelve months preceding the Termination Date, the Board of Directors may cause the Fund to conduct a tender offer to all Common Shareholders to purchase Common Shares of the Fund at a price equal to the net asset value (“NAV”) per Common Share on the expiration date of the tender offer (an “Eligible Tender Offer”). The Board of Directors has established that, following an Eligible Tender Offer, the Fund must have at least $100 million of net assets to ensure the continued viability of the Fund (the “Termination Threshold”). In an Eligible Tender Offer, the Fund will offer to purchase all Common Shares held by each Common Shareholder; provided, that if the number of properly tendered Common Shares would result in the Fund’s net assets totaling less than the Termination Threshold, the Eligible Tender Offer will be terminated and no Common Shares will be repurchased pursuant to the Eligible Tender Offer. Instead, the Fund will begin (or continue) liquidating its portfolio and proceed to terminate on or before the Termination Date. Following the completion of an Eligible Tender Offer, the Board of Directors may eliminate the limited term structure of the Fund upon the affirmative vote of a majority of the Board of Directors and without the approval of Common Shareholders.

 

  iii  

 

The Fund is not a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time as its target date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund whose investment objective is to return its original NAV on the termination date. The Fund’s investment objectives and policies are not designed to seek to return to investors that purchase Common Shares in this offering their initial investment of $20.00 per Common Share on the Termination Date or in an Eligible Tender Offer, and such investors and investors that purchase Common Shares after the completion of this offering may receive more or less than their original investment upon termination or in an Eligible Tender Offer. See “Limited Term and Eligible Tender Offer” and “Risks—Structural Risks—Limited Term and Eligible Tender Offer Risk” below.

 

Dividends and Distributions. The Fund intends to distribute to Common Shareholders regular monthly cash distributions of all or a portion of its net investment income. Commencing with the first distribution, the Fund intends to implement a level distribution policy. There is no assurance the Fund will make regular monthly distributions or that it will do so at a particular rate.

 

From time to time, portions of the Fund’s distributions may constitute a return of capital. 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. See “Dividends and Distributions.”

 

Leverage. The Fund may borrow money and/or issue preferred stock, notes or debt securities for investment purposes. These practices are known as leveraging. In addition, the Fund may enter into derivative and other transactions that have the effect of leverage. Such other transactions may include tender option bond transactions (as described herein). As of the time immediately after it enters into any of the foregoing transactions, the Fund will seek to limit its overall effective leverage to 45% of its Managed Assets. The Fund currently anticipates that leverage will initially be obtained through the use of proceeds received from tender option bond transactions. See “Use of Leverage—Tender Option Bonds.” Since the holders of common stock pay all expenses related to the use of leverage, such use of leverage would create a greater risk of loss for the Fund’s Common Shares than if leverage is not used. See Risks—Structural Risk—Leverage Risk.”

 

The Fund’s Common Shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.

 

  iv  

 

TABLE OF CONTENTS

 

  Page
Prospectus Summary 1
Summary of Fund Expenses 16
The Fund 18
Use of Proceeds 19
Investment Objectives, Strategies and Policies 19
Investment Philosophy and Process 25
Use of Leverage 26
Risks 29
Management of the Fund 56
Net Asset Value 59
Dividends and Distributions 60
Dividend Reinvestment Plan 61
Description of the Common Shares 63
Certain Provisions of The Fund’s Charter and Bylaws and Of Maryland Law 64
Common Share Repurchase Plan 70
Repurchase of Shares 71
Conversion to Open-End Fund 72
Limited Term and Eligible Tender Offer 72
U.S. Federal Income Tax Matters 74
California Tax Matters 78
Underwriters 79
Administrator, Fund Accountant, Transfer Agent, Dividend Disbursing Agent and Custodian 82
Legal Matters 82
Additional Information 82

 

 

 

You should rely only on the information contained or incorporated by reference in this Prospectus. Neither the Fund nor the underwriters have 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. Neither the Fund nor the underwriters are 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 is accurate as of any date other than the date on the front of this Prospectus. The Fund’s business, financial condition and results of operations may have changed since that date. The Fund will amend this Prospectus if, during the period this Prospectus is required to be delivered, there are any material changes to the facts stated in this Prospectus.

 

  v  

 

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 shares of common stock (the “Common Shares”) offered by this Prospectus. You should review the more detailed information contained in this Prospectus and the Statement of Additional Information (“SAI”), especially the information set forth under the headings “Investment Objectives, Strategies and Policies” and “Risks.”

 

The Fund   RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”) is a Maryland corporation registered as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund will have a limited term unless otherwise determined by the Fund’s Board of Directors (“Board of Directors”). See “Limited Term” and “Risks—Structural Risks—Limited Term and Eligible Tender Offer Risk.”
     
Investment Adviser and    
Subadviser   The Fund’s investment adviser is RiverNorth Capital Management, LLC (the “Adviser”) and the Fund’s subadviser is MacKay Shields LLC (the “Subadviser”).  The Adviser will be responsible for the day-to-day management of the Fund’s Managed Assets (as defined below) allocated to the Tactical Municipal Closed-End Fund Strategy (as described below).  The Subadviser will be responsible for the day-to-day management of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy (as described below).  Subject to the ranges noted below under “—Principal Investment Strategies and Policies—Tactical Municipal Closed-End Fund Strategy” and “—Principal Investment Strategies and Policies—Municipal Bond Income Strategy,” the Adviser will determine the portion of the Fund’s Managed Assets to allocate to each strategy and may, from time to time, adjust the allocations.  See “Management of the Fund.”
     
The Offering   The Fund is offering                of its Common Shares, $0.0001 par value per share, at $20.00 per Common Share through a group of underwriters led by UBS Securities, LLC, Wells Fargo Securities, LLC, RBC Capital Markets, LLC and Stifel, Nicolaus & Company, Incorporated. You must purchase at least 100 Common Shares in this offering ($2,000).  The Fund has granted the underwriters an option to purchase up to             additional Common Shares, at the Public Offering Price (as described below) less the Sales Load (as described below), within 45 days to cover overallotments. The Adviser (as defined below) has agreed to pay underwriting compensation of up to $      per Common Share to the underwriters in connection with this offering. The Adviser also has agreed to pay all of the Fund’s organizational expenses and all offering costs associated with this offering.  The Fund is not obligated to repay any such organizational expenses or offering costs paid by the Adviser. See “Underwriters.”
     

Common Share

Repurchase Plan

 

 

The Fund intends to implement a Repurchase Plan with respect to the Fund’s Common Shares (the “Repurchase Plan”) for a limited period following the Fund’s initial public offering in an attempt to provide additional liquidity in the marketplace for the Fund’s Common Shares. The Repurchase Plan is currently expected to commence approximately 60 calendar days following the date on which the overallotment period ends and terminate on the earlier of (i) 90 calendar days after the commencement of the Repurchase Plan, or (ii) the date on which the Fund has purchased under the Repurchase Plan 10% of the Common Shares issued in this offering prior to any exercise of the overallotment option (the “Repurchase Period”). The Repurchase Plan will permit a broker-dealer acting as the Fund’s agent to repurchase in the open market the Fund’s Common Shares on the Fund’s behalf when the Common Shares are trading at or below a specified level of discount to net asset value (“NAV”). Under the Repurchase Plan, on any day that shares are repurchased, the Fund’s agent may repurchase the Fund's shares in an amount up to the maximum number of Common Shares the Fund may purchase under Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which, generally, is currently 25% of the average daily trading volume of the Common Shares over the trailing four week period. The date of commencement of the Repurchase Plan and the repurchases of shares under the Repurchase Plan will be subject to certain conditions under Rule 10b-18 and other applicable laws, including Regulation M, which may prohibit the commencement of the Repurchase Plan and repurchases under certain circumstances. In addition to providing potential additional liquidity in the marketplace, any repurchases under the Repurchase Plan will be made by the Fund at a discount to then current NAV of the Common Shares and therefore would be accretive to the NAV of the remaining Common Shares following the repurchases, and the Repurchase Plan may also have the effect of preventing or reducing a significant decline in the market price of the Common Shares in comparison to their NAV. However, there can be no assurance that repurchases of Common Shares under the Repurchase Plan will cause the Common Shares to trade at a price equal to or in excess of NAV or prevent or reduce any trading discount. See “Common Share Repurchase Plan” and “Risk—Structural Risks—Repurchase Plan Risk.” 

  1  

 

Investment Objectives   The Fund’s primary investment objective is current income exempt from regular U.S. federal income taxes (but which may be includable in taxable income for purposes of the Federal alternative minimum tax).  The Fund’s secondary investment objective is total return.  There is no assurance that the Fund will achieve its investment objectives.
     
Principal Investment    
Strategies and Policies   Under normal market conditions, the Fund will seek to achieve its investment objectives by investing, directly or indirectly, at least 80% of its Managed Assets in municipal bonds, the interest on which is, in the opinion of bond counsel to the issuers, generally excludable from gross income for regular U.S. federal income tax purposes, except that the interest may be includable in taxable income for purposes of the Federal alternative minimum tax (“Municipal Bonds”).  In order to qualify to pay exempt-interest dividends, which are items of interest excludable from gross income for federal income tax purposes, the Fund will seek to invest at least 50% of its total assets either directly (and indirectly through tender option bond transactions) in such Municipal Bonds or in other funds that are taxed as regulated investment companies.  See “Risks—Investment-Related Risks—Tax Risks.”

 

  2  

 

    Municipal Bonds are debt obligations, which may have a variety of issuers, including governmental entities or other qualifying issuers.  Issuers may be states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities.  See “Risks—Investment-Related Risks—Municipal Bond Risks” and “Risks—Investment-Related Risks—Market Disruption, Geopolitical, Pandemic and Climate Change Risks.” Such territories of the United States include Puerto Rico.  See “Risks—Investment-Related Risks—Puerto Rico Municipal Bond Risks” for a discussion of the risks associated with an investment in Puerto Rico Municipal Bonds. Municipal Bonds include, among other instruments, general obligation bonds, revenue bonds, municipal leases, certificates of participation, private activity bonds, moral obligation bonds, and tobacco settlement bonds, as well as short-term, tax-exempt obligations such as municipal notes and variable rate demand obligations. See “Investment Objectives, Strategies and Policies—Portfolio Composition” for a description of the types of Municipal Bonds in which the Fund may invest.
     
    The Fund will seek to allocate its assets among the two principal strategies described below.  The Adviser will determine the portion of the Fund’s Managed Assets to allocate to each strategy and may, from time to time, adjust the allocations.  See “Risks—Structural Risks—Asset Allocation Risk.”  Under normal market conditions, the Fund may allocate between 25% and 65% of its Managed Assets to the Tactical Municipal Closed-End Fund Strategy and 35% to 75% of its Managed Assets to the Municipal Bond Income Strategy.  The Adviser expects to initially allocate approximately 50% of the Fund’s Managed Assets to the Tactical Municipal Closed-End Fund Strategy and approximately 50%of the Fund’s Managed Assets to the Municipal Bond Income Strategy.  See “Investment Philosophy and Process.”  
     
    Tactical Municipal Closed-End Fund Strategy (25%-65% of Managed Assets).  This strategy will seek to (i) generate returns through investments in other investment companies, consisting principally of closed-end funds and exchange-traded funds (“ETFs” and, together with such other investment companies, the “Underlying Funds”), that invest, under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds, and (ii) derive value from the discount and premium spreads associated with closed-end funds that invest, under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds.  See “Risks—Investment-Related Risks—Tactical Municipal Closed-End Fund Strategy Risk.”  All Underlying Funds will be registered under the Securities Act of 1933, as amended (the “Securities Act”).

 

  3  

 

    Under normal market conditions, the Fund will limit its investments in closed-end funds that have been in operation for less than one year to no more than 10% of the Fund’s Managed Assets allocated to the Tactical Municipal Closed-End Fund Strategy.  The Fund will not invest in inverse ETFs or leveraged ETFs. Under normal market conditions, the Fund may not invest more than 35% of its Managed Assets in the Tactical Municipal Closed-End Fund Strategy in single state municipal closed-end funds. The Fund’s shareholders will indirectly bear the expenses, including the management fees, of the Underlying Funds.  See “Risks—Investment-Related Risks—Underlying Fund Risks.”
     
    The Fund may invest in Underlying Funds that invest in securities that are rated below investment grade, including those receiving the lowest ratings from Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”), Fitch Ratings, a part of the Fitch Group (“Fitch”), or Moody’s Investor Services, Inc. (“Moody’s”), or comparably rated by another nationally recognized statistical rating organization (“NRSRO”) or, if unrated, determined by the Adviser or Subadviser to be of comparable credit quality, which indicates that the security is in default or has little prospect for full recovery of principal or interest.  See “Risks—Investment-Related Risks—Defaulted and Distressed Securities Risk.”  Below investment grade securities (such as securities rated below BBB- by S&P or Fitch or below Baa3 by Moody’s) are commonly referred to as “junk” and “high yield” securities.  Below investment grade securities are considered speculative with respect to the issuer’s capacity to pay interest and repay principal.  The Underlying Funds in which the Fund invests may invest in securities receiving the lowest ratings from the NRSROs, including securities rated C by Moody’s or D- by S&P.  Lower rated below investment grade securities are considered more vulnerable to nonpayment than other below investment grade securities and their issuers are more dependent on favorable business, financial and economic conditions to meet their financial commitments.  The lowest rated below investment grade securities are typically already in default.  See “Risks—Investment-Related Risks—Credit and Below Investment Grade Securities Risk.”
     
    The Underlying Funds in which the Fund invests will not include those that are advised or subadvised by the Adviser, the Subadviser or their affiliates.
     
    Municipal Bond Income Strategy (35%-75% of Managed Assets).  This strategy seeks to capitalize on inefficiencies in the tax-exempt and tax-advantaged securities markets through investments in Municipal Bonds.  Under normal market conditions, the Fund may not directly invest more than 25% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds in any one industry or in any one state of origin, and the Fund may not directly invest more than 5% of the Managed Assets allocated to this strategy in the Municipal Bonds of any one issuer, except that the foregoing industry and issuer restrictions shall not apply to general obligation bonds and the Fund will consider the obligor or borrower underlying the Municipal Bond to be the “issuer.”  See “Risks—Investment-Related Risks—State Specific and Industry Risks.” The Fund may invest up to 30% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax.  The Fund can invest, directly or indirectly through Underlying Funds, in bonds of any maturity; however, under this strategy, it will generally invest in Municipal Bonds that have a maturity of five years or longer at the time of purchase.

 

  4  

 

    Under normal market conditions, the Fund will invest at least 60% of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy directly in investment grade Municipal Bonds.  The Subadviser will invest no more than 20% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds rated at or below Caa1 by Moody’s or CCC+ by S&P or Fitch, or comparably rated by another NRSRO, including unrated bonds judged to be of equivalent quality as determined by the Adviser or Subadviser, as applicable.  Investment grade securities are those rated Baa or higher by Moody’s (although Moody’s considers securities rated Baa to have speculative characteristics) or BBB or higher by S&P or rated similarly by another NRSRO or, if unrated, judged to be of equivalent quality as determined by the Adviser or Subadviser, as applicable.  If the independent ratings agencies assign different ratings to the same security, the Fund will use the higher rating for purposes of determining the security’s credit quality.  Subject to the foregoing limitations, the Fund may invest in securities receiving the lowest ratings from the NRSROs, including securities rated C by Moody’s or D- by S&P, which indicates that the security is in default or has little prospect for full recovery of principal or interest.  See “Risks—Investment-Related Risks—Credit and Below Investment Grade Securities Risk.”
     
    Under normal market conditions, the Fund, or the Underlying Funds in which the Fund invests, will invest at least 50% of its Managed Assets, directly or indirectly in investment grade Municipal Bonds.
     
    “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).  Such assets attributable to leverage include the portion of assets in tender option bond trusts of which the Fund owns TOB Residuals (as defined below) that has been effectively financed by the trust’s issuance of TOB Floaters (as defined below).  See “Use of Leverage—Tender Option Bonds.”
     
    Other Investments.  The Fund may invest, directly or indirectly, up to 20% of its Managed Assets in taxable municipal securities. Any portion of the Fund’s assets invested in taxable municipal securities will not count toward the 35%-75% of the Fund’s assets allocated to Municipal Bonds.
     
    The Fund may at times establish hedging positions, which may include short sales and derivatives, such as options, futures and swaps (“Hedging Positions”).  Such Hedging Positions may be used to attempt to protect against possible changes in the value of securities held in or to be purchased for the Fund’s portfolio and to manage the effective maturity or duration of the Fund’s portfolio.  The Fund’s Hedging Positions may, however, result in income or gain to the Fund that is not exempt from regular U.S. federal income taxes.  See “Risks—Investment-Related Risks—Derivatives Risks” and “Risks—Investment-Related Risks—Options and Futures Risks.”  See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks” for forthcoming changes that may impact the Fund’s use of derivatives and other transactions, including short sales.

 

  5  

 

    A short sale is a transaction in which the Fund sells a security that it does not own in anticipation of a decline in the market price of the security. The Fund may benefit from a short position when the shorted security decreases in value by more than the cost of the transaction but will suffer a loss on a short sale if the security’s value does not decline or increases. The Fund will not engage in any short sales of securities issued by closed-end funds. See “Investment Objectives, Strategies and Policies—Principal Investment Strategies—Other Investments” and “Risks—Investment-Related Risks—Short Sale Risks.”
     
    The Fund also may attempt to enhance the return on the cash portion of its portfolio by investing in total return swap agreements.  A total return swap agreement provides the Fund with a return based on the performance of an underlying asset, in exchange for fee payments to a counterparty based on a specific rate.  The difference in the value of these income streams is recorded daily by the Fund, and is typically settled in cash at least monthly.  If the underlying asset declines in value over the term of the swap, the Fund would be required to pay the dollar value of that decline plus any applicable fees to the counterparty.  The Fund may use its own NAV or any other reference asset that the Adviser or Subadviser chooses as the underlying asset in a total return swap.  The Fund will limit the notional amount of all total return swaps in the aggregate to 15% of the Fund’s Managed Assets.  See “Investment Objectives, Strategies and Policies—Principal Investment Strategies—Other Investments“ and “Risks—Investment-Related Risks—Swap Risks.”  See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks” for forthcoming changes that may impact the Fund’s use of derivatives, including swaps.
     
    In addition to the foregoing principal investment strategies of the Fund, the Adviser also may allocate the Fund’s Managed Assets among cash and short-term investments.  See “Investment Policies and Techniques—Temporary Investments and Defensive Position” in the SAI.  There are no limits on the Fund’s portfolio turnover, and the Fund may buy and sell securities to take advantage of potential short-term trading opportunities without regard to length of time and when the Adviser or Subadviser believes investment considerations warrant such action.  High portfolio turnover may result in the realization of net short-term capital gains by the Fund which, when distributed to holders of the Common Shares (the “Common Shareholders”), will be taxable as ordinary income. In addition, a higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund.  See “Risks—Structural Risks—Portfolio Turnover Risk.”

 

  6  

 

    All percentage limitations described in this Prospectus are measured at the time of investment and may be exceeded on a going-forward basis as a result of credit rating downgrades or market value fluctuations of the Fund’s portfolio securities.  Unless otherwise specified herein, the Fund may count its holdings in Underlying Funds towards various guideline tests, including the 80% policy so long as the earnings on the underlying holdings of such Underlying Funds are exempt from regular U.S. federal income taxes (but which may be includable in taxable income for purposes of the Federal alternative minimum tax).
     
    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 primary investment objective, 80% policy 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 stock of the Fund (“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 “Investment Restrictions” in the SAI.
     

Investment Philosophy

and Process

 

 

The Adviser will allocate the Fund’s assets among the Tactical Municipal Closed-End Fund Strategy and the Municipal Bond Income Strategy (as described above). The amount allocated to each of the principal strategies may change depending on the Adviser’s assessment of market risk, security valuations, market volatility, and the prospects for earning income and capital appreciation. See “Risks—Structural Risks—Multi-Manager Risk.”

 

Tactical Municipal Closed-End Fund Strategy. The Adviser considers a number of factors when selecting Underlying Funds, including fundamental and technical analysis to assess the relative risk and reward potential throughout the financial markets. The term “tactical” is used to indicate that the portion of the Fund’s Managed Assets allocated to this strategy will invest in closed-end funds to seek to take advantage of pricing discrepancies in the closed-end fund market.

 

In selecting closed-end funds, the Adviser opportunistically utilizes a combination of short-term and longer-term trading strategies to seek to derive value from the discount and premium spreads associated with closed-end funds by identifying pricing aberrations. Closed-end funds may trade at a price that is above their net asset value per share, referred to as a “premium,” or below their net asset value per share, referred to as a “discount.” The difference between the net asset value per share and the discount or premium is referred to as a “spread.” The Adviser employs both a quantitative and qualitative approach in its selection of closed-end funds and has developed proprietary screening models and algorithms to trade closed-end funds. The Adviser’s mean reversion investing looks to capitalize on changes within the pricing of a closed-end fund and, based upon its research and analysis, a view that it will revert to historical pricing. The Adviser employs the following trading strategies, among others:

  7  

 

   

Statistical Analysis (Mean Reversion)

 

•     Using proprietary quantitative models, the Adviser seeks to identify closed-end funds that are trading at compelling absolute and/or relative discounts.

 

•     The Adviser will attempt to capitalize on the perceived mispricing if the Adviser believes that the discount widening is irrational and expects the discount to narrow to longer-term mean valuations.

 

Corporate Actions

 

•     The Adviser will pursue investments in closed-end funds that have announced, or the Adviser believes are likely to announce, certain corporate actions that may drive value for their shareholders.

 

•     The Adviser has developed trading strategies that focus on closed-end fund tender offers, rights offerings, shareholder distributions, open-endings and liquidations.

 

Shareholder Activism

 

•     The Adviser will assess activism opportunities by determining a closed-end fund’s susceptibility to dissident activity and analyzing the composition of the fund’s shareholder register. The Fund, in seeking to achieve its investment objectives, will not initiate an activist role with the Underlying Funds in which it invests.

     
   

In employing its trading strategies, the Adviser conducts an extensive amount of due diligence on various fund sponsors, investment managers and funds, including actively monitoring regulatory filings, analyzing a fund’s registration statements, financial statements and organizational documents, as well as conducting proprietary research, such as speaking with fund sponsors, underwriters, sell-side brokers and investors.

 

See “Investment Philosophy and Process—Tactical Municipal Closed-End Fund Strategy.”

 

Municipal Bond Income Strategy. The Subadviser believes inefficiencies exist in the tax-exempt and tax-advantaged securities markets. In order to capitalize on these opportunities, the Subadviser applies both a top-down and bottom-up research investment process. The Subadviser’s top-down analysis considers the economic, interest rate, inflation outlook and other economic variables to guide overall portfolio structure. The Subadviser employs a value-oriented security selection process to invest in securities it believes to be mispriced which offer a yield advantage. In choosing investments, the Subadviser analyzes the credit quality of issuers and considers the yields available on municipal bonds with different maturities. In addition, the Subadviser reviews macroeconomic events, technical characteristics in the municipal bond market, tax policies, as well as analyzing individual municipal securities and sectors. The Subadviser seeks to reduce volatility through its disciplined investment process and investment risk management.

  8  

 

    The Subadviser may sell a security if it no longer believes the security will contribute to meeting the investment objectives of the Fund.  In considering whether to sell a security, the Subadviser may evaluate, among other things, the condition of the economy and meaningful changes in the issuer’s financial condition.
     
    See “Investment Philosophy and Process—Municipal Bond Income Strategy.”
     

Limited Term Fund

Structure and Eligible

Tender Offer

 

 

 

The Fund will terminate on or before February 26, 2036 (the “Termination Date”); provided, that if the Board of Directors believes that, under then-current market conditions, it is in the best interests of the Fund to do so, the Fund may extend the Termination Date: (i) once for up to one year (i.e., up to February 26, 2037), and (ii) once for up to an additional six months (i.e., up to August 26, 2037), in each case upon the affirmative vote of a majority of the Board of Directors and without the approval of Common Shareholders. In determining whether to extend the Termination Date, the Board of Directors may consider, for example, the Fund’s inability to sell its assets in a time frame consistent with termination due to lack of market liquidity or other extenuating circumstances. Additionally, the Board of Directors may determine that market conditions are such that it is reasonable to believe that, with an extension, the Fund’s remaining assets will appreciate and generate income in an amount that, in the aggregate, is meaningful relative to the cost and expense of continuing the operation of the Fund.

 

In anticipation of the Termination Date (such period of time, the “wind-down period”), the Fund may begin liquidating all or a portion of the Fund’s portfolio, and may deviate from its investment policies and may not achieve its investment objective. During the wind-down period (or in anticipation of an Eligible Tender Offer), the Fund’s portfolio composition may change as more of its portfolio holdings are called or sold and portfolio holdings are disposed of in anticipation of liquidation. Rather than reinvesting the proceeds of matured, called or sold securities in accordance with the investment program described above, the Fund may invest such proceeds in short term or other lower yielding securities or hold the proceeds in cash, which may adversely affect its performance.

  9  

 

    In addition, within twelve months preceding the Termination Date, the Board of Directors may cause the Fund to conduct an Eligible Tender Offer. An Eligible Tender Offer would consist of a tender offer to all Common Shareholders to purchase Common Shares of the Fund at a price equal to the NAV per Common Share on the expiration date of the tender offer. The Board of Directors has established that, following an Eligible Tender Offer, the Fund must have at least $100 million of net assets to ensure the continued viability of the Fund (the “Termination Threshold”).
     
    In an Eligible Tender Offer, the Fund will offer to purchase all Common Shares held by each Common Shareholder; provided, that if the number of properly tendered Common Shares would result in the Fund’s net assets totaling less than the Termination Threshold, the Eligible Tender Offer will be terminated and no Common Shares will be repurchased pursuant to the Eligible Tender Offer. Instead, the Fund will begin (or continue) liquidating its portfolio and proceed to terminate on or before the Termination Date. The Adviser will pay all costs and expenses associated with the making of an Eligible Tender Offer, other than brokerage and related transaction costs associated with the disposition of portfolio investments in connection with the Eligible Tender Offer, which will be borne by the Fund and its shareholders. An Eligible Tender Offer would be made, and Common Shareholders would be notified thereof, in accordance with the requirements of the 1940 Act, the Exchange Act and the applicable tender offer rules thereunder (including Rule 13e-4 and Regulation 14E under the Exchange Act).  
     
    If the number of properly tendered Common Shares would result in the Fund’s net assets equaling or totaling greater than the Termination Threshold, all Common Shares properly tendered and not withdrawn will be purchased by the Fund pursuant to the terms of the Eligible Tender Offer. The Fund’s purchase of tendered Common Shares pursuant to a tender offer will have tax consequences for tendering Common Shareholders and may have tax consequences for non-tendering Common Shareholders. In addition, the Fund would continue to be subject to its obligations with respect to its issued and outstanding preferred stock or debt securities, if any.
     
    All Common Shareholders remaining after a tender offer will be subject to proportionately higher expenses due to the reduction in the Fund’s total assets resulting from payment for the tendered Common Shares. A reduction in net assets, and the corresponding increase in the Fund’s expense ratio, could result in lower returns and put the Fund at a disadvantage relative to its peers and potentially cause the Fund to trade at a wider discount to NAV than it otherwise would. Such reduction in the Fund’s total assets may also result in less investment flexibility, reduced diversification and greater volatility for the Fund, and may have an adverse effect on the Fund’s investment performance. Moreover, the resulting reduction in the number of outstanding Common Shares could cause the Common Shares to become thinly traded or otherwise adversely impact the secondary market trading of such shares.  See “Risks—Structural Risks—Limited Term and Eligible Tender Offer Risk.”

 

  10  

 

    Following the completion of an Eligible Tender Offer, the Board of Directors may eliminate the limited term structure of the Fund upon the affirmative vote of a majority of the Board of Directors and without the approval of Common Shareholders. In making such decision, the Board of Directors will take such actions with respect to the continued operations of the Fund as it deems to be in the best interests of the Fund, based on market conditions at such time, the extent of Common Shareholder participation in the Eligible Tender Offer and all other factors deemed relevant by the Board of Directors in consultation with the Adviser and Subadviser, taking into account that the Adviser and Subadviser may have a potential conflict of interest in seeking to convert to a perpetual fund (or in seeking to extend the Termination Date). The Fund is not required to conduct additional tender offers following an Eligible Tender Offer and conversion to a perpetual structure. Therefore, remaining Common Shareholders may not have another opportunity to participate in a tender offer or exchange their Common Shares for the then-existing NAV per Common Share.
     
    The Fund is not a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time as its target date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund whose investment objective is to return its original NAV on the termination date. The Fund’s investment objectives and policies are not designed to seek to return to investors that purchase Common Shares in this offering their initial investment of $20.00 per Share on the Termination Date or in an Eligible Tender Offer, and such investors and investors that purchase Common Shares after the completion of this offering may receive more or less than their original investment upon termination or in an Eligible Tender Offer. See “Certain Provisions of the Fund’s Charter and Bylaws and Of Maryland Law” and “Risks—Structural Risks—Limited Term and Eligible Tender Offer Risk.”
     
Use of Leverage   The Fund may borrow money and/or issue Preferred Shares, notes or debt securities for investment purposes.  These practices are known as leveraging.  In addition, the Fund may enter into derivative and other transactions that have the effect of leverage.  Such other transactions may include tender option bond transactions (as described herein).  The Adviser will determine whether or not to engage in leverage based on its assessment of conditions in the debt and credit markets.  As of the time immediately after it enters into any of the foregoing transactions, the Fund will seek to limit its overall effective leverage to 45% of its Managed Assets.  The Fund currently anticipates that leverage will initially be obtained through the use of proceeds received from tender option bond transactions.  See “—Tender Option Bonds.”  The Fund does not anticipate that it will issue Preferred Shares within 12 months of the date of this Prospectus.  

 

  11  

 

    The provisions of the 1940 Act provide that the Fund may borrow or issue notes or debt securities in an amount up to 33 1/3% of its total assets or may issue Preferred Shares in an amount up to 50% of the Fund’s total assets (including the proceeds from leverage).  The Fund’s use of derivatives and other transactions are not subject to such limitations if the Fund earmarks or segregates liquid assets (or enters into offsetting positions) in accordance with applicable Securities and Exchange Commission (“SEC”) regulations and interpretations to cover its obligations under those transactions and instruments.  However, pursuant to a rule recently adopted by the SEC, the Fund will become subject to new regulations that govern the use of such derivatives and other transactions during the third quarter of 2022.  See “Risks—Investment-Related Risks—Legislation and Regulatory Risks.”  
     
    Such derivatives and other transactions also entail expenses (e.g., transaction costs) which will be borne by the Fund.  With respect to the Fund’s anticipated investments in TOB Residuals issued by a tender option bond trust (as further discussed below under “—Tender Option Bonds”), the Fund currently intends to segregate (or earmark) unencumbered liquid assets (other than the bonds deposited into the tender option bond trust) with a value at least equal to the amount of the TOB Floaters issued by such trust plus accrued interest, if any, to the extent necessary for the Fund to comply with the foregoing requirements of the 1940 Act.  See “Risks—Investment-Related Risks—Legislation and Regulatory Risks.”
     
    The use of leverage by the Fund can magnify the effect of any losses.  If the income and gains earned on the securities and investments purchased with leverage proceeds are greater than the cost of the leverage, returns will be greater than if leverage had not been used.  Conversely, if the income and gains from the securities and investments purchased with such proceeds do not cover the cost of leverage, returns will be less than if leverage had not been used.  Since the holders of common stock pay all expenses related to the issuance of debt or use of leverage, any use of leverage would create a greater risk of loss for the Common Shares than if leverage is not used.  There can be no assurance that a leveraging strategy will be successful during any period in which it is employed.  See “Use of Leverage” and “Risks—Structural Risks—Leverage Risks.”
     
    Tender Option Bonds.  The Fund may leverage its assets through the use of proceeds received from tender option bond transactions.  In a tender option bond transaction, a tender option bond trust (a “TOB Issuer”) is typically established by forming a special purpose trust into which the Fund, or an agent on behalf of the Fund, transfers municipal bonds or other municipal securities.  A TOB Issuer typically issues two classes of beneficial interests: short-term floating rate notes (“TOB Floaters”), which are sold to third party investors, and residual interest municipal tender option bonds (“TOB Residuals”), which are generally issued to the Fund.  The Fund may invest in both TOB Floaters and TOB Residuals, including TOB Floaters and TOB Residuals issued by the same TOB Issuer.  The Fund may not invest more than 5% of its Managed Assets in any single TOB Issuer.  The Fund does not currently intend to invest in TOB Residuals issued by a TOB Issuer that was not formed for the Fund, although it reserves the right to do so in the future.

 

  12  

 

    Under accounting rules, securities of the Fund that are deposited into a TOB Issuer are treated as investments of the Fund, and are presented on the Fund’s Schedule of Investments and outstanding TOB Floaters issued by a TOB Issuer are presented as liabilities in the Fund’s Statement of Assets and Liabilities.  Interest income from the underlying security is recorded by the Fund on an accrual basis.  Interest expense incurred on the TOB Floaters and other expenses related to remarketing, administration and trustee services to a TOB Issuer are reported as expenses of the Fund.
     
    For TOB Floaters, generally, the interest rate earned will be based upon the market rates for municipal securities with maturities or remarketing provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods of one year or multiple years.  Since the option feature has a shorter term than the final maturity or first call date of the underlying securities deposited in the TOB Issuer, the Fund, if it is the holder of the TOB Floaters, relies upon the terms of the agreement with the financial institution furnishing the option as well as the credit strength of that institution.  As further assurance of liquidity, the terms of the TOB Issuer provide for a liquidation of the municipal security deposited in the TOB Issuer and the application of the proceeds to pay off the TOB Floaters.
     
    There are inherent risks with respect to investing in a TOB Issuer.  These risks include, among others, the bankruptcy or default of the issuer of the securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of the securities deposited in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial decline in the market value of the securities deposited in the TOB Issuer, or the inability of the sponsor or remarketing agent to remarket any TOB Floaters tendered by holders of the TOB Floaters.  See “Risks—Investment-Related Risks—Tender Option Bonds Risk.”
     

Dividends and

Distributions

 

 

Commencing with the Fund’s first dividend, the Fund intends to distribute to Common Shareholders regular monthly cash distributions of all or a portion of its net investment income. The Fund expects to declare its initial monthly dividend within 30 to 45 days after the completion of this offering and pay its initial monthly dividend within approximately 45 to 60 days after the completion of this offering, depending on market conditions. There is no assurance the Fund will make this initial monthly distribution or continue to pay regular monthly distributions or that it will do so at a particular rate.

 

Commencing with the first distribution, the Fund intends to implement a level distribution policy. At times, to maintain a stable level of distributions, the Fund may pay out less than all of its net investment income or pay out accumulated undistributed income, or return capital, in addition to current net investment income. 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.

  13  

 

    It is expected that the Fund’s distributions will generally be treated as tax-exempt income for purposes of regular U.S. federal income tax; however, portions of the Fund’s distributions may (i) be subject to U.S. federal income tax and such distributions will generally be subject to state and local taxes, (ii) be includable in taxable income for purposes of the Federal alternative minimum tax, or (iii) constitute a return of capital.  For example, the Fund may invest up to 30% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax.  Moreover, the Underlying Funds in which the Fund invests pursuant to the Tactical Municipal Closed-End Fund Strategy may themselves invest in municipal bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax.
     
    The Fund will distribute to Common Shareholders at least annually all or substantially all of its investment company taxable income and net exempt interest income after the payment of dividends and interest, if any, owed with respect to any outstanding Preferred Shares or other forms of leverage utilized by the Fund.  The Fund intends to pay any capital gains distributions at least annually.  If the Fund realizes a long-term capital gain, it will be required to allocate such gain between the Common Shares and any Preferred Shares issued by the Fund in proportion to the total dividends paid to each class for the year in which the income is realized.
     
    Various factors will affect the level of the Fund’s income, including the asset mix and average maturity of the Fund’s portfolio, the amount of leverage utilized by the Fund and the cost of such leverage and the Fund’s use of hedging.  To permit the Fund to maintain a more stable monthly distribution, the Fund may from time to time distribute less than the entire amount of income earned in a particular period.  The undistributed income would be available to supplement future distributions.  As a result, the distributions paid by the Fund for any particular monthly period may be more or less than the amount of income actually earned by the Fund during that period.  Undistributed income will add to the Fund’s NAV (and indirectly benefits the Adviser and the Subadviser by increasing their fees) and, correspondingly, distributions from undistributed income will reduce the Fund’s NAV.  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.

  14  

 

    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 intends to list the Common Shares on the New York Stock Exchange (the “NYSE”), subject to notice of issuance.  The trading or ticker symbol of the Common Shares is expected to be “RFMZ.”
     
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 Common Shares, you should consider the risks more fully set forth under “Risks” beginning on page 29 (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 municipal bonds, other investment companies and below investment grade-rated securities; risks associated with the use of leverage, including the use of tender option bond transactions and derivatives; and risks related to interest rates and tax matters.
     

Administrator, Fund

Accountant, Transfer

Agent, Dividend

Disbursing Agent

and Custodian

 

 

 

 

 

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. State Street Bank and Trust Company will act as the Fund’s custodian. DST Systems, Inc. will act as the Fund’s transfer agent, registrar, Plan Administrator and dividend disbursing agent. See “Administrator, Fund Accountant, Transfer Agent, Dividend Disbursing Agent and Custodian.”

  15  

 

SUMMARY OF FUND EXPENSES

 

The following table shows estimated Fund expenses as a percentage of net assets attributable to Common Shares. The purpose of the following table and the example below is to help you understand the fees and expenses that you, as a Common Shareholder, would bear directly or indirectly. Common Shareholders should understand that some of the percentages indicated in the tables below are estimates and may vary. The expenses shown in the table and related footnotes are based on estimated amounts for the Fund’s first year of operations and assume that the Fund issues 12,500,000 Common Shares. If the Fund issues fewer Common Shares, all other things being equal, these expenses would increase as a percentage of net assets attributable to the Fund’s Common Shares, which could adversely impact the investment performance of the Fund. Accordingly, the Fund’s net assets for purposes of the tables and example below include estimated net proceeds from the offering of $250,000,000. The following table assumes the use of leverage in an amount equal to 35% of the Fund’s Managed Assets (or approximately 53.85% of the Fund’s net assets) and shows Fund expenses as a percentage of net assets attributable to Common Shares. The following table should not be considered a representation of the Fund’s future expenses. Actual expenses may be greater or less than those shown below.

 

Shareholder Transaction Expenses As a Percentage  of Offering Price
Sales Load None
Offering Expenses Borne by Common Shareholders of the Fund(1)(2) None
Dividend Reinvestment Plan Fees(3) None

 

  As a Percentage of  Net Assets Attributable to Common Shares  (Assuming the Use of Leverage Equal to 35% of the Fund’s Managed Assets)
Annual Expenses  
Management fee(4) 2.15%
Leverage costs(5)(6) 0.32%
Acquired fund fees and expenses(7) 1.80%
Total annual expenses(8) 4.27%

 

Example(9)

 

The example illustrates the expenses you would pay on a $1,000 investment in Common Shares, assuming (1) “Total annual expenses” of 4.27% of net assets attributable to Common Shares, and (2) a 5% annual return.

 

  1 year 3 years 5 years 10 years
Total Expenses Incurred $43   $129 $217 $443

 

The example should not be considered a representation of future expenses. Actual expenses may be greater or less than those assumed.

 

  16  

 

 

(1) The Adviser, and not the Fund, has agreed to pay from its own assets underwriting (a) compensation of up to $      per Common Share to the underwriters in connection with this offering and separately (b) structuring fee to each of UBS Securities, LLC, Wells Fargo Securities, LLC, RBC Capital Markets, LLC and Stifel, Nicolaus & Company, Incorporated, in the amounts of $                 ,$                  , $ and $                 , respectively, and a sales incentive fee to B. Riley Securities, Inc., Bancroft Capital, LLC, Brookline Capital Markets, a division of Arcadia Securities, LLC, D.A. Davidson & Co., GMS Group, LLC, Hilltop Securities Inc., Incapital LLC, Janney Montgomery Scott LLC, JonesTrading Institutional Services LLC, Ladenburg Thalmann & Co. Inc, Maxim Group LLC, National Securities Corporation, Newbridge Securities Corporation, Pershing LLC, Rockefeller Financial LLC and Wedbush Securities Inc. in the amounts of $ , $ , $ , $ , $ , $ , $ , $ , $ , $ , $ , $ , $ , $ , $ and $ , respectively. The sum total of all compensation to the underwriters in connection with this public offering of Common Shares, including all forms of additional compensation or structuring or sales incentive fee payments, if any, to the underwriters and other expenses, will be limited to not more than              % of the total public offering price of the Common Shares sold in this offering. See “Underwriters.”
(2) The Adviser, and not the Fund, has agreed to pay from its own assets all organizational expenses of the Fund and all offering costs associated with this offering. The Fund is not obligated to repay any such organizational expenses or offering costs paid by the Adviser.
(3) There will be no brokerage charges with respect to Common Shares issued directly by the Fund under the dividend reinvestment plan. You will pay brokerage charges in connection with open market purchases or if you direct the plan agent to sell your Common Shares held in a dividend reinvestment account.
(4) The management fee paid by the Fund to the Adviser is essentially an all-in fee structure (the “unified management fee”), including the fee paid to the Adviser for advisory, supervisory, administrative, shareholder servicing and other services. However, the Fund (and not the Adviser) will be responsible for certain additional fees and expenses, which are reflected in the table above, that are not covered by the unified management fee. The unified management fee is inclusive of the fees payable by the Adviser to the Subadviser for advisory services. The unified management fee is charged as a percentage of the Fund’s average daily Managed Assets, as opposed to net assets. With leverage, Managed Assets are greater in amount than net assets, because Managed Assets include assets attributable to the Fund’s use of leverage created by its tender option bond transactions. In addition, the mark-to-market value of the Fund’s derivatives will be used for purposes of calculating Managed Assets. The management fee of 1.40% of the Fund’s Managed Assets represents 2.15% of net assets attributable to Common Shares assuming the use of leverage in an amount of 35% of the Fund’s Managed Assets. See “Management of the Fund—Investment Advisory and Subadvisory Agreements.”
(5) Assumes the use of leverage from the proceeds of tender option bond transactions representing 35% of Managed Assets at an annual interest rate expense to the Fund of 0.59%, which is based on market conditions anticipated for the period. The actual amount of interest expense borne by the Fund will vary over time in accordance with the level of the Fund’s use of tender option bond transactions and variations in market interest rates. See “Use of Leverage.”
(6) The “Leverage Costs” reflect the expenses associated with the Fund’s tender option bond transactions, including remarketing, administration and trustee services to a TOB Issuer, accrued at a rate of 0.59%.
(7) The “Acquired fund fees and expenses” disclosed above are based on the expense ratios for the most recent fiscal year of the Underlying Funds in which the Fund anticipates investing, which may change substantially over time and, therefore, significantly affect “Acquired fund fees and expenses.” These amounts are based on the total expense ratio disclosed in each Underlying Fund’s most recent shareholder report. “Acquired fund fees and expenses” are not charged directly to the Fund, but rather reflect the estimated pro rata portion of the Underlying Funds’ fees attributable to the Fund’s investments in shares of the Underlying Funds. The 1.80% shown as “Acquired fund fees and expenses” reflects estimated operating expenses of the Underlying Funds and transaction-related fees. Deducting the “Acquired fund fees and expenses” from the Annual Expenses table (because these expenses are not paid by the Fund directly) results in Fund Total annual expenses (levered) of 2.47% and Fund Total annual expenses (unlevered) of 1.40%. Certain Underlying Funds in which the Fund intends to invest generally charge a management fee of 1.00% to 2.00%, which are included in “Acquired fund fees and expenses,” as applicable. Acquired fund fees and expenses are borne indirectly by the Fund, but they will not be reflected in the Fund’s financial statements; and the information presented in the table will differ from that presented in the Fund’s financial highlights, when available.
(8) The table above assumes the use of leverage in an amount equal to 35% of the Fund’s Managed Assets (or 53.85% of the Fund’s net assets) and shows Fund expenses as a percentage of net assets attributable to Common Shares, as only Common Shareholders of the Fund will bear all of the expenses reflected in the table. For purposes of this assumption, all leverage used is in the form of proceeds from tender option bond transactions. The table presented below in this footnote 8 estimates what the Fund’s annual expenses would be, stated as percentages of the Fund’s net assets attributable to Common Shares, but, unlike the table above, assumes that the Fund does not utilize leverage. In accordance with these assumptions, the Fund’s expenses would be estimated to be as follows:

 

Annual expenses (as a percentage of net assets attributable to Common Shares) As a Percentage of Net Assets Attributable to Common Shares (Assuming No Leverage)
Management fees 1.40%
Acquired fund fees and expenses 1.17%
Total annual expenses 2.57%

 

(9) The example should not be considered a representation of future expenses. The example assumes that the estimated “Other expenses” set forth in the table are accurate and that all dividends and distributions are reinvested at the Common Share net asset values. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% annual return shown in the example.

 

  17  

 

THE FUND

 

RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”) is a diversified, closed-end management investment company registered under the Investment Company Act of 1940 (the “1940 Act”). The Fund was organized as a Maryland corporation on June 11, 2020. The Fund will have an approximate 15-year limited term unless otherwise determined by the Fund’s Board of Directors (the “Board of Directors”). Because the Fund is newly organized, shares of the Fund’s common stock (the “Common Shares”) have no history of public trading. The Fund’s principal office is located at 325 North LaSalle Street, Suite 645, Chicago, Illinois 60654, and its telephone number is (312) 832-1440. The Fund intends to list the Common Shares on the New York Stock Exchange (the “NYSE”), subject to notice of issuance. The trading or ticker symbol of the Common Shares is expected to be “RFMZ.”

 

The Fund intends to implement a Repurchase Plan with respect to the Fund’s Common Shares (the “Repurchase Plan”) for a limited period following the Fund’s initial public offering in an attempt to provide additional liquidity in the marketplace for the Fund’s Common Shares. The Repurchase Plan is currently expected to commence approximately 60 calendar days following the date on which the overallotment period ends and terminate on the earlier of (i) 90 calendar days after the commencement of the Repurchase Plan or (ii) the date on which the Fund has purchased under the Repurchase Plan 10% of the Common Shares issued in this offering prior to any exercise of the overallotment option (the “Repurchase Period”). The Repurchase Plan will permit a broker-dealer acting as the Fund’s agent to repurchase in the open market the Fund’s Common Shares on the Fund’s behalf when the Common Shares are trading at or below a specified level of discount to net asset value (“NAV”). Under the Repurchase Plan, on any day that shares are repurchased, the Fund’s agent may repurchase the Fund’s shares in an amount up to the maximum number of Common Shares the Fund may purchase under Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which, generally, is currently 25% of the average daily trading volume of the Common Shares over the trailing four week period. The date of commencement of the Repurchase Plan and the repurchases of shares under the Repurchase Plan will be subject to certain conditions under Rule 10b-18 and other applicable laws, including Regulation M, which may prohibit the commencement of the Repurchase Plan and repurchases under certain circumstances.

 

In addition to providing potential additional liquidity in the marketplace, any repurchases under the Repurchase Plan will be made by the Fund at a discount to then current NAV of the Common Shares and therefore would be accretive to the NAV of the remaining Common Shares following the repurchases, and the Repurchase Plan may also have the effect of preventing or reducing a significant decline in the market price of the Common Shares in comparison to their NAV. However, there can be no assurance that repurchases of Common Shares under the Repurchase Plan will cause the Common Shares to trade at a price equal to or in excess of NAV or prevent or reduce any trading discount. Although there is no current expectation or assurance that the Fund will repurchase Common Shares at any time following the Repurchase Period, which may result in a decline in the market price of the Common Shares following the conclusion of the Repurchase Period, the Board of Directors reserves the right to extend the Repurchase Period or authorize additional repurchases of Common Shares by the Fund at some time after the conclusion of the Repurchase Plan if the Board of Directors determines such repurchases are in the best interests of the Fund and the Common Shareholders. Also, any acquisition of Common Shares by the Fund would decrease the Managed Assets of the Fund and therefore tend to have the effect of increasing the Fund’s gross expense ratio and decreasing the asset coverage with respect to any leverage outstanding. Further, the Fund may be required to liquidate portfolio investments at an inopportune time or price in order to fund share repurchases under the Repurchase Plan and will incur related transaction costs borne by the remaining Common Shareholders. See “Risk Factors—Repurchase Plan Risk.”

 

  18  

 

USE OF PROCEEDS

 

The net proceeds of this offering are estimated at approximately $                  ($                   if the underwriters exercise the overallotment option in full). The Adviser (as defined below), and not the Fund, has agreed to pay all of the Fund’s organizational expenses and all offering costs associated with this offering, and the Fund is not obligated to repay any such organizational expenses or offering costs paid by the Adviser. The Adviser anticipates that the investment of the net proceeds will be made in accordance with the Fund’s investment objectives and policies, as appropriate investment opportunities are identified, within approximately three months after completion of this offering. Pending such investment, those proceeds may be invested in cash, cash equivalents, short-term debt securities or U.S. government securities. See “Investment Objectives, Strategies and Policies.”

 

INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES

 

Investment Objectives

 

The Fund’s primary investment objective is current income exempt from regular U.S. federal income taxes (but which may be includable in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective is total return. There is no assurance that the Fund will achieve its investment objectives.

 

Principal Investment Strategies

 

Under normal market conditions, the Fund will seek to achieve its investment objectives by investing, directly or indirectly, at least 80% of its Managed Assets in municipal bonds, the interest on which is, in the opinion of bond counsel to the issuers, generally excludable from gross income for regular U.S. federal income tax purposes, except that the interest may be includable in taxable income for purposes of the Federal alternative minimum tax (“Municipal Bonds”). In order to qualify to pay exempt-interest dividends, which are items of interest excludable from gross income for federal income tax purposes, the Fund will seek to invest at least 50% of its total assets either directly (and indirectly through tender option bond transactions) in such Municipal Bonds or in other funds that are taxed as regulated investment companies. See “Risks—Investment-Related Risks—Tax Risks.”

 

Municipal Bonds are debt obligations, which may have a variety of issuers, including governmental entities or other qualifying issuers. Issuers may be states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities. See “Risks—Investment-Related Risks—Municipal Bond Risks” and “Risks—Investment-Related Risks—Market Disruption, Geopolitical, Pandemic and Climate Change Risks.” Such territories of the United States include Puerto Rico. See “Risks—Investment-Related Risks—Puerto Rico Municipal Bond Risks” for a discussion of the risks associated with an investment in Puerto Rico Municipal Bonds. Municipal Bonds include, among other instruments, general obligation bonds, revenue bonds, municipal leases, certificates of participation, private activity bonds, moral obligation bonds, and tobacco settlement bonds, as well as short-term, tax-exempt obligations such as municipal notes and variable rate demand obligations. See “—Portfolio Composition” for a description of the types of Municipal Bonds in which the Fund may invest.

 

The Fund will seek to allocate its assets among the two principal strategies described below. The Adviser will determine the portion of the Fund’s Managed Assets to allocate to each strategy and may, from time to time, adjust the allocations. See “Risks—Structural Risks—Asset Allocation Risk.” Under normal market conditions, the Fund may allocate between 25% and 65% of its Managed Assets to the Tactical Municipal Closed-End Fund Strategy (as described below) and 35% to 75% of its Managed Assets to the Municipal Bond Income Strategy (as described below). The Adviser expects to initially allocate approximately 50% of the Fund’s Managed Assets to the Tactical Municipal Closed-End Fund Strategy and approximately 50% of the Fund’s Managed Assets to the Municipal Bond Income Strategy. See “Investment Philosophy and Process.”

 

  19  

 

Tactical Municipal Closed-End Fund Strategy (25%-65% of Managed Assets). This strategy will seek to (i) generate returns through investments in other investment companies, consisting principally of closed-end funds and exchange-traded funds (“ETFs” and, together with such other investment companies, the “Underlying Funds”), that invest, under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings for investment purposes, in Municipal Bonds, and (ii) derive value from the discount and premium spreads associated with closed-end funds that invest, under normal market conditions, at least 80% of their net assets, plus the amount of any borrowings, for investment purposes, in Municipal Bonds. See “Risks—Investment-Related Risks—Tactical Municipal Closed-End Fund Strategy Risk.” All Underlying Funds will be registered under the Securities Act of 1933, as amended (the “Securities Act”).

 

Under normal market conditions, the Fund will limit its investments in closed-end funds that have been in operation for less than one year to no more than 10% of the Fund’s Managed Assets allocated to the Tactical Municipal Closed-End Fund Strategy. The Fund will not invest in inverse ETFs or leveraged ETFs. Under normal market conditions, the Fund may not invest more than 35% of its Managed Assets in the Tactical Municipal Closed-End Fund Strategy in single state municipal closed-end funds. The Fund’s shareholders will indirectly bear the expenses, including the management fees, of the Underlying Funds. See “Risks—Investment-Related Risks—Underlying Fund Risks.”

 

Under Section 12(d)(1)(A) of the 1940 Act, the Fund may hold securities of an Underlying Fund in amounts which (i) do not exceed 3% of the total outstanding voting stock of the Underlying Fund, (ii) do not exceed 5% of the value of the Fund’s total assets and (iii) when added to all other Underlying Fund 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. The Fund intends to rely on either Section 12(d)(1)(F) of the 1940 Act, which provides that the provisions of Section 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 Underlying Fund 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.

 

The Fund may invest in Underlying Funds that invest in securities that are rated below investment grade, including those receiving the lowest ratings from Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”), Fitch Ratings, a part of the Fitch Group (“Fitch”), or Moody’s Investor Services, Inc. (“Moody’s”), or comparably rated by another nationally recognized statistical rating organization (“NRSRO”) or, if unrated, determined by the Adviser or Subadviser to be of comparable credit quality, which indicates that the security is in default or has little prospect for full recovery of principal or interest. See “Risks—Investment-Related Risks—Defaulted and Distressed Securities Risk.” Below investment grade securities (such as securities rated below BBB- by S&P or Fitch or below Baa3 by Moody’s) are commonly referred to as “junk” and “high yield” securities. Below investment grade securities are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. The Underlying Funds in which the Fund invests may invest in securities receiving the lowest ratings from the NRSROs, including securities rated C by Moody’s or D- by S&P. Lower rated below investment grade securities are considered more vulnerable to nonpayment than other below investment grade securities and their issuers are more dependent on favorable business, financial and economic conditions to meet their financial commitments. The lowest rated below investment grade securities are typically already in default. See “Risks—Investment-Related Risks—Credit and Below Investment Grade Securities Risk.”

 

The Underlying Funds in which the Fund invests will not include those that are advised or subadvised by the Adviser, the Subadviser or their affiliates.

 

  20  

 

Municipal Bond Income Strategy (35%-75% of Managed Assets). This strategy seeks to capitalize on inefficiencies in the tax-exempt and tax-advantaged securities markets through investments in Municipal Bonds. Under normal market conditions, the Fund may not directly invest more than 25% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds in any one industry or in any one state of origin, and the Fund may not directly invest more than 5% of the Managed Assets allocated to this strategy in the Municipal Bonds of any one issuer, except that the foregoing industry and issuer restrictions shall not apply to general obligation bonds and the Fund will consider the obligor or borrower underlying the Municipal Bond to be the “issuer.” See “Risks—Investment-Related Risks—State Specific and Industry Risks.” The Fund may invest up to 30% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax. The Fund can invest, directly or indirectly through Underlying Funds, in bonds of any maturity; however, under this strategy, it will generally invest in Municipal Bonds that have a maturity of five years or longer at the time of purchase.

 

Under normal market conditions, the Fund will invest at least 60% of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy directly in investment grade Municipal Bonds. The Subadviser will invest no more than 20% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds rated at or below Caa1 by Moody’s or CCC+ by S&P or Fitch, or comparably rated by another NRSRO, including unrated bonds judged to be of equivalent quality as determined by the Adviser or Subadviser, as applicable. Investment grade securities are those rated Baa or higher by Moody’s (although Moody’s considers securities rated Baa to have speculative characteristics) or BBB or higher by S&P or rated similarly by another NRSRO or, if unrated, judged to be of equivalent quality as determined by the Adviser or Subadviser, as applicable. If the independent ratings agencies assign different ratings to the same security, the Fund will use the higher rating for purposes of determining the security’s credit quality. Subject to the foregoing limitations, the Fund may invest in securities receiving the lowest ratings from the NRSROs, including securities rated C by Moody’s or D- by S&P, which indicates that the security is in default or has little prospect for full recovery of principal or interest. See “Risks—Investment-Related Risks—Credit and Below Investment Grade Securities Risk.”

 

Under normal market conditions, the Fund, or the Underlying Funds in which the Fund invests, will invest at least 50% of its Managed Assets, directly or indirectly, in investment grade Municipal Bonds.

 

“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). Such assets attributable to leverage include the portion of assets in tender option bond trusts of which the Fund owns TOB Residuals (as defined below) that has been effectively financed by the trust’s issuance of TOB Floaters (as defined below). See “Use of Leverage—Tender Option Bonds.”

 

Other Investments. The Fund may invest, directly or indirectly, up to 20% of its Managed Assets in taxable municipal securities. Any portion of the Fund’s assets invested in taxable municipal securities will not count toward the 35%-75% of the Fund’s assets allocated to Municipal Bonds.

 

The Fund may at times establish hedging positions, which may include short sales and derivatives, such as options, futures and swaps (“Hedging Positions”). Such Hedging Positions may be used to attempt to protect against possible changes in the value of securities held in or to be purchased for the Fund’s portfolio and to manage the effective maturity or duration of the Fund’s portfolio. The Fund’s Hedging Positions may, however, result in income or gain to the Fund that is not exempt from regular U.S. federal income taxes. See “Risks—Investment-Related Risks—Derivatives Risks” and “Risks—Investment-Related Risks—Options and Futures Risks.” See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks” for forthcoming changes that may impact the Fund’s use of derivatives and other transactions, including short sales.

 

  21  

 

A short sale is a transaction in which the Fund sells a security that it does not own in anticipation of a decline in the market price of the security. The Fund may benefit from a short position when the shorted security decreases in value by more than the cost of the transaction but will suffer a loss on a short sale if the security’s value does not decline or increases. The Fund will not engage in any short sales of securities issued by closed-end funds. See “Investment Objectives, Strategies and Policies—Principal Investment Strategies—Other Investments” and “Risks—Investment-Related Risks—Short Sale Risks.”

 

The Fund also may attempt to enhance the return on the cash portion of its portfolio by investing in total return swap agreements. A total return swap agreement provides the Fund with a return based on the performance of an underlying asset, in exchange for fee payments to a counterparty based on a specific rate. The difference in the value of these income streams is recorded daily by the Fund, and is typically settled in cash at least monthly. If the underlying asset declines in value over the term of the swap, the Fund would be required to pay the dollar value of that decline plus any applicable fees to the counterparty. The Fund may use its own NAV or any other reference asset that the Adviser or Subadviser chooses as the underlying asset in a total return swap. The Fund will limit the notional amount of all total return swaps in the aggregate to 15% of the Fund’s Managed Assets. See “Risks—Investment-Related Risks—Swap Risks.” See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks” for forthcoming changes that may impact the Fund’s use of derivatives, including swaps.

 

In addition to the foregoing principal investment strategies of the Fund, the Adviser also may allocate the Fund’s Managed Assets among cash and short-term investments. See “Investment Policies and Techniques—Temporary Investments and Defensive Position” in the SAI. There are no limits on the Fund’s portfolio turnover, and the Fund may buy and sell securities to take advantage of potential short-term trading opportunities without regard to length of time and when the Adviser or Subadviser believes investment considerations warrant such action. High portfolio turnover may result in the realization of net short-term capital gains by the Fund which, when distributed to holders of the Common Shares (the “Common Shareholders”), will be taxable as ordinary income. In addition, a higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. See “Risks—Structural Risks—Portfolio Turnover Risk.”

 

All percentage limitations described in this Prospectus are measured at the time of investment and may be exceeded on a going-forward basis as a result of credit rating downgrades or market value fluctuations of the Fund’s portfolio securities. Unless otherwise specified herein, the Fund may count its holdings in Underlying Funds towards various guideline tests, including the 80% policy so long as the earnings on the underlying holdings of such Underlying Funds are exempt from regular U.S. federal income taxes (but which may be includable in taxable income for purposes of the Federal alternative minimum tax).

 

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 primary investment objective, 80% policy 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 “Investment Restrictions” in the SAI.

 

Portfolio Composition

 

Set forth below is a description of the various types of Municipal Bonds in which the Fund may invest. See “Risks—Investment-Related Risks—Municipal Bond Risks” for a discussion of the risks associated with the Fund’s investments in Municipal Bonds. Obligations are included within the term “Municipal Bonds” if the interest paid thereon is excluded from gross income for U.S. federal income tax purposes in the opinion of bond counsel to the issuer. See also “Use of Leverage—Tender Option Bonds.”

 

  22  

 

Municipal Bonds are either general obligation or revenue bonds and typically are issued to finance public projects, such as roads or public buildings, to pay general operating expenses or to refinance outstanding debt. Municipal Bonds may also be issued for private activities, such as housing, medical and educational facility construction or for privately owned industrial development and pollution control projects. General obligation bonds are backed by the full faith and credit and taxing authority of the issuer and may be repaid from any revenue source. Revenue bonds may be repaid only from the revenues of a specific facility or source. The Fund also may purchase Municipal Bonds that represent lease obligations. These carry special risks because the issuer of the bonds may not be obligated to appropriate money annually to make payments under the lease. See “Risks—Investment-Related Risks—Municipal Bond Risks.”

 

The Municipal Bonds in which the Fund primarily invests pay interest or income that, in the opinion of bond counsel to the issuer, is exempt from regular U.S. federal income tax. The Adviser and the Subadviser will not conduct their own analysis of the tax status of the interest paid by Municipal Bonds held by the Fund, but will rely on the opinion of counsel to the issuer of each such instrument. The Fund may also invest in Municipal Bonds issued by United States Territories (such as Puerto Rico or Guam) that are exempt from regular U.S. federal income tax. See “Risks—Investment-Related Risks—Puerto Rico Municipal Bond Risks.” In addition, the Fund may invest in other securities that pay interest or income that is, or make other distributions that are, exempt from regular U.S. federal income tax and/or state and local taxes, regardless of the technical structure of the issuer of the instrument. The Fund treats all of such tax-exempt securities as Municipal Bonds.

 

The yields on Municipal Bonds are dependent on a variety of factors, including prevailing interest rates and the condition of the general money market and the municipal bond market, the size of a particular offering, the maturity of the obligation and the rating of the issuer. The market value of Municipal Bonds will vary with changes in interest rate levels and as a result of changing evaluations of the ability of bond issuers to meet interest and principal payments.

 

General Obligation Bonds. General obligation bonds are backed by the issuer’s full faith and credit and taxing authority for the payment of principal and interest. The taxing authority of any governmental entity may be limited, however, by provisions of its state constitution or laws, and an entity’s creditworthiness will depend on many factors, including potential erosion of its tax base due to population declines, natural disasters, declines in the state’s industrial base or inability to attract new industries, economic limits on the ability to tax without eroding the tax base, state legislative proposals or voter initiatives to limit ad valorem real property taxes (i.e., taxes based upon an assessed value of the property) and the extent to which the entity relies on federal or state aid, access to capital markets or other factors beyond the state’s or entity’s control. Accordingly, the capacity of the issuer of a general obligation bond as to the timely payment of interest and the repayment of principal when due is affected by the issuer’s maintenance of its tax base.

 

Revenue Bonds. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue sources such as payments from the user of the facility being financed. Accordingly, the timely payment of interest and the repayment of principal in accordance with the terms of the revenue or special obligation bond is a function of the economic viability of such facility or such revenue source.

 

Private Activity Bonds. Private activity bonds are issued by or on behalf of public authorities to obtain funds to provide privately operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. Other types of private activity bonds, the proceeds of which are used for the construction, equipping, repair or improvement of privately operated industrial or commercial facilities, may constitute Municipal Bonds, although the current U.S. federal income tax laws place substantial limitations on the size of such issues.

 

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Private activity bonds are secured primarily by revenues derived from loan repayments or lease payments due from the entity, which may or may not be guaranteed by a parent company or otherwise secured. Private activity bonds generally are not secured by a pledge of the taxing power of the issuer of such bonds. Therefore, an investor should be aware that repayment of such bonds generally depends on the revenues of a private entity and be aware of the risks that such an investment may entail. Continued ability of an entity to generate sufficient revenues for the payment of principal and interest on such bonds will be affected by many factors including the size of the entity, capital structure, demand for its products or services, competition, general economic conditions, government regulation and the entity’s dependence on revenues for the operation of the particular facility being financed. The Fund expects that, due to investments in private activity bonds, a portion of the distributions it makes on the Common Shares will be includable in the federal alternative minimum taxable income.

 

Moral Obligation Bonds. The Fund also may invest in “moral obligation” bonds, which are normally issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral commitment but not a legal obligation of the state or municipality in question.

 

Municipal Lease Obligations and Certificates of Participation. Also included within the general category of Municipal Bonds are participations in lease obligations or installment purchase contract obligations of municipal authorities or entities (hereinafter collectively called “Municipal Lease Obligations”). Although a Municipal Lease Obligation does not constitute a general obligation of the municipality for which the municipality’s taxing power is pledged, a Municipal Lease Obligation is ordinarily backed by the municipality’s covenant to budget for, appropriate and make the payments due under the Municipal Lease Obligation. However, certain Municipal Lease Obligations contain “non-appropriation” clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In the case of a “non-appropriation” lease, a Fund’s ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property, without recourse to the general credit of the lessee, and the disposition or re-leasing of the property might prove difficult. A certificate of participation represents an undivided interest in an unmanaged pool of municipal leases, an installment purchase agreement or other instruments. The certificates are typically issued by a municipal agency, a trust or other entity that has received an assignment of the payments to be made by the state or political subdivision under such leases or installment purchase agreements. In addition, such participations generally provide the Fund with the right to demand payment, on not more than seven days’ notice, of all or any part of the Fund’s participation interest in the underlying leases, plus accrued interest.

 

Tobacco Settlement Bonds. Included in the general category of Municipal Bonds in which the Fund may invest are “tobacco settlement bonds.” The Fund may invest in tobacco settlement bonds, which are municipal securities that are backed solely by expected revenues to be derived from lawsuits involving tobacco related deaths and illnesses which were settled between certain states and American tobacco companies. Tobacco settlement bonds are secured by an issuing state’s proportionate share in the Master Settlement Agreement (“MSA”). The MSA is an agreement, reached out of court in November 1998 between 46 states and nearly all of the U.S. tobacco manufacturers. The MSA provides for annual payments in perpetuity by the manufacturers to the states in exchange for releasing all claims against the manufacturers and a pledge of no further litigation. Tobacco manufacturers pay into a master escrow trust based on their market share, and each state receives a fixed percentage of the payment as set forth in the MSA. A number of states have securitized the future flow of those payments by selling bonds pursuant to indentures or through distinct governmental entities created for such purpose. The principal and interest payments on the bonds are backed by the future revenue flow related to the MSA. Annual payments on the bonds, and thus risk to the Fund, are highly dependent on the receipt of future settlement payments to the state or its governmental entity. See “Risks—Investment-Related Risks—Tobacco Settlement Bond Risks.”

 

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Zero Coupon Bonds. The Fund may invest in zero-coupon bonds. A zero coupon bond is a bond that does not pay interest either for the entire life of the obligation or for an initial period after the issuance of the obligation. When held to its maturity, its return comes from the difference between the purchase price and its maturity value. A zero coupon bond is normally issued and traded at a deep discount from face value. Zero coupon bonds allow an issuer to avoid or delay the need to generate cash to meet current interest payments and, as a result, may involve greater credit risk than bonds that pay interest currently or in cash. The market prices of zero coupon bonds are affected to a greater extent by changes in prevailing levels of interest rates and thereby tend to be more volatile in price than securities that pay interest periodically. In addition, the Fund would be required to distribute the income on any of these instruments as it accrues, even though the Fund will not receive all of the income on a current basis or in cash. Thus, the Fund may have to sell other investments, including when it may not be advisable to do so, to make income distributions to its common shareholders.

 

INVESTMENT PHILOSOPHY AND PROCESS

 

The Adviser will allocate the Fund’s assets between the Tactical Municipal Closed-End Fund Strategy and the Municipal Bond Income Strategy (as described above). The amount allocated to each of the principal strategies may change depending on the Adviser’s assessment of market risk, security valuations, market volatility, and the prospects for earning income and capital appreciation. See “Risks—Structural Risks—Multi-Manager Risk.”

 

Tactical Municipal Closed-End Fund Strategy. The Adviser considers a number of factors when selecting Underlying Funds, including fundamental and technical analysis to assess the relative risk and reward potential throughout the financial markets. The term “tactical” is used to indicate that the portion of the Fund’s Managed Assets allocated to this strategy will invest in closed-end funds to seek to take advantage of pricing discrepancies in the closed-end fund market.

 

In selecting closed-end funds, the Adviser opportunistically utilizes a combination of short-term and longer-term trading strategies to seek to derive value from the discount and premium spreads associated with closed-end funds by identifying pricing aberrations. The Adviser employs both a quantitative and qualitative approach in its selection of closed-end funds and has developed proprietary screening models and algorithms to trade closed-end funds. The Adviser’s mean reversion investing looks to capitalize on changes within the pricing of a closed-end fund and, based upon its research and analysis, a view that it will revert to historical pricing. The Adviser employs the following trading strategies, among others:

 

Statistical Analysis (Mean Reversion)

 

Using proprietary quantitative models, the Adviser seeks to identify closed-end funds that are trading at compelling absolute and/or relative discounts.

 

The Adviser will attempt to capitalize on the perceived mispricing if the Adviser believes that the discount widening is irrational and expects the discount to narrow to longer-term mean valuations.

 

Corporate Actions

 

The Adviser will pursue investments in closed-end funds that have announced, or the Adviser believes are likely to announce, certain corporate actions that may drive value for their shareholders.

 

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The Adviser has developed trading strategies that focus on closed-end fund tender offers, rights offerings, shareholder distributions, open-endings and liquidations.

 

Shareholder Activism

 

The Adviser will assess activism opportunities by determining a closed-end fund’s susceptibility to dissident activity and analyzing the composition of the fund’s shareholder register. The Fund, in seeking to achieve its investment objectives, will not initiate an activist role with the Underlying Funds in which it invests.

 

In employing its trading strategies, the Adviser conducts an extensive amount of due diligence on various fund sponsors, investment managers and funds, including actively monitoring regulatory filings, analyzing a fund’s registration statements, financial statements and organizational documents, as well as conducting proprietary research, such as speaking with fund sponsors, underwriters, sell-side brokers and investors.

 

Municipal Bond Income Strategy. The Subadviser believes inefficiencies exist in the tax-exempt and tax-advantaged securities markets. In order to capitalize on these opportunities, the Subadviser applies both a top-down and bottom-up research investment process. The Subadviser’s top-down analysis considers the economic, interest rate, inflation outlook and other economic variables to guide overall portfolio structure. The Subadviser employs a value-oriented security selection process to invest in securities it believes to be mispriced which offer a yield advantage. In choosing investments, the Subadviser analyzes the credit quality of issuers and considers the yields available on municipal bonds with different maturities. In addition, the Subadviser reviews macroeconomic events, technical characteristics in the municipal bond market, tax policies, as well as analyzing individual municipal securities and sectors. The Subadviser seeks to reduce volatility through its disciplined investment process and investment risk management.

 

The Subadviser may sell a security if it no longer believes the security will contribute to meeting the investment objectives of the Fund. In considering whether to sell a security, the Subadviser may evaluate, among other things, the condition of the economy and meaningful changes in the issuer’s financial condition.

 

USE OF LEVERAGE

 

The Fund may borrow money and/or issue Preferred Shares, notes or debt securities for investment purposes. These practices are known as leveraging. In addition, the Fund may enter into derivative and other transactions that have the effect of leverage. Such other transactions may include tender option bond transactions (as described herein). The Adviser will determine whether or not to engage in leverage based on its assessment of conditions in the debt and credit markets. As of the time immediately after it enters into any of the foregoing transactions, the Fund will seek to limit its overall effective leverage to 45% of its Managed Assets. The Fund currently anticipates that leverage will initially be obtained through the use of proceeds received from tender option bond transactions. See “—Tender Option Bonds” below. The Fund does not anticipate that it will issue Preferred Shares within 12 months of the date of this Prospectus.

 

Under the 1940 Act, the Fund is not permitted to incur indebtedness unless immediately after doing so the Fund has an asset coverage of at least 300% of the aggregate outstanding principal balance of indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the value of the Fund’s total assets including the amount borrowed). Additionally, under the 1940 Act, the Fund may not declare any dividend or other distribution upon any class of its shares, or purchase any such shares, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, asset coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be. Under the 1940 Act, the Fund is not permitted to issue Preferred Shares 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 Shares (i.e., such liquidation value may not exceed 50% of the Fund’s Managed Assets). In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Shares unless, at the time of such declaration, the NAV of the Fund’s portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of such liquidation value of the Preferred Shares. Normally, holders of Common Shares will elect the directors of the Fund except that the holders of any Preferred Shares will elect two directors. In the event the Fund failed to pay dividends on its Preferred Shares for two years, holders of Preferred Shares would be entitled to elect a majority of the directors until the dividends are paid.

 

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The Fund may be subject to certain restrictions on investments imposed by lenders or by one or more rating agencies that may issue ratings for any senior securities issued by the Fund. Borrowing covenants or rating agency guidelines may impose asset coverage or Fund composition requirements that are more stringent than those imposed on the Fund by the 1940 Act. Since the holders of common stock pay all expenses related to the use of leverage, such use of leverage would create a greater risk of loss for the Fund’s Common Shares than if leverage is not used. See “Risks—Structural Risks—Leverage Risk.”

 

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), but which are not subject to the above noted limitations under the 1940 Act if the Fund earmarks or segregates liquid assets (or enters into offsetting positions) in accordance with applicable SEC regulations and interpretations to cover its obligations under those transactions and instruments. However, pursuant to a rule recently adopted by the SEC, the Fund will become subject to new regulations that govern the use of such derivatives and other transactions during the third quarter of 2022. Once implemented, the new SEC rule will impose, among other things, new limits on the amount of derivatives and other transactions that a fund can enter into and eliminate the asset segregation framework that the Fund initially intends to use to comply with Section 18 of the 1940 Act. See “Risks—Investment-Related Risks—Legislation and Regulatory Risks.”

 

These transactions will entail additional expenses (e.g., transaction costs) which will be 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. See “Risks—Investment-Related Risks—Derivatives Risks.”

 

Tender Option Bonds. The Fund may leverage its assets through the use of proceeds received from tender option bond transactions. In a tender option bond transaction, a tender option bond trust (a “TOB Issuer”) is typically established by forming a special purpose trust into which the Fund, or an agent on behalf of the Fund, transfers Municipal Bonds or other municipal securities. A TOB Issuer typically issues two classes of beneficial interests: short-term floating rate notes (“TOB Floaters”), which are sold to third party investors, and residual interest municipal tender option bonds (“TOB Residuals”), which are generally issued to the Fund. The Fund may invest in both TOB Floaters and TOB Residuals, including TOB Floaters and TOB Residuals issued by the same TOB Issuer. The Fund may not invest more than 5% of its Managed Assets in any single TOB Issuer. The Fund does not currently intend to invest in TOB Residuals issued by a TOB Issuer that was not formed for the Fund, although it reserves the right to do so in the future.

 

The TOB Issuer receives Municipal Bonds or other municipal securities and then issues TOB Floaters to third party investors and a TOB Residual to the Fund. The Fund is paid the cash (less transaction expenses, which are borne by the Fund and therefore the holders of the Common Shares indirectly) received by the TOB Issuer from the sale of the TOB Floaters and typically will invest the cash in additional Municipal Bonds or other investments permitted by its investment policies. TOB Floaters may have first priority on the cash flow from the securities held by the TOB Issuer and are enhanced with a liquidity support arrangement from a third-party bank or other financial institution (the “liquidity provider”), which allows holders to tender their position at par (plus accrued interest). The Fund, in addition to receiving cash from the sale of the TOB Floaters, also receives the TOB Residual. The TOB Residual provides the Fund with the right to (1) cause the holders of the TOB Floaters to tender their notes to the TOB Issuer at par (plus accrued interest), and (2) acquire the underlying Municipal Bonds or other municipal securities from the TOB Issuer. In addition, all voting rights and decisions to be made with respect to any other rights relating to the underlying securities deposited in the TOB Issuer are passed through to the Fund, as the holder of the TOB Residual. Such a transaction, in effect, creates exposure for the Fund to the entire return of the securities deposited in the TOB Issuer, with a net cash investment by the Fund that is less than the value of the underlying securities deposited in the TOB Issuer. This multiplies the positive or negative impact of the underlying securities’ return within the Fund (thereby creating leverage).

 

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The TOB Issuer may be terminated without the consent of the Fund upon the occurrence of certain events, such as the bankruptcy or default of the issuer of the underlying securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of the securities deposited in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial decline in the market value of the underlying securities deposited in the TOB Issuer, or the inability of the sponsor or remarketing agent to remarket any TOB Floaters tendered by holders of the TOB Floaters. In such an event, the TOB Floaters would be redeemed by the TOB Issuer at par (plus accrued interest) out of the proceeds from a sale of the underlying securities deposited in the TOB Issuer. If this happens, the Fund would be entitled to the assets of the TOB Issuer, if any, that remain after the TOB Floaters have been redeemed at par (plus accrued interest). If there are insufficient proceeds from the sale of these securities to redeem all of the TOB Floaters at par (plus accrued interest), the liquidity provider or holders of the TOB Floaters would bear the losses on those securities and there would be no recourse to the Fund’s assets (unless the Fund held a recourse TOB Residual). A recourse TOB Residual is generally a TOB Residual issued by a TOB Issuer in which the TOB Floaters represent greater than 75% of the market value of the securities at the time they are deposited in the TOB Issuer. If the Fund were to invest in a recourse TOB Residual to leverage its portfolio, it would typically be required to enter into an agreement pursuant to which the Fund is required to pay to the liquidity provider the difference between the purchase price of any TOB Floaters put to the liquidity provider by holders of the TOB Floaters and the proceeds realized from the remarketing of those TOB Floaters or the sale of the assets in the TOB Issuer. The Fund currently does not intend to use recourse TOB Residuals to leverage the Fund’s portfolio, but reserves the right to do so depending on future market conditions.

 

Under accounting rules, securities of the Fund that are deposited into a TOB Issuer are treated as investments of the Fund, and are presented on the Fund’s Schedule of Investments and outstanding TOB Floaters issued by a TOB Issuer are presented as liabilities in the Fund’s Statement of Assets and Liabilities. Interest income from the underlying security is recorded by the Fund on an accrual basis. Interest expense incurred on the TOB Floaters and other expenses related to remarketing, administration and trustee services to a TOB Issuer are reported as expenses of the Fund.

 

For TOB Floaters, generally, the interest rate earned will be based upon the market rates for Municipal Bonds with maturities or remarketing provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods of one year or multiple years. Since the option feature has a shorter term than the final maturity or first call date of the underlying securities deposited in the TOB Issuer, the Fund, if it is the holder of the TOB Floaters, relies upon the terms of the agreement with the financial institution furnishing the option as well as the credit strength of that institution. As further assurance of liquidity, the terms of the TOB Issuer provide for a liquidation of the Municipal Bond deposited in the TOB Issuer and the application of the proceeds to pay off the TOB Floaters.

 

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There are inherent risks with respect to investing in a TOB Issuer. These risks include, among others, the bankruptcy or default of the issuer of the securities deposited in the TOB Issuer, a substantial downgrade in the credit quality of the issuer of the securities deposited in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the TOB Floaters, a substantial decline in the market value of the securities deposited in the TOB Issuer, or the inability of the sponsor or remarketing agent to remarket any TOB Floaters tendered by holders of the TOB Floaters. See “Risks—Investment-Related Risks—Tender Option Bonds Risk.”

 

Effects of Leverage. Assuming the use of leverage in the amount of 35% of the Fund’s Managed Assets and an annual interest rate on leverage of 0.59% payable on such leverage based on estimated market interest rates as of the date anticipated for the initial use of leverage, the additional income that the Fund must earn (net of estimated expenses related to leverage) in order to cover such interest payments is 0.32%. The Fund’s actual cost of leverage will be based on market interest rates at the time the Fund undertakes a leveraging strategy and such actual cost of leverage may be higher or lower than that assumed in the previous example.

 

The following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on total return on Common Shares, assuming investment portfolio total returns (comprised of income, net expenses and changes in the value of investments held in the Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of what the Fund’s investment portfolio returns will be. In other words, the Fund’s actual returns may be greater or less than those appearing in the table below. The table further reflects the use of leverage representing approximately 35% of the Fund’s Managed Assets after such issuance and the Fund’s currently projected annual interest rate of 0.59%. See “Risks—Structural Risks—Leverage Risks.” The table does not reflect any offering costs of Common Shares or leverage.

 

Assumed Portfolio Return
(Net of Expenses)
-10.00% -5.00% 0.00% 5.00% 10.00%
Common Share Total Return -15.70% -8.01% -0.32% 7.37% 15.07%

 

Total return is composed of two elements—the dividends on Common Shares paid by the Fund (the amount of which is largely determined by the Fund’s net investment income after paying the cost of leverage) and realized and unrealized gains or losses on the value of the securities the Fund owns. As the table shows, leverage generally increases the return to Common Shareholders when portfolio return is positive or greater than the costs of leverage and decreases return when the portfolio return is negative or less than the costs of leverage.

 

During the time in which the Fund is using leverage, the amount of the fees paid to the Adviser (and from the Adviser to the Subadviser) for investment management services (and subadvisory services) will be higher than if the Fund did not use leverage because the fees paid will be calculated based on the Fund’s Managed Assets. This may create a conflict of interest between the Adviser and the Subadviser, on the one hand, and the holders of Common Shares, on the other. Also, because the leverage costs will be borne by the Fund at a specified interest rate, only the Fund’s Common Shareholders will bear the cost of the Fund’s management fees and other expenses. There can be no assurance that a leveraging strategy will be successful during any period in which it is employed.

 

RISKS

 

Investing in any investment company security involves risk, 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. This section discusses 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. Investors should consider the following risk factors and special considerations as well as the other information in this Prospectus prior to investing in the Fund’s Common Shares.

 

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Investment-Related Risks:

 

With the exception of Underlying Fund risk (and except as otherwise noted below), the following risks apply to the direct investments the Fund may make, and generally apply to the Fund’s investments in Underlying Funds. That said, each risk described below may not apply to each Underlying Fund.

 

Investment and Market Risks

 

An investment in Common Shares is subject to investment risk, including the possible loss of the entire principal amount invested. An investment in Common Shares represents an indirect investment in the Underlying Funds owned by the Fund. The value of the Fund or the Underlying Funds, like other market investments, may move up or down, sometimes rapidly and unpredictably. Overall stock market risks may also affect the NAV of the Fund or the Underlying Funds. Factors such as economic growth and market conditions, interest rate levels and political events affect the securities markets. The Common Shares at any point in time may be worth less than the original investment, even after taking into account any reinvestment of dividends and distributions.

 

Management Risks

 

The Adviser’s and the Subadviser’s judgments about the attractiveness, value and potential appreciation of a particular asset class or individual security in which the Fund invests may prove to be incorrect and there is no guarantee that the Adviser’s or the Subadviser’s judgment, as applicable, will produce the desired results. Similarly, the Fund’s investments in Underlying Funds are subject to the judgment of the Underlying Funds’ managers which may prove to be incorrect. In addition, the Adviser and Subadviser will have limited information as to the portfolio holdings of the Underlying Funds at any given time. This may result in the Adviser and Subadviser having less ability to respond to changing market conditions. The Fund may allocate its assets so as to under-emphasize or over-emphasize its investments under the wrong market conditions, in which case the Fund’s NAV may be adversely affected.

 

In addition, the Fund depends on the diligence, skill and business contacts of the investment professionals of the Adviser and the Subadviser to achieve the Fund’s investment objectives. In particular, the Adviser and Subadviser are dependent upon the expertise of their respective portfolio management teams to implement the Fund’s strategies. If the Adviser or the Subadviser were to lose the services of one or more key individuals, including members of their portfolio management teams, each may not be able to hire qualified replacements or may require an extended time to do so. This could prevent the Fund from achieving its investment objectives and could have an adverse effect on an investment in the Fund.

 

The Fund is the seventh closed-end fund to be managed by the Adviser and the sixth closed-end fund to be managed by the Subadviser. The Adviser and the Subadviser each manage several registered open-end funds, and the portfolio managers have previous experience managing closed-end funds. As with any managed fund, the Adviser and Subadviser may not be successful in selecting the best performing securities, leverage strategy or investment techniques, and the Fund’s performance may lag behind that of similar funds as a result.

 

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Securities Risks

 

The value of the Fund or an Underlying Fund may decrease in response to the activities and financial prospects of individual securities in the fund’s portfolio.

 

Municipal Bond Risks

 

Economic exposure to Municipal Bonds involves certain risks. The Fund’s economic exposure to Municipal Bonds includes Municipal Bonds in the Fund’s portfolio and Municipal Bonds to which the Fund is exposed through Underlying Funds and the ownership of TOB Residuals. The municipal market is one in which dealer firms make markets in bonds on a principal basis using their proprietary capital, and at times these firms’ capital may be severely constrained. In such event, some firms may be unwilling to commit their capital to purchase and to serve as a dealer for Municipal Bonds. Municipal Bonds typically are not registered with the SEC or any state securities commission and will not be listed on any national securities exchange. The amount of public information available about the Municipal Bonds to which the Fund is economically exposed is generally less than that for corporate equities or bonds, and the investment performance of the Fund may therefore be more dependent on the analytical abilities of the Adviser and the Subadviser than would be a stock fund or taxable bond fund. The secondary market for Municipal Bonds, particularly non-investment grade bonds, also tends to be less well-developed or liquid than many other securities markets, which may adversely affect the ability to sell such bonds at attractive prices or at prices approximating those at which the Fund and Underlying Funds currently value them.

 

In addition, many state and municipal governments that issue securities are under significant economic and financial stress and may not be able to satisfy their obligations. The ability of municipal issuers to make timely payments of interest and principal may be diminished during general economic downturns and as governmental cost burdens are reallocated among Federal, state and local governments. The current COVID-19 pandemic has significantly stressed the financial resources of many municipalities and other issuers of municipal securities, which may impair their ability to meet their financial obligations and may harm the value or liquidity of the Fund’s investments in municipal securities. In particular, responses by municipalities to the COVID-19 pandemic have caused disruptions in business activities. These and other effects of the COVID-19 pandemic, such as increased unemployment levels, have impacted tax and other revenues of municipalities and other issuers of municipal securities and the financial conditions of such issuers. As a result, there is increased budgetary and financial pressure on municipalities and heightened risk of default or other adverse credit or similar events for issuers of municipal securities, which would adversely impact the Fund’s investments. See “—Market Disruption, Geopolitical, Pandemic and Climate Change Risks.” In addition, the taxing power of any governmental entity may be limited by provisions of state constitutions or other laws, and an entity’s credit generally will depend on many factors, including the entity’s tax base, the extent to which the entity relies on Federal or state aid, and other factors which are beyond the entity’s control. In addition, laws enacted in the future by Congress or state legislatures or referenda could extend the time for payment of principal and/or interest, or impose other constraints on enforcement of such obligations, or on the ability of municipalities to levy taxes or could limit the tax exemption of certain types of Municipal Bonds that the Fund and Underlying Funds may invest in. Issuers of Municipal Bonds might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, holders of Municipal Bonds could experience delays in collecting principal and interest and such holders may not, in all circumstances, be able to collect all principal and interest to which they are entitled. To enforce its rights in the event of a default in the payment of interest or repayment of principal, or both, the Fund may, in certain circumstances, take possession of and manage the assets securing the issuer’s obligations on such securities, which may increase the Fund’s operating expenses. Any income derived from the Fund’s ownership or operation of such assets may not be tax-exempt.

 

General obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from such issuer’s general revenues and not from any particular source. Timely payments depend on the issuer’s credit quality, ability to raise tax revenues and the ability to maintain an adequate tax base. The timely payments may also be influenced by any unfunded pension liabilities or other post-employee benefit plan liabilities.

 

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Revenue bonds involve special risks, including that the underlying facilities may not generate sufficient income to pay expenses and interest costs. In the case of revenue bonds issued by state and local agencies to finance the development of low-income, multi-family housing, such bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the properties, may pay interest that changes based in part on the financial performance of the property, may be prepayable without penalty and may be used to finance the construction of housing developments which, until completed and rented, do not generate income to pay interest. Increases in interest rates payable on senior obligations may make it more difficult for issuers to meet payment obligations on subordinated bonds.

 

The Fund may be more sensitive to adverse economic, business or political developments if it invests a substantial portion of its assets in the bonds of specific projects (such as those relating to education, health care, housing, transportation, and utilities), industrial development bonds, or general obligation bonds, particularly if there is a large concentration from issuers in a single state. This is because the value of Municipal Bonds can be significantly affected by the political, economic, legal, and legislative realities of the particular issuer’s locality or municipal sector events. Similarly, changes to state or federal regulation tied to a specific sector, such as the hospital sector, could have an impact on the revenue stream for a given subset of the market.

 

Municipal leases and certificates of participation involve special risks not normally associated with general obligation or revenue bonds. Leases and installment purchase or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to the governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable because of the inclusion in many leases or contracts of “non-appropriation” clauses that relieve the governmental issuer of any obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly or other periodic basis. In addition, such leases or contracts may be subject to the temporary abatement of payments in the event that the governmental issuer is prevented from maintaining occupancy of the lease premises or utilizing the leased equipment. Although the obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and may result in a delay in recovering or the failure to fully recover ownership of the assets.

 

Certificates of participation, which represent interests in unmanaged pools of municipal leases or installment contracts, involve the same risks as the underlying municipal leases. In addition, the Fund may be dependent upon the municipal authority issuing the certificate of participation to exercise remedies with respect to the underlying securities. Certificates of participation also entail a risk of default or bankruptcy, both of the issuer of the municipal lease and also the municipal agency issuing the certificate of participation.

 

Municipalities and other public authorities issue private activity bonds to finance development of facilities for use by a private enterprise, which is solely responsible for paying the principal and interest on the bond. Moral obligation bonds are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality.

 

To be tax-exempt, Municipal Bonds must meet certain regulatory requirements. If a Municipal Bond fails to meet such requirements, the interest received by the Fund from its investment in such bonds and distributed to shareholders may be taxable. It is possible that interest on a Municipal Bond may be declared taxable after the issuance of the bond, and this determination may apply retroactively to the date of the issuance of the bond, which could cause a portion of prior distributions made by the Fund to be taxable to shareholders in the year of receipt.

 

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Municipal bonds are also subject to interest rate, credit, and liquidity risk, which are discussed generally elsewhere in this section.

 

State Specific and Industry Risk

 

The Fund may not directly invest more than 25% of its Managed Assets in Municipal Bonds in any one industry or in any one state of origin. However, the Fund’s overall exposure to a single industry or a single state of origin may be greater after factoring in the investments of the Underlying Funds, in which case the Fund may be more susceptible to adverse economic, political or regulatory occurrences affecting that particular state or industry. For example, the Fund may invest, under normal market conditions, up to 35% of the Managed Assets allocated to the Tactical Municipal Closed-End Fund Strategy in single state municipal closed-end funds and such investments could increase the Fund’s overall exposure to a particular single state. To the extent that the Fund is aware of the investments held by the Underlying Funds, the Fund will consider such information when determining compliance with its fundamental policy relating to industry concentration as described in the SAI. See “Investment Restrictions” in the Fund’s SAI.

 

Puerto Rico Municipal Bond Risks

 

The Fund may invest directly, without limit, in Puerto Rico Municipal Bonds, subject to the industry, issuer and below investment grade investment restrictions under the Municipal Bond Income Strategy, as applicable. Municipal obligations issued by the Commonwealth of Puerto Rico or its political subdivisions, agencies, instrumentalities, or public corporations may be affected by economic, market, political, and social conditions in Puerto Rico. Puerto Rico currently is experiencing significant fiscal and economic challenges, including substantial debt service obligations, high levels of unemployment, underfunded public retirement systems, and persistent government budget deficits. These challenges may negatively affect the value of the Fund’s investments in Puerto Rico Municipal Bonds. Major ratings agencies have downgraded the general obligation debt of Puerto Rico to below investment grade and continue to maintain a negative outlook for this debt, which increases the likelihood that the rating will be lowered further. In both August 2015 and January 2016, Puerto Rico defaulted on its debt by failing to make full payment due on its outstanding bonds, and there can be no assurance that Puerto Rico will be able to satisfy its future debt obligations. Further downgrades or defaults may place additional strain on the Puerto Rico economy and may negatively affect the value, liquidity, and volatility of the Fund’s investments in Puerto Rico Municipal Bonds. Legislation could also impact the value of the Fund’s investments in Puerto Rico Municipal Bonds.

 

These challenges and uncertainties have been exacerbated by Hurricane Maria, and subsequent hurricanes and storms, and the resulting natural disaster in Puerto Rico. In September 2017, Hurricane Maria struck Puerto Rico, causing major damage across the Commonwealth, including damage to its water, power, and telecommunications infrastructure. The length of time needed to rebuild Puerto Rico’s infrastructure is unclear, but could amount to years, during which the Commonwealth is likely to be in an even more uncertain economic state. The full extent of the natural disaster’s impact on Puerto Rico’s economy and foreign investment in Puerto Rico is difficult to estimate.

 

Tobacco Settlement Bond Risks

 

The Fund may invest directly, without limit, in tobacco settlement bonds, subject to the industry, issuer and below investment grade investment restrictions under the Municipal Bond Income Strategy, as applicable. Annual payments on tobacco settlement bonds, and thus risk to the Fund, are highly dependent on the receipt of future settlement payments to the state or its governmental entity pursuant to the MSA. The actual amount of future settlement payments is further dependent on many factors, including, but not limited to, annual domestic cigarette shipments, reduced cigarette consumption, increased taxes on cigarettes, inflation, financial capability of tobacco companies, continuing litigation and the possibility of tobacco manufacturer bankruptcy. The initial and annual payments made by the tobacco companies will be adjusted based on a number of factors, the most important of which is domestic cigarette consumption. If the volume of cigarettes shipped in the U.S. by manufacturers participating in the settlement decreases significantly, payments due from them will also decrease. Demand for cigarettes in the U.S. could continue to decline due to price increases needed to recoup the cost of payments by tobacco companies. Demand could also be affected by: anti-smoking campaigns, tax increases, reduced advertising, enforcement of laws prohibiting sales to minors; elimination of certain sales venues such as vending machines; the spread of local ordinances restricting smoking in public places, and competition from e-cigarettes. As a result, payments made by tobacco manufacturers could be negatively impacted if the decrease in tobacco consumption is significantly greater than the forecasted decline. A market share loss by the MSA companies to non-MSA participating tobacco manufacturers would cause a downward adjustment in the payment amounts. A participating manufacturer filing for bankruptcy also could cause delays or reductions in bond payments. The MSA itself has been subject to legal challenges and has, to date, withstood those challenges.

 

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Credit and Below Investment Grade Securities Risks

 

Credit risk is the risk that an issuer of a security may be unable or unwilling to make dividend, interest and principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability or willingness to make such payments. Credit risk may be heightened for the Fund because it and the Underlying Funds may invest in below investment grade securities, which are commonly referred to as “junk” and “high yield” securities; such securities, while generally offering the potential for higher yields than investment grade securities with similar maturities, involve greater risks, including the possibility of dividend or interest deferral, default or bankruptcy, and are regarded as predominantly speculative with respect to the issuer’s capacity to pay dividends or interest and repay principal. The below investment grade securities receiving the lowest rating from an NRSRO are typically already in default. In addition, below investment grade securities are generally susceptible to decline in market value due to adverse economic and business developments and are often unsecured and subordinated to other creditors of the issuer. The market values for below investment grade securities tend to be very volatile, and these securities are generally less liquid than investment grade securities. Because of the substantial risks associated with below investment grade securities, among other factors, you could lose money on your investment in Common Shares, both in the short term and the long term. See “Investment Policies and Techniques—Below Investment Grade Securities” in the SAI for additional discussion of below investment grade securities risks. See also “—Defaulted and Distressed Securities Risk.”

 

Interest Rate Risk

 

Generally, when market interest rates rise, bond prices fall, and vice versa. Interest rate risk is the risk that the municipal securities in the Fund’s portfolio will decline in value because of increases in market interest rates. As interest rates decline, issuers of municipal securities may prepay principal earlier than scheduled, forcing the Fund to reinvest in lower-yielding securities and potentially reducing the Fund’s income. As interest rates increase, slower than expected principal payments may extend the average life of securities, potentially locking in a below-market interest rate and reducing the Fund’s value. Currently, market interest rates are near historically low levels. In typical market interest rate environments, the prices of longer-term municipal securities generally fluctuate more than prices of shorter-term municipal securities as interest rates change.

 

To the extent the Fund is primarily exposed to longer-term Municipal Bonds, the Common Share NAV and market price per Common Share will fluctuate more in response to changes in market interest rates than if the Fund invested primarily in shorter-term Municipal Bonds.

 

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In comparison to maturity (which is the date on which a debt instrument ceases and the issuer is obligated to repay the principal amount), duration is a measure of the price volatility of a debt instrument as a result of changes in market rates of interest, based on the weighted average timing of the instrument’s expected principal and interest payments. Duration differs from maturity in that it considers a security’s yield, coupon payments, principal payments and call features, in addition to the amount of time until the security finally matures. As the value of a security changes over time, so will its duration. Prices of securities with longer durations tend to be more sensitive to interest rate changes than securities with shorter durations. In general, a portfolio of securities with a longer duration can be expected to be more sensitive to interest rate changes than a portfolio with a shorter duration. For example, the price of a bond with an effective duration of two years will rise (fall) two percent for every one percent decrease (increase) in its yield, and the price of a five-year duration bond will rise (fall) five percent for a one percent decrease (increase) in its yield.

 

If increasing interest rates slow principal payments and thus extend the average life of securities held by the Fund, this increase in duration will make the Fund more sensitive to the effect of rising rates and may cause the principal value of the Fund’s holdings to decline more than they would in the absence of such an increase in duration.

 

Yield curve risk is the risk associated with either a flattening or steepening of the yield curve, which is a result of changing yields among comparable bonds with different maturities. When market interest rates, or yields, increase, the price of a bond will decrease and vice versa. When the yield curve shifts, the price of the bond, which was initially priced based on the initial yield curve, will change in price. If the yield curve flattens, then the yield spread between long- and short-term interest rates narrows, and the price of the bond will change accordingly. If the bond is short-term and the yield decreases, the price of this bond will increase. If the yield curve steepens, this means that the spread between long- and short-term interest rates increases. Therefore, long-term bond prices will decrease relative to short-term bonds. Changes in the yield curve are based on bond risk premiums and expectations of future interest rates.

 

The Common Share NAV and market price per Common Share will fluctuate more in response to changes in market interest rates when the Fund has higher exposure to long-term Municipal Bonds than short-term Municipal Bonds. Because the values of lower-rated and comparable unrated debt securities are affected both by credit risk and interest rate risk, the price movements of such lower grade securities in response to changes in interest rates typically have not been highly correlated to the fluctuations of the prices of investment grade quality securities in response to changes in market interest rates.

 

Inflation/Deflation 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 the Common Shares and distributions can decline. In addition, during any period of rising inflation, interest rates on borrowings would likely increase, which would tend to further reduce returns to Common Shareholders. Deflation risk is the risk that prices throughout the economy decline over time–the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value of the Fund’s portfolio.

 

Tactical Municipal Closed-End Fund Strategy Risk

 

The Fund invests in closed-end funds as a principal part of the Tactical Municipal Closed-End Fund Strategy. Shares of closed-end funds listed for trading on a securities exchange frequently trade at a price per share that is less than the NAV per share, the difference representing the “market discount” of such shares. The market price of such shares may be affected by factors such as NAV, dividend or distribution levels and their stability (which will in turn be affected by levels of dividend and interest payments by the closed-end fund’s portfolio holdings, the timing and success of the closed-end fund’s investment strategies, regulations affecting the timing and character of fund distributions, fund expenses and other factors), supply of and demand for the shares, trading volume of the shares, general market, interest rate and economic conditions and other factors beyond the control of the closed-end fund. 

 

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In addition, a market discount may be due in part to the investment objective of long-term appreciation, which is sought by many closed-end funds, as well as to the fact that the shares of closed-end funds are not redeemable by the holder upon demand to the issuer at the next determined NAV but, rather, are subject to supply and demand in the secondary market. 

 

The Fund may invest in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance that the market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this market discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price of the securities of such closed-end funds, thereby adversely affecting the NAV of the Fund’s Common Shares. Similarly, there can be no assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the premium will not decrease subsequent to a purchase of such shares by the Fund.

 

Underlying Fund Risks

 

The Fund will incur higher and additional expenses when it invests in Underlying Funds. There is also the risk that the Fund may suffer losses due to the investment practices or operations of the Underlying Funds. To the extent that the Fund invests in one or more Underlying Funds that concentrate in a particular industry or state, the Fund would be vulnerable to factors affecting that industry or state and the concentrating Underlying Funds’ performance, and that of the Fund, may be more volatile than Underlying Funds that do not concentrate. In addition, one Underlying Fund may purchase a security that another Underlying Fund is selling.

 

As the Fund will invest at least a portion of its Managed Assets in closed-end funds and ETFs, the Fund’s performance will depend to a greater extent on the overall performance of investment companies generally, in addition to the performance of the specific Underlying Funds (and other assets) in which the Fund invests. The use of leverage by Underlying Funds magnifies gains and losses on amounts invested and increases the risks associated with investing in Underlying Funds. Further, the Underlying Funds are not subject to the Fund’s investment policies and restrictions. The Fund generally receives information regarding the portfolio holdings of Underlying Funds only when that information is made available to the public. The Fund cannot dictate how the Underlying Funds invest their assets. The Underlying Funds may invest their assets in securities and other instruments, and may use investment techniques and strategies, that are not described in this Prospectus, and there is risk that the Underlying Funds may not be in compliance with their investment policies and strategies, including their policy to invest at least 80% of their assets in Municipal Bonds which, in turn, could result in the Fund’s non-compliance with its own investment policies. Because the Fund expects that most of the Underlying Funds will publish their portfolio holdings only at intervals, and then only after some delay, the Fund will generally not know for certain the current holdings of the Underlying Funds.

 

Common Shareholders will bear two layers of fees and expenses with respect to the Fund’s investments in Underlying Funds because each of the Fund and the Underlying Fund will charge fees and incur separate expenses. If those Underlying Funds use leverage, that will likely increase the amount of fees that the Fund, as an investor in the Underlying Funds, will pay. See “Summary of Fund Expenses” for a further description of such fees and their impact on the expenses of the Fund. In addition, subject to applicable 1940 Act limitations, the Underlying Funds themselves may purchase securities issued by registered and unregistered funds (e.g., common stock and preferred stock), and those investments would be subject to the risks associated with Underlying Funds and unregistered funds (including a third layer of fees and expenses, i.e., the Underlying Fund will indirectly bear fees and expenses charged by the funds in which the Underlying Fund invests, in addition to the Underlying Fund’s own fees and expenses). The Fund’s investment in an Underlying Fund also may result in the Fund’s receipt of cash in excess of the Underlying Fund’s earnings; if the Fund distributes these amounts, the distributions could constitute a return of capital to Fund shareholders for federal income tax purposes but may be characterized as a dividend if the Fund has earnings from other sources. As a result of these factors, the use of the fund of funds structure by the Fund could therefore affect the amount, timing and character of distributions to shareholders.

 

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As may be the case with the Fund, the shares of many closed-end funds in which the Fund may invest frequently trade after their initial public offering at a price per share that is less than the NAV per share, the difference representing the "market discount" of such shares. This market discount may be due in part to the investment objective of long-term appreciation, which is sought by many closed-end funds, as well as to the fact that the shares of closed-end funds are not redeemable by the holder upon demand to the issuer at the next determined NAV, but rather, are subject to supply and demand in the secondary market. A relative lack of secondary market purchasers of closed-end fund shares also may contribute to such shares trading at a discount to their NAV.

 

The Fund may invest in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance that the market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this market discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price of the securities of such closed-end funds, thereby adversely affecting the NAV of the Fund's shares. Similarly, there can be no assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the premium will not decrease subsequent to a purchase of such shares by the Fund.

 

Closed-end funds may issue senior securities (including preferred stock and debt obligations) for the purpose of leveraging the closed-end fund's common shares in an attempt to enhance the current return to such closed-end fund's common shareholders. The Fund's investment in the common shares of closed-end funds that are financially leveraged may create an opportunity for greater total return on its investment, but in a down market may increase the size and speed of losses. Thus, leveraged funds may be expected to exhibit more volatility in market price and NAV than an investment in shares of investment companies without a leveraged capital structure. Since the Fund may use leverage to invest in other funds that are leveraged, the effect of gains and losses in the other funds may be compounded, especially when events occur that may broadly affect the market for municipal securities. In addition, the Fund may invest in such senior securities issued by closed-end funds, including auction rate municipal securities and auction rate preferred securities. In recent market environments, auctions have failed, which adversely affects the liquidity and price of auction rate securities, and are unlikely to resume. Provided that the auction mechanism is successful, auction rate securities usually permit the holder to sell the securities in an auction at par value at specified intervals. The dividend is reset by “Dutch” auction in which bids are made by broker-dealers and other institutions for a certain amount of securities at a specified minimum yield. The dividend rate set by the auction is the lowest interest or dividend rate that covers all securities offered for sale. While this process is designed to permit auction rate securities to be traded at par value, there is a risk that an auction will fail due to insufficient demand for the securities. Moreover, between auctions, there may be no secondary market for these securities, and sales conducted on a secondary market may not be on terms favorable to the seller. Auction rate securities may be called by the issuer. Thus, with respect to liquidity and price stability, auction rate securities may differ substantially from cash equivalents, notwithstanding the frequency of auctions and the credit quality of the security. The Fund’s investments in auction rate securities of closed-end funds are subject to the limitations prescribed by the 1940 Act.

 

ETFs may trade at a price above (premium) or below (discount) their NAV, especially during periods of significant market volatility or stress, which could cause investors to pay significantly more or less for ETF shares than the value of the ETF’s underlying portfolio. Certain ETFs traded on exchanges may be thinly traded and experience large spreads between the “ask” price quoted by a seller and the “bid” price offered by a buyer. While the creation/redemption feature is designed to make it likely that ETF shares normally will trade close to their NAVs, market prices are not expected to correlate exactly to the shares’ NAVs due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, adverse developments impacting market makers, authorized participants or other market participants, high market volatility or lack of an active trading market for an ETF’s shares (including through a trading halt) may result in market prices that differ significantly from an ETF’s NAV or to the intraday value of the ETF’s holdings. An active trading market for shares of an ETF may not develop or be maintained. When all or a portion of an ETF’s underlying securities trade in a foreign market that is closed during the time the domestic market in which the ETF’s shares are listed and traded is open, there may be changes between the last quote from the closed foreign market and the value of such underlying security during the ETF’s trading day. In times of market stress, market makers or authorized participants may step away from their respective roles in making a market in shares of the ETF and in executing purchase or redemption orders. During such times, the ETF’s shares may trade at a wider than normal discount or premium and may possibly face trading halts. Additionally, the underlying securities of an ETF may be traded outside of a collateralized settlement system, such as the National Securities Clearing Corporation, a clearing agency that is registered with the SEC. There are a limited number of financial institutions that may act as authorized participants that post collateral for certain trades on an agency basis. To the extent that these authorized participants exit the business or are unable to proceed with creation and/or redemption orders with the ETF, and no other authorized participant is able to step forward, ETF shares may trade at a discount to NAV and possibly face trading halts and/or delisting. Additionally, in stressed market conditions, the market for ETF shares may become less liquid in response to deteriorating liquidity in the markets for such ETF’s underlying portfolio holdings, which may cause the shares of the ETF to trade at a wider than normal discount or premium. Furthermore, purchases and redemptions of creation units primarily in cash rather than in-kind may cause an ETF to incur certain costs, such as brokerage costs, taxable gains or other losses that it may not have incurred with an in-kind purchase or redemption. These costs may be borne by the ETF and decrease the ETF’s NAV to the extent they are not offset by a transaction fee payable by an authorized participant.

 

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Index-based ETFs (and other index funds) in which the Fund may invest may not be able to replicate exactly the performance of the indices they track due to transaction costs and other expenses of the ETFs. The Fund may also invest in actively managed ETFs that are subject to management risk as the ETF’s investment adviser will apply certain investment techniques and risk analyses in making investment decisions. There can be no guarantee that these will produce the desired results.

 

The Fund’s investment in Underlying Funds may be restricted by provisions of the 1940 Act that generally limit the amount the Fund and its affiliates can invest in any one Underlying Fund to 3% of the Underlying Fund’s outstanding voting stock. As a result, the Fund may hold a smaller position in an Underlying Fund than if it were not subject to this restriction. In addition, to comply with provisions of the 1940 Act, in any matter upon which Underlying Fund shareholders are solicited to vote, the Adviser may be required to vote Underlying Fund shares in the same proportion as shares held by other shareholders of the Underlying Fund. However, pursuant to Rule 12d1-4, the Fund may be permitted to invest in such Underlying Funds in excess of the limits set forth in the 1940 Act subject to certain terms and conditions set forth in Rule 12d1-4.

 

Defaulted and Distressed Securities Risks

 

The Fund and the Underlying Funds may invest in defaulted and distressed securities. Legal difficulties and negotiations with creditors and other claimants are common when dealing with defaulted or distressed issuers. Defaulted or distressed issuers may be insolvent, in bankruptcy or undergoing some other form of financial restructuring. In the event of a default, the Fund or an Underlying Fund may incur additional expenses to seek recovery. The repayment of defaulted bonds is subject to significant uncertainties, and in some cases, there may be no recovery of repayment. Defaulted bonds might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. Because of the relative illiquidity of defaulted or distressed debt and equity securities, short sales are difficult, and the Fund and most Underlying Funds primarily maintain long positions. Some relative value trades are possible, where an investor sells short one class of a defaulted or distressed issuer’s capital structure and purchases another. With distressed investing, often there is a time lag between when the Fund and an Underlying Fund makes an investment and when the Fund and the Underlying Fund realizes the value of the investment. In addition, the Fund and an Underlying Fund may incur legal and other monitoring costs in protecting the value of the Fund’s and the Underlying Fund’s claims.

 

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Illiquid Securities Risks

 

The Fund and the Underlying Funds may invest in illiquid securities. It may not be possible to sell or otherwise dispose of illiquid securities both at the price and within the time period deemed desirable by a fund. Illiquid securities also may be difficult to value. Liquidity may sometimes be impaired in the municipal market and, because the Fund principally invests in Municipal Bonds, it may find it difficult to purchase or sell such securities at opportune times. Liquidity can be impaired due to interest rate concerns, credit events, or general supply and demand imbalances. Depending on the particular issuer and current economic conditions, Municipal Bonds could be deemed more volatile investments.

 

Valuation Risk

 

Unlike publicly traded common stock which trades on national exchanges, there is no central place or exchange for fixed-income securities trading. Fixed-income securities generally trade on an “over-the-counter” market which may be anywhere in the world where the buyer and seller can settle on a price. Due to the lack of centralized information and trading, the valuation of fixed-income securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial market, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. As a result, the Fund may be subject to risk that when a fixed-income security is sold in the market, the amount received by the Fund is less than the value of such fixed-income security carried on the Fund’s books.

 

Tender Option Bonds Risks

 

TOB Residuals are derivative municipal securities that have embedded in them the risk of economic leverage. There is no assurance that the Fund’s strategy of using the proceeds received from tender option bond transactions to leverage its assets will be successful. TOB transactions expose the Fund to leverage and credit risk, and generally involve greater risk than investment in fixed rate Municipal Bonds, including the loss of principal.

 

Distributions on TOB Residuals will bear an inverse relationship to short-term municipal bond interest rates. Distributions on the TOB Residuals paid to the Fund will be reduced or, in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term municipal interest rates fall. The amount of such reduction or increase is a function, in part, of the amount of TOB Floaters sold by the TOB Issuer of these securities relative to the amount of the TOB Residuals that it sells. The greater the amount of TOB Floaters sold relative to the TOB Residuals, the more volatile the distributions on the TOB Residuals will be. Short-term interest rates are near historic lows and may be more likely to rise in the current market environment. The value of TOB Residuals may decline rapidly in times of rising interest rates.

 

The Fund’s use of proceeds received from tender option bond transactions will create economic leverage. Any economic leverage achieved through the Fund’s investment in TOB Residuals will create an opportunity for increased Common Share net income and returns, but will also create the possibility that Common Share long-term returns will be diminished if the cost of the TOB Floaters exceeds the return on the securities deposited in the TOB Issuer. If the income and gains earned on Municipal Bonds deposited in a TOB Issuer that issues TOB Residuals to the Fund are greater than the payments due on the TOB Floaters, the Fund’s returns will be greater than if it had not invested in the TOB Residuals.

 

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The Fund has no current intention of investing in recourse TOB Residuals. However, circumstances may change and it is possible that in the future the Fund may elect to invest in recourse TOB Residuals to leverage its portfolio. If the Fund uses recourse TOB Residuals, the liquidity provider may seek recourse against assets of the Fund, and the Fund may have to pay the liquidity provider the difference between the purchase price of any TOB Floaters put to the liquidity provider by third party investors and the proceeds realized by the liquidity provider from the remarketing of those TOB Floaters or the sale of the assets in the TOB Issuer, which could cause the Fund to lose money in excess of its investment in a TOB Issuer.

 

Although the Fund generally would unwind a tender option bond transaction rather than try to sell a TOB Residual, if it did try to sell a TOB Residual, its ability to do so would depend on the liquidity of the TOB Residual. TOB Residuals have varying degrees of liquidity based, among other things, upon the liquidity of the underlying securities deposited in the TOB Issuer. The market price of TOB Residuals are more volatile than the underlying securities due to leverage. The leverage attributable to TOB Residuals may be “called away” on relatively short notice and therefore may be less permanent than more traditional forms of leverage. In certain circumstances, the likelihood of an increase in the volatility of NAV and market price of the Common Shares may be greater for a fund that relies primarily on tender option bond transactions to achieve a desired effective leverage ratio. The Fund may be required to sell its TOB Residuals at less than favorable prices, or liquidate other Fund portfolio holdings in certain circumstances, including, but not limited to, the following:

 

If the Fund has a need for cash and the securities deposited in the TOB Issuer are not actively trading due to adverse market conditions;

 

If the sponsors of TOB Issuers (as a collective group or individually) experience financial hardship and consequently seek to terminate their sponsorship of TOB Issuers; and

 

If the value of an underlying security deposited in the TOB Issuer declines significantly (to a level below the notional value of the TOB Floaters issued by the TOB Issuer) and if additional collateral has not been posted by the Fund.

 

The Fund may invest in taxable TOB Residuals, issued by TOB Issuers formed with taxable municipal securities. There may be a limited number of counterparties for such transactions, which may increase the credit risks, counterparty risks, liquidity risks and other risks of investing in taxable TOB Residuals. The Fund may not invest more than 30% of its Managed Assets in any single third party sponsor that establishes a TOB Issuer. See also “Risks—Investment-Related Risks—Legislation and Regulatory Risks.”

 

Insurance Risks

 

The Fund may purchase Municipal Bonds that are secured by insurance, bank credit agreements or escrow accounts. The credit quality of the companies that provide such credit enhancements will generally affect the value of those securities. Certain significant providers of insurance for Municipal Bonds have at times incurred significant losses as a result of exposure to sub-prime mortgages and other lower credit quality investments that have experienced defaults or otherwise suffered credit deterioration. Such losses may reduce the insurers’ capital and may call into question their continued ability to perform their obligations under such insurance if called upon in the future. While an insured Municipal Bond will typically be deemed to have the rating of its insurer, if the insurer of a Municipal Bond suffers a downgrade in its credit rating or the market discounts the value of the insurance provided, the rating of the underlying Municipal Bond will generally be more relevant and the value of the Municipal Bond would more closely, if not entirely, reflect such rating. In such a case, the value of insurance associated with a Municipal Bond would decline and may not add any value. The insurance feature of a Municipal Bond does not guarantee the full payment of principal and interest through the life of an insured obligation, the market value of the insured obligation or the NAV of the Common Shares represented by such insured obligation. Because there is no limit on the percentage of Managed Assets that may be insured by any one insurance firm other than the tax diversification rules, there is a risk that a significant portion of the Fund’s holdings may experience a ratings downgrade and lose value if such an insurance company suffers financial or reputational adversity. Some IRS authority treats a guaranty as a separate security subject to the diversification rules, which limit the value of securities issued by any one issuer to not more than 25% of the portfolio.

 

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Tax Risks

 

To qualify for the favorable U.S. federal income tax treatment generally accorded to regulated investment companies, among other things, the Fund must derive in each taxable year at least 90% of its gross income from certain prescribed sources and satisfy a diversification test on a quarterly basis. If the Fund fails to satisfy the qualifying income or diversification requirements in any taxable year, the Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures of the diversification requirements where the Fund corrects the failure within a specified period. In order to be eligible for the relief provisions with respect to a failure to meet the diversification requirements, the Fund may be required to dispose of certain assets. If these relief provisions were not available to the Fund and it were to fail to qualify for treatment as a regulated investment company (“RIC”) for a taxable year, all of its taxable income (including its net capital gain) would be subject to tax at regular corporate rates (currently 21%) without any deduction for distributions to shareholders, and such distributions would be taxable as ordinary dividends to the extent of the Fund’s current and accumulated earnings and profits.

 

The Fund may qualify to pay exempt-interest dividends, which are treated as items of interest excludable from gross income for federal income tax purposes, if at least 50% of the value of the total assets of the Fund consists of obligations exempt from regular income tax as of the close of each quarter of the Fund’s taxable year. Under this approach, if the proportion of taxable investments held by the Fund exceeded 50% of the Fund’s total assets as of the close of any quarter of the Fund’s taxable year, the Fund would not, for that taxable year, satisfy the general eligibility test that would otherwise permit it to pay exempt-interest dividends for that taxable year. As an alternative, the Fund may qualify to pay exempt-interest dividends if it is a qualified fund-of-funds, i.e., if at least 50% of the value of its total assets are invested in the shares of underlying RICs as of the close of each quarter of the Fund’s taxable year.

 

The Fund may enter into various types of derivatives transactions, including swap contracts, among others. The use of such derivatives may generate taxable income. The Fund’s use of derivatives may also affect the amount, timing, and character of distributions to shareholders and, therefore, may increase the amount of taxes payable by shareholders.

 

The value of the Fund’s investments and its NAV may be adversely affected by changes in tax rates and policies. Because interest income from Municipal Bonds is normally not subject to regular federal income taxation, the attractiveness of Municipal Bonds in relation to other investment alternatives is affected by changes in federal income tax rates or changes in the tax-exempt status of interest income from Municipal Bonds. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect the demand for and supply, liquidity and marketability of Municipal Bonds. This could in turn affect the Fund’s NAV and ability to acquire and dispose of Municipal Bonds at desirable yield and price levels. Additionally, the Fund is not a suitable investment for individual retirement accounts, for other tax-exempt or tax-deferred accounts or for investors who are not sensitive to the federal income tax consequences of their investments.

 

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The Fund will invest in Municipal Bonds in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest paid on those securities will be excludable from gross income for federal income tax purposes, and the Adviser and Subadviser will not independently verify that opinion. Subsequent to the Fund’s acquisition of such a Municipal Bond, however, the security may be determined to pay, or to have paid, taxable income. As a result, the treatment of dividends previously paid or to be paid by the Fund as “exempt-interest dividends” could be adversely affected, subjecting the Fund’s shareholders to increased federal income tax liabilities.

 

Distributions of ordinary taxable income (including any net short-term capital gain) will be taxable to shareholders as ordinary income (and not eligible for favorable taxation as “qualified dividend income”), and capital gain dividends will be taxable as long-term capital gains. See “U.S. Federal Income Tax Matters.”

 

Derivatives Risks

 

The Fund and the Underlying Funds may enter into derivatives. Derivative transactions involve investment techniques and risks different from those associated with the Fund’s other investments. Generally, a derivative is a financial contract the value of which depends upon, or is derived from, the value of an underlying asset, reference rate, or index, and may relate to individual debt or equity instruments, interest rates, currencies or currency exchange rates, commodities, related indexes and other assets. Derivatives can be volatile and involve various types and degrees of risk, depending upon the characteristics of a particular derivative. Derivatives may entail investment exposures that are greater than their cost would suggest, meaning that a small investment in a derivative could have a large potential impact on the performance of the Fund or an Underlying Fund. The Fund or an Underlying Fund could experience a loss if derivatives do not perform as anticipated, if they are not correlated with the performance of other investments which they are used to hedge or if the fund is unable to liquidate a position because of an illiquid secondary market. The market for many derivatives is, or can suddenly become, illiquid. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices of derivatives. Except with respect to the Fund’s investments in total return swaps, the Fund expects its use of derivative instruments will be for hedging purposes. When used for speculative purposes, derivatives will produce enhanced investment exposure, which will magnify gains and losses. Certain derivatives transactions may give rise to a form of leverage. The use of leverage may cause a fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet segregation requirements. Leverage may cause a fund to be more volatile than if it had not been leveraged. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the fund’s portfolio securities. Further, using derivatives may include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to correlate perfectly, or at all, with the value of the assets, reference rates or indexes they are designed to closely track. The Fund and the Underlying Funds also will be subject to credit risk with respect to the counterparties to the derivatives contracts purchased by such fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund or an Underlying Fund may experience significant delays in obtaining any recovery under the derivative contract in a bankruptcy or other reorganization proceeding. The Fund or an Underlying Fund may obtain only a limited recovery or may obtain no recovery in such circumstances. See “—Option and Futures Risks” and “—Swap Risks.” The Adviser has claimed an exclusion from registration as a commodity pool operator with respect to the Fund pursuant to Commodity Futures Trading Commission (“CFTC”) Rule 4.5. See “Investment Policies and Techniques—Derivatives—Regulation as a ‘Commodity Pool’” in the SAI.

 

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Options and Futures Risks

 

The Fund and the Underlying Funds may invest in options and futures contracts and such contracts are expected to be utilized by the Fund, if at all, for hedging purposes. The use of futures and options transactions entails certain special risks. In particular, the variable degree of correlation between price movements of futures contracts and price movements in the related securities position of a fund could create the possibility that losses on the hedging instrument are greater than gains in the value of a fund’s position. In addition, futures and options markets could be illiquid in some circumstances and certain over-the-counter options could have no markets. As a result, in certain markets, a fund might not be able to close out a transaction without incurring substantial losses. Although a fund’s use of futures and options transactions for hedging should tend to minimize the risk of loss due to a decline in the value of the hedged position, at the same time it will tend to limit any potential gain to a fund that might result from an increase in value of the position. Finally, the daily variation margin requirements for futures contracts create a greater ongoing potential financial risk than would purchases of options, in which case the exposure is limited to the cost of the initial premium. However, because option premiums paid by the Fund or an Underlying Fund are small in relation to the market value of the investments underlying the options, buying options can result in large amounts of leverage. This leverage offered by trading in options could cause the Fund’s or an Underlying Fund’s NAV to be subject to more frequent and wider fluctuation than would be the case if the Fund or an Underlying Fund did not invest in options.

 

Options transactions may be effected on securities exchanges or in the over-the-counter market. When options are purchased over-the-counter, the Fund or an Underlying Fund bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its obligations under the option contract. The counterparties to these transactions typically will be major international banks, broker-dealers and financial institutions. Such options may also be illiquid, and in such cases, the Fund or an Underlying Fund may have difficulty closing out its position. Banks, broker-dealers or other financial institutions participating in such transactions may fail to settle a transaction in accordance with the terms of the option as written. In the event of default or insolvency of the counterparty, the Fund or an Underlying Fund may be unable to liquidate an over-the-counter option position.

 

An Underlying Fund may purchase and sell call and put options with respect to specific securities, and may write and sell covered or uncovered call and put options. A call option gives the purchaser of the call option, in return for a premium paid, the right to buy the security underlying the option from the writer of the call option at a specified exercise price within a specified time frame. A put option gives the purchaser of the put option, in return for a premium paid, the right to sell the underlying security to the writer of the put option at a specified price within a specified time frame. A covered call option is a call option with respect to an underlying security that a fund owns. A covered put option is a put option with respect to which a fund has segregated cash or liquid securities to fulfill the obligation of the option. The purchaser of a put or call option runs the risk of losing the purchaser’s entire investment, paid as the premium, in a relatively short period of time if the option is not sold at a gain or cannot be exercised at a gain prior to expiration. In selling put options, there is a risk that the Underlying Fund may be required to buy the underlying security at a disadvantageous price above the market price. The un-covered writer of a call option is subject to a risk of loss if the price of the underlying security should increase, and the un-covered writer of a put option is subject to a risk of loss if the price of the underlying security should decrease. The Fund will not treat uncovered options as “senior securities” under the 1940 Act and instead, to address senior security concerns, will segregate cash or liquid securities to fulfill its obligation under the options.

 

The Fund may invest a significant portion of its total assets in Underlying Funds that write covered call options. To the extent that an Underlying Fund writes a covered call option, it forgoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but has retained the risk of loss should the price of the underlying security decline. As the writer of the option, the Underlying Fund bears the market risk of an unfavorable change in the price of the security underlying a written option. As an Underlying Fund writes covered calls over more of its portfolio, its ability to benefit from capital appreciation becomes more limited and the risk of NAV erosion increases. To the extent an Underlying Fund experiences NAV erosion (which itself may have an indirect negative effect on the market price of interests in the Underlying Fund, the Underlying Fund will have a reduced asset base over which to write covered calls, which may eventually lead to reduced distributions to shareholders such as the Fund. The writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price.

 

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To the extent that an Underlying Fund engages in selling options that trade in over-the-counter markets, the Underlying Fund may be subject to additional risks. Participants in these markets are typically not subject to the same credit evaluation and regulatory oversight as members of “exchange-based” markets. By engaging in option transactions in these markets, an Underlying Fund may take credit risk with regard to parties with which it trades and also may bear the risk of settlement default. These risks may differ materially from those involved in exchange-traded transactions, which generally are characterized by clearing organization guarantees, daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. Transactions entered into directly between two counterparties generally do not benefit from these protections, which may subject an Underlying Fund to the risk that a counterparty will not settle a transaction in accordance with agreed terms and conditions because of a dispute over the terms of the contract or because of a credit or liquidity problem. Such “counterparty risk” is increased for contracts with longer maturities when events may intervene to prevent settlement.

 

There can be no assurance that a liquid market will exist for any particular futures contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day of a price beyond that limit or trading may be suspended for specified periods during the trading day.

 

Swap Risks

 

The Fund and the Underlying Funds may enter into various swap agreements and, other than total return swap agreements (as discussed herein), such agreements are expected to be utilized by the Fund, if at all, for hedging purposes. All of these agreements are considered derivatives. Swap agreements are two-party contracts under which the fund and a counterparty, such as a broker or dealer, agree to exchange the returns (or differentials in rates of return) earned or realized on an agreed-upon underlying asset or investment over the term of the swap. The use of swap transactions is a highly specialized activity which involves strategies and risks different from those associated with ordinary portfolio security transactions. If the Adviser, Subadviser or an Underlying Fund’s investment adviser is incorrect in its forecasts of default risks, market spreads, liquidity or other applicable factors or events, the investment performance of the Fund or Underlying Fund would diminish compared with what it would have been if these techniques were not used. Swaps and swap options can be used for a variety of purposes, including: to manage fund exposure to changes in interest rates and credit quality; as an efficient means of adjusting fund overall exposure to certain markets; in an effort to enhance income or total return or protect the value of portfolio securities; to serve as a cash management tool; and to adjust portfolio duration.

 

Swaps could result in losses if interest rates or credit quality changes are not correctly anticipated by the Adviser, Subadviser or Underlying Fund manager. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. Total return swaps involve an enhanced risk that the issuer or counterparty will fail to perform its contractual obligations, which could turn an expected gain into a loss. Total return swaps may effectively add leverage to the Fund’s portfolio because the Fund would be subject to investment exposure on the full notional amount of the swap. To the extent the Fund or an Underlying Fund enters into a total return swap on equity securities, the Fund or the Underlying Fund will receive the positive performance of a notional amount of such securities underlying the total return swap. In exchange, the Fund or the Underlying Fund will be obligated to pay the negative performance of such notional amount of securities. Therefore, the Fund or the Underlying Fund assumes the risk of a substantial decrease in the market value of the equity securities. The use of swaps may not always be successful; using them could lower Fund or Underlying Fund total return, their prices can be highly volatile, and the potential loss from the use of swaps can exceed the Fund’s or an Underlying Fund’s initial investment in such instruments.

 

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Some, but not all, swaps may be cleared, in which case a central clearing counterparty stands between each buyer and seller and effectively guarantees performance of each contract, to the extent of its available resources for such purposes. As a result, the counterparty risk is now shifted from bilateral risk between the parties to the individual credit risk of the central clearing counterparty. Even in such case, there can be no assurance that a clearing house, or its members, will satisfy the clearing house’s obligations to the Fund or an Underlying Fund or that the fund’s use of swaps will be advantageous.

 

Short Sale Risks

 

The Fund and the Underlying Funds may engage in short sales. However, the Fund will not engage in any short sales of securities issued by closed-end funds. Short sales are expected to be utilized by the Fund, if at all, for hedging purposes. A short sale is a transaction in which a fund sells a security it does not own in anticipation that the market price of that security will decline. Positions in shorted securities are speculative and riskier than long positions (purchases) in securities because the maximum sustainable loss on a security purchased is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of the shorted security. Therefore, in theory, securities sold short have unlimited risk. Short selling will also result in higher transaction costs (such as interest and dividends), and may result in higher taxes, which reduce a fund’s return.

 

If a security sold short increases in price, a fund may have to cover its short position at a higher price than the short sale price, resulting in a loss. With respect to a fund’s short positions, the fund must borrow those securities to make delivery to the buyer. A fund may not be able to borrow a security that it needs to deliver or it may not be able to close out a short position at an acceptable price and may have to sell related long positions before it had intended to do so. As a result, a fund may not be able to successfully implement its short sale strategy due to the limited availability of desired securities or for other reasons.

 

When borrowing a security for delivery to a buyer, a fund also may be required to pay a premium and other transaction costs, which would increase the cost of the security sold short. A fund must normally repay to the lender an amount equal to any dividends or interest earned while the loan is outstanding. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of the premium, dividends, interest or expenses a fund may be required to pay in connection with the short sale. Also, the lender of a security may terminate the loan at a time when a fund is unable to borrow the same security for delivery. In that case, a fund would need to purchase a replacement security at the then current market price or “buy in” by paying the lender an amount equal to the costs of purchasing the security.

 

Until a fund replaces a borrowed security, it may be required to maintain a segregated account of cash or liquid assets to cover the fund’s short position. Securities held in a segregated account cannot be sold while the position they are covering is outstanding, unless they are replaced with similar securities. Additionally, a fund may be required to maintain sufficient liquid assets (less any additional collateral held by the broker), marked-to-market daily, to cover its short sale obligations. This may limit a fund’s investment flexibility, as well as its ability to meet redemption requests or other current obligations.

 

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Because a fund’s loss on a short sale arises from increases in the value of the security sold short, the loss is theoretically unlimited. In certain cases, purchasing a security to cover a short position can itself cause the price of the security to rise further, which would exacerbate the loss. Conversely, gains on short sales, after transaction and related costs, are generally the difference between the price at which a fund sold the borrowed security and the price it paid to purchase the security for delivery to the buyer. By contrast, a fund’s loss on a long position arises from decreases in the value of the security and is limited by the fact that a security’s value cannot drop below zero.

 

By investing the proceeds received from selling securities short, a fund is using a form of leverage, which creates special risks. The use of leverage may increase a fund’s exposure to long equity positions and make any change in a fund’s NAV greater than it would be without the use of leverage. This could result in increased volatility of returns. There is no guarantee that the Fund or an Underlying Fund will leverage its portfolio, or if it does, that the leveraging strategy will be successful. The Fund also cannot guarantee that the use of leverage by the Fund or an Underlying Fund will produce a higher return on an investment. See “—Legislation and Regulatory Risks” for forthcoming changes to the current treatment of short sales transactions under applicable rules and regulations that could impact the Fund in the future.

 

Rating Agency Risk

 

Ratings agencies such as S&P, Fitch, Moody’s or other NRSROs provide ratings on debt securities based on their analyses of information they deem relevant. Ratings are opinions or judgments of the credit quality of an issuer and may prove to be inaccurate. In addition, there may be a delay between events or circumstances adversely affecting the ability of an issuer to pay interest and/or repay principal and an NRSRO’s decision to downgrade a security. Further, a rating agency may have a conflict of interest with respect to a security for which it assigns a particular rating if, for example, the issuer or sponsor of the security pays the rating agency for the analysis of its security, which could affect the reliability of the rating.

 

United States Credit Rating Downgrade Risk

 

On August 5, 2011, S&P lowered its long-term sovereign credit rating on the United States to “AA+” from “AAA.” In general, a lower rating could increase the volatility in both stock and bond markets, result in higher interest rates and lower Treasury prices and increase the costs of all kinds of debt. These events and similar events in other areas of the world could have significant adverse impacts on issuers of securities held by the Fund and the Fund itself. The Adviser and the Subadviser cannot predict the effects of these or similar events in the future on the U.S. economy and securities markets or on the Fund’s portfolio. The Adviser and the Subadviser may not timely anticipate or manage existing, new or additional risks, contingencies or developments.

 

Legislation and Regulatory Risks

 

At any time after the date of this Prospectus, legislation or additional regulations may be enacted that could negatively affect the assets of the Fund or the issuers of such assets. Changing approaches to regulation may have a negative impact on the entities and/or securities in which the Fund or an Underlying Fund invests. Legislation or regulation may also change the way in which the Fund or an Underlying Fund is regulated. New or amended regulations may be imposed by the CFTC, the Securities and Exchange Commission (“SEC”), the Federal Reserve or other financial regulators, other governmental regulatory authorities or self-regulatory organizations that supervise the financial markets that could adversely affect the Fund or the Underlying Funds. There can be no assurance that future legislation, regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve its investment objectives. The Fund and the Underlying Funds also may be adversely affected by changes in the enforcement or interpretation of existing statutes and rules by these governmental authorities or self-regulatory organizations.

 

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On October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). The Fund will be required to implement and comply with Rule 18f-4 by the third quarter of 2022. Once implemented, Rule 18f-4 will impose new limits on the amount of derivatives, short sales, and tender option bond transactions that the Fund can enter into; eliminate the asset segregation framework the Fund initially intends to use to comply with Section 18 of the 1940 Act; treat certain derivatives as senior securities so that a failure to comply with the limits might be alleged by a regulator to be a statutory violation; and potentially require the Fund to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. The extent of the impact of such new regulations on the Fund, including the ability of the Fund to continue to utilize derivatives, short sales and tender option bond transactions in an amount similar to its initial use of such transactions, remains uncertain as of the date of this prospectus.

 

Market Disruption, Geopolitical, Pandemic and Climate Change Risks

 

The Fund and Underlying Funds (as well as their service providers) may be adversely affected by uncertainties and events around the world, such as epidemics and pandemics, including the spread of infectious illness or other public health issues, natural disasters, terrorism and other conflicts, social unrest, political developments, and changes in government policies, taxation, restrictions on foreign investment and currency repatriation, currency fluctuations and other developments in the laws and regulations of the countries in which they are invested. In December 2019, an initial outbreak of COVID-19 was reported and, since then, a large and growing number of cases have been confirmed around the world. This has resulted in numerous deaths and the imposition of both local and more widespread quarantine measures, border closures and other travel restrictions, causing social unrest and commercial disruption on a global scale. In response to the COVID-19 pandemic, central banks and governments have responded with liquidity injections to ease the strain on financial systems and stimulus measures to buffer the shock to businesses and consumers. These measures have helped stabilize the markets over the short term, but volatility will likely remain elevated until the health crisis itself is under control (via fewer new cases, lower infection rates and/or verified treatments). There are still many unknowns and new information is incoming daily, compounding the difficulty of modeling outcomes for epidemiologists and economists alike.

 

Global economies and financial markets are becoming increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely impact issuers in a different country or region.  The ongoing COVID-19 pandemic has magnified these risks and has had, and will continue to have, a material adverse impact on local economies in the affected jurisdictions and also on the global economy, as cross border commercial activity and market sentiment are increasingly impacted by the outbreak and government and other measures seeking to contain its spread. The effects of the COVID-19 pandemic have contributed to increased volatility in global financial markets and likely will affect certain countries, regions, companies, industries and market sectors more dramatically than others. It is not known how long the impact of the COVID-19 pandemic will last or the severity thereof. 

 

The COVID-19 pandemic and public health measures taken in response have the potential to negatively affect the budgets of many states and municipalities, and with limited disclosure requirements under the federal securities laws, it may be difficult for investors to discern the full extent of those effects. Although there is discussion of the federal government assisting municipalities with these financial difficulties, any such assistance is subject to the political process and it is far from certain that it will be forthcoming or be in the amounts necessary. Such assistance, if it materializes, may not help the issuers of revenue bonds that finance specific projects.

 

To the extent the impacts of COVID-19 continue, the Fund may experience negative impacts to its business that could exacerbate other risks to which the Fund is subject, including: (1) issuers of municipal securities could be materially impacted by the COVID- 19 pandemic, which may, in turn, negatively affect the value of such securities or such issuers’ ability to make interest payments or distributions to the Fund and result in a decrease in the NAV of the Fund; (2) operational impacts on and availability of key personnel of the Adviser or Subadviser, and/or any of the Fund’s other service providers, vendors and counterparties as they face changed circumstances and/or illness related to the pandemic; and (3) limitations on the Fund’s ability to make distributions or dividends, as applicable.

 

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The Fund cannot predict the effects of or likelihood of such events on the U.S. and world economies, the value of the Common Shares or the NAV of the Fund. The issuers of securities, including those held in the Fund’s or an Underlying Fund’s portfolio, could be materially impacted by such events which may, in turn, negatively affect the value of such securities or such issuers’ ability to make interest payments or distributions to the Fund.

 

Climate change poses long-term threats to physical and biological systems. Potential hazards and risks related to climate change for a State or municipality include, among other things, rising sea levels, more severe coastal flooding and erosion hazards, and more intense storms. Storms in recent years have demonstrated vulnerabilities in a State's or municipality’s infrastructure to extreme weather events. Climate change risks, if they materialize, can adversely impact a State’s or municipality’s financial plan in current or future years. In addition, economists and others have expressed increasing concern about the potential effects of global climate change on property and security values. A rise in sea levels, an increase in powerful windstorms and/or a climate-driven increase in sea levels or flooding could cause coastal properties to lose value or become unmarketable altogether. Economists warn that, unlike previous declines in the real estate market, properties in affected coastal zones may not ever recover their value. Large wildfires driven by high winds and prolonged drought may devastate businesses and entire communities and may be very costly to any business found to be responsible for the fire.  Regulatory changes and divestment movements tied to concerns about climate change could adversely affect the value of certain land and the viability of industries whose activities or products are seen as accelerating climate change.

 

These losses could adversely affect the bonds of municipalities that depend on tax or other revenues and tourist dollars generated by affected properties, and insurers of the property and/or of municipal securities. Since property and security values are driven largely by buyers’ perceptions, it is difficult to know the time period over which these market effects might unfold.

 

Defensive Measures

 

The Fund may invest up to 100% of its assets in cash, cash equivalents and short-term investments as a defensive measure in response to adverse market conditions or opportunistically at the discretion of the Adviser or Subadviser. During these periods, the Fund may not be pursuing its investment objectives.

 

Structural Risks:

 

Market Discount

 

Common stock of closed-end funds frequently trades at a discount from its NAV. This risk may be greater for investors selling their shares in a relatively short period of time after completion of the initial offering. The Fund’s Common Shares may trade at a price that is less than the initial offering price. This risk would also apply to the Fund’s investments in closed-end funds.

 

No Operating History

 

The Fund is a newly organized, diversified, closed-end management investment company with no operating history.

 

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Limited Term and Eligible Tender Offer Risk

 

The Fund is scheduled to terminate on or about the Termination Date (unless it is converted to a perpetual fund). The Fund is not a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time as its target date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund whose investment objective is to return its original NAV on the termination date. The Fund’s investment objectives and policies are not designed to seek to return to investors that purchase Common Shares in this offering their initial investment of $20.00 per Common Share on the Termination Date or in an Eligible Tender Offer, and such investors and investors that purchase Common Shares after the completion of this offering may receive more or less than their original investment upon termination or in an Eligible Tender Offer.

 

The Fund is not required to conduct an Eligible Tender Offer. If the Fund conducts an Eligible Tender Offer, there can be no assurance that the number of tendered Common Shares would not result in the Fund’s net assets totaling less than the Termination Threshold, in which case the Eligible Tender Offer will be terminated, no Common Shares will be repurchased pursuant to the Eligible Tender Offer and the Fund will terminate on or before the Termination Date (subject to possible extensions). Following the completion of an Eligible Tender Offer in which the number of tendered Common Shares would result in the Fund’s net assets equaling or totaling greater than the Termination Threshold, the Board of Directors may eliminate the limited term structure of the Fund upon the affirmative vote of a majority of the Board of Directors and without a vote of Common Shareholders. Thereafter, the Fund will have a perpetual existence. The Fund is not required to conduct additional tender offers following an Eligible Tender Offer and conversion to a perpetual structure. Therefore, remaining Common Shareholders may not have another opportunity to participate in a tender offer or exchange their Common Shares for the then-existing NAV per Common Share. Common Shares of closed-end management investment companies frequently trade at a discount from their NAV and as a result remaining Common Shareholders may only be able to sell their Common Shares at a discount to NAV. See “—Market Discount.” The Adviser may have a conflict of interest in recommending to the Board of Directors that the limited term structure be eliminated and the Fund have a perpetual existence.

 

In order to pay for Common Shares to be purchased in an Eligible Tender Offer or to liquidate the portfolio in connection with the Fund’s termination, the Fund will be required to sell its assets. As a result, the Fund may be required to sell portfolio securities when it otherwise would not, including at times when market conditions are not favorable, which may cause the Fund to lose money. The Fund may receive proceeds from the disposition of portfolio investments that are less than the valuations of such investments by the Fund and, in particular, losses from the disposition of illiquid securities may be significant. The disposition of portfolio investments by the Fund could also cause market prices of such instruments, and hence the NAV and market price of the Common Shares, to decline. In addition, disposition of portfolio investments will cause the Fund to incur increased brokerage and related transaction expenses.

 

Moreover, in conducting such portfolio transactions, the Fund may need to deviate from its investment policies and may not achieve its investment objectives. The Fund’s portfolio composition may change as its portfolio holdings mature or are called or sold in anticipation of an Eligible Tender Offer or the Termination Date. During such period(s), it is possible that the Fund will hold a greater percentage of its total assets in shorter term and lower yielding securities and cash and cash equivalents than it would otherwise, which may impede the Fund’s ability to achieve its investment objectives and adversely impact the Fund’s performance and distributions to Common Shareholders, which may in turn adversely impact the market value of the Common Shares. In addition, the Fund may be required to reduce its leverage, which could also adversely impact its performance. The additional cash or cash equivalents held by the Fund could be obtained through reducing the Fund’s distributions to Common Shareholders and/or holding cash in lieu of reinvesting, which could limit the ability of the Fund to participate in new investment opportunities. The Fund does not limit its investments to securities having a maturity date prior to or around the Termination Date, which may exacerbate the foregoing risks and considerations. A Common Shareholder may be subject to the foregoing risks over an extended period of time, particularly if the Fund conducts an Eligible Tender Offer and is also subsequently terminated by or around the Termination Date.

 

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If the Fund’s tax basis for the investments sold is less than the sale proceeds, the Fund will recognize capital gains, which the Fund will be required to distribute to Common Shareholders. In addition, the Fund’s purchase of tendered Common Shares pursuant to a tender offer will have tax consequences for tendering Common Shareholders and may have tax consequences for non-tendering Common Shareholders. The purchase of Common Shares by the Fund pursuant to a tender offer will have the effect of increasing the proportionate interest in the Fund of non-tendering Common Shareholders. All Common Shareholders remaining after a tender offer will be subject to proportionately higher expenses due to the reduction in the Fund’s total assets resulting from payment for the tendered Common Shares. A reduction in net assets, and the corresponding increase in the Fund’s expense ratio, could result in lower returns and put the Fund at a disadvantage relative to its peers and potentially cause the Fund to trade at a wider discount to NAV than it otherwise would. Such reduction in the Fund’s total assets may also result in less investment flexibility, reduced diversification and greater volatility for the Fund, and may have an adverse effect on the Fund’s investment performance. Moreover, the resulting reduction in the number of outstanding Common Shares could cause the Common Shares to become thinly traded or otherwise adversely impact the secondary market trading of such shares. Furthermore, the portfolio of the Fund following an Eligible Tender Offer could be significantly different and, therefore, Common Shareholders retaining an investment in the Fund could be subject to greater risk. For example, the Fund may be required to sell its more liquid, higher quality portfolio investments to purchase Common Shares that are tendered in an Eligible Tender Offer, which would leave a less liquid, lower quality portfolio for remaining shareholders. The prospects of an Eligible Tender Offer may attract arbitrageurs who would purchase the Common Shares prior to the tender offer for the sole purpose of tendering those shares which could have the effect of exacerbating the risks described herein for shareholders retaining an investment in the Fund following an Eligible Tender Offer.

 

In connection with its termination, the Fund may distribute the proceeds from the disposition of portfolio securities in one or more liquidating distributions prior to the final liquidation, which may cause fixed expenses to increase when expressed as a percentage of assets under management. Upon a termination, it is anticipated that the Fund will have distributed substantially all of its net assets to Common Shareholders, although securities for which no market exists, securities trading at depressed prices, if any, and assets recovered following termination may be placed in a liquidating trust. Common Shareholders will bear the costs associated with establishing and maintaining a liquidating trust, if necessary. Securities placed in a liquidating trust may be held for an indefinite period of time until they can be sold or pay out all of their cash flows. The Fund cannot predict the amount, if any, of securities that will be required to be placed in a liquidating trust.

 

Investment Style Risk

 

The Fund is managed by allocating the Fund’s assets to two different strategies as described in this Prospectus. This may cause the Fund to underperform funds that do not limit their investments to these two strategies during periods when these strategies underperform other types of investments.

 

Not a Complete Investment Program

 

The Fund is intended for investors seeking current income and overall total return over the long-term, and is not intended to be a short-term trading vehicle. An investment in the Common Shares of the Fund should not be considered a complete investment program. Each investor should take into account the Fund’s investment objectives and other characteristics as well as the investor’s other investments when considering an investment in the Common Shares. An investment in the Fund may not be appropriate for all investors.

 

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Multi-Manager Risk

 

Fund performance is dependent upon the success of the Adviser and the Subadviser in implementing the Fund’s investment strategies in pursuit of its investment objectives. To a significant extent, the Fund’s performance will depend on the success of the Adviser’s methodology in allocating the Fund’s assets between each of the principal investment strategies. The Adviser’s and the Subadviser’s investment styles may not always be complementary, which could adversely affect the performance of the Fund. Because the Adviser and the Subadviser each makes investment decisions independently, it is possible that the Adviser and the Subadviser may, at any time, take positions that in effect may be opposite of positions taken by each other. In such cases, the Fund will incur brokerage and other transaction costs without accomplishing any net investment results. The multi-manager approach could increase the Fund’s portfolio turnover rates, which may result in higher levels of realized capital gains or losses with respect to the Fund’s portfolio securities, and higher broker commissions and other transaction costs. The trading costs and tax consequences associated with portfolio turnover may adversely affect the Fund’s performance. See “—Investment Style Risk.”

 

In addition, the Subadviser’s implementation of the Municipal Bond Income Strategy means that, at any point in time, the Subadviser will manage 35%-75% of the Fund’s Managed Assets. To the extent the Subadvisory Agreement with the Subadviser is terminated or not renewed, Fund performance will become dependent on the Adviser or a new subadviser successfully implementing the Municipal Bond Income Strategy. There is no assurance that a suitable replacement to the Subadviser could be found if the Subadvisory Agreement is terminated or not renewed. Any such termination or non-renewal of the Subadvisory Agreement can have an adverse effect on an investment in the Fund. In addition, to the extent the Adviser retains the responsibility of implementing the Municipal Bond Income Strategy of the Fund following the termination or non-renewal of the Subadvisory Agreement, the approval of the Fund’s stockholders will likely not be required.

 

Asset Allocation Risk

 

To the extent that the Adviser’s asset allocation between the Fund’s principal investment strategies may fail to produce the intended result, the Fund’s return may suffer. Additionally, the potentially active asset allocation style of the Fund may lead to changing allocations over time and represent a risk to investors who target fixed asset allocations.

 

Leverage Risks

 

Leverage is a speculative technique that exposes the Fund to greater risk and increased costs than if it were not implemented. Increases and decreases in the value of the Fund’s portfolio will be magnified when the Fund uses leverage. As a result, leverage may cause greater changes in the Fund’s NAV. The leverage costs may be greater than the Fund’s return on the underlying investments made from the proceeds of leverage. The Fund’s leveraging strategy may not be successful. See “Use of Leverage.”

 

If the Fund were to utilize leverage in the form of borrowing, it anticipates that the money borrowed for investment purposes will incur interest based on shorter-term interest rates that would be periodically reset. So long as the Fund’s portfolio provides a higher rate of return, net of expenses, than the interest rate on borrowed money, as reset periodically, the leverage may cause the holders of Common Shares to receive a higher current rate of return than if the Fund were not leveraged. If, however, long-term and/or short-term rates rise, the interest rate on borrowed money could exceed the rate of return on securities held by the Fund, reducing return to the holders of Common Shares. Developments in the credit markets may adversely affect the ability of the Fund to borrow money for investment purposes and may increase the costs of such borrowings, which would reduce returns to the holders of Common Shares.

 

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In addition to the foregoing, the use of leverage involves risks and special considerations for Common Shareholders, including:

 

the likelihood of greater volatility of NAV, market price and dividend rate of the Common Shares than a comparable portfolio without leverage;
the risk that fluctuations in interest rates on borrowings or on short-term debt or in the interest or dividend rates on any debt securities or Preferred Shares that the Fund must pay will reduce the return to the Common Shareholders;
the effect of leverage in a declining market, which is likely to cause a greater decline in the NAV of the Common Shares than if the Fund were not leveraged, may result in a greater decline in the market price of the Common Shares;
when the Fund uses financial leverage, the investment management fees payable to the Adviser and the subadvisory fees payable by the Adviser to the Subadviser will be higher than if the Fund did not use leverage. This may create a conflict of interest between the Adviser and the Subadviser, on the one hand, and the holders of Common Shares, on the other; and
leverage may increase operating costs, which may reduce total return.

 

The use of leverage may require the Fund to segregate assets to cover its obligations (or, if the Fund borrows money or issues Preferred Shares, to maintain asset coverage in conformity with the requirements of the 1940 Act). While the segregated assets will be invested in liquid securities, they may not be used for other operational purposes. Consequently, the use of leverage may limit the Fund’s flexibility and may require that the Fund sell other portfolio investments to pay Fund expenses, to maintain assets in an amount sufficient to cover the Fund’s leveraged exposure or to meet other obligations at a time when it may be disadvantageous to sell such assets. See “—Legislation and Regulatory Risks” for forthcoming changes to the existing asset segregation framework under applicable rules and regulations that could impact the Fund in the future.

 

Certain types of borrowings by the Fund may result in the Fund being subject to covenants in credit agreements relating to asset coverage and portfolio composition requirements. 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 debt securities or Preferred Shares issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. The Adviser does not believe that these covenants or guidelines will impede it from managing the Fund’s portfolio in accordance with the Fund’s investment objectives and policies if the Fund were to utilize such leverage.

 

Leverage risk would also apply to the Fund’s investments in Underlying Funds to the extent an Underlying Fund uses leverage. To the extent the Fund uses leverage and invests in Underlying Funds that also use leverage, the risks associated with leverage will be magnified, potentially significantly.

 

The Fund currently anticipates that leverage will initially be obtained through the use of proceeds received from tender option bond transactions. See “—Investment-Related Risks—Tender Option Bonds Risks.”

 

The use of segregation and cover with respect to a leverage instrument or technique does not prevent the Fund from suffering a loss on such instrument or technique.

 

Portfolio Turnover Risk

 

The Fund’s annual portfolio turnover rate may vary greatly from year to year. High portfolio turnover may result in the realization of net short-term capital gains by the Fund which, when distributed to holders of Common Shares, will be taxable as ordinary income. In addition, a higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. However, portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for the Fund. See “U.S. Federal Income Tax Matters.”

 

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Potential Conflicts of Interest Risk

 

The Adviser, the Subadviser and the portfolio managers of the Fund have interests which may conflict with the interests of the Fund. In particular, the Adviser and the Subadviser each manages and/or advises other investment funds or accounts with the same or similar investment objectives and strategies as the Fund. As a result, the Adviser, the Subadviser and the Fund’s portfolio managers may devote unequal time and attention to the management of the Fund and those other funds and accounts, and may not be able to formulate as complete a strategy or identify equally attractive investment opportunities as might be the case if they were to devote substantially more attention to the management of the Fund. The Adviser, the Subadviser and the Fund’s portfolio managers may identify a limited investment opportunity that may be suitable for multiple funds and accounts, and the opportunity may be allocated among these several funds and accounts, which may limit the Fund’s ability to take full advantage of the investment opportunity. Additionally, transaction orders may be aggregated for multiple accounts for purpose of execution, which may cause the price or brokerage costs to be less favorable to the Fund than if similar transactions were not being executed concurrently for other accounts. Furthermore, it is theoretically possible that a portfolio manager could use the information obtained from managing a fund or account to the advantage of other funds or accounts under management, and also theoretically possible that actions could be taken (or not taken) to the detriment of the Fund. At times, a portfolio manager may determine that an investment opportunity may be appropriate for only some of the funds and accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and accounts should take differing positions with respect to a particular security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and accounts. For example, a portfolio manager may determine that it would be in the interest of another account to sell a security that the Fund holds, potentially resulting in a decrease in the market value of the security held by the Fund.

 

Conflicts potentially limiting the Fund’s investment opportunities may also arise when the Fund and other clients of the Adviser or Subadviser 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 Subadviser (as applicable) or result in the Adviser or Subadviser receiving material, non-public information, or the Adviser and Subadviser 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 or Subadviser 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.

 

The portfolio managers also may engage in cross trades between funds and accounts, may select brokers or dealers to execute securities transactions based in part on brokerage and research services provided to the Adviser or the Subadviser which may not benefit all funds and accounts equally and may receive different amounts of financial or other benefits for managing different funds and accounts. The Adviser, the Subadviser and their affiliates may provide more services to some types of funds and accounts than others.

 

The Fund, Adviser and/or Subadviser (as applicable) have adopted policies and procedures that address the foregoing potential conflicts of interest, including policies and procedures to address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all accounts of the Adviser and Subadviser are treated equitably. There is no guarantee that the policies and procedures adopted by the Adviser, the Subadviser and the Fund will be able to identify or mitigate the conflicts of interest that arise between the Fund and any other investment funds or accounts that the Adviser and/or the Subadviser may manage or advise from time to time. For further information on potential conflicts of interest, see “Management of the Fund—Conflicts of Interest” in the SAI.

 

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In addition, while the Fund is using leverage, the amount of the fees paid to the Adviser (and by the Adviser to the Subadviser) 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 and the Subadviser have a financial incentive to leverage the Fund, which creates a conflict of interest between the Adviser and the Subadviser on the one hand and the Common Shareholders of the Fund on the other.

 

Stockholder Activism

 

Stockholder activism, which could take many forms, including making public demands that the Fund consider certain strategic alternatives, engaging in public campaigns to attempt to influence the Fund’s corporate governance and/or management, and commencing proxy contests to attempt to elect the activists’ representatives or others to the Fund’s Board of Directors, or arise in a variety of situations, has been increasing in the closed-end fund space recently. While the Fund is currently not subject to any stockholder activism, due to the potential volatility of the Fund’s stock price and for a variety of other reasons, the Fund may in the future become the target of stockholder activism. Stockholder activism could result in substantial costs and divert management’s and the Fund’s Board’s attention and resources from its business. Also, the Fund may be required to incur significant legal and other expenses related to any activist stockholder matters. Further, the Fund’s stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any stockholder activism.

 

Cyber Security Risk

 

With the increased use of the Internet and because information technology (“IT”) systems and digital data underlie most of the Fund’s operations, the Fund and the Adviser, Subadviser, transfer agent, and other service providers and the vendors of each (collectively “Service Providers”) are exposed to the risk that their operations and data may be compromised as a result of internal and external cyber-failures, breaches or attacks (“Cyber Risk”). This could occur as a result of malicious or criminal cyber-attacks. Cyber-attacks include actions taken to: (i) steal or corrupt data maintained online or digitally, (ii) gain unauthorized access to or release confidential information, (iii) shut down the Fund or Service Provider website through denial-of-service attacks, or (iv) otherwise disrupt normal business operations. However, events arising from human error, faulty or inadequately implemented policies and procedures or other systems failures unrelated to any external cyber-threat may have effects similar to those caused by deliberate cyber-attacks.

 

Successful cyber-attacks or other cyber-failures or events affecting the Fund or its Service Providers may adversely impact the Fund or its shareholders or cause an investment in the Fund to lose value. For instance, such attacks, failures or other events may interfere with the processing of shareholder transactions, impact the Fund’s ability to calculate its NAV, cause the release of private shareholder information or confidential Fund information, impede trading, or cause reputational damage. Because the Fund does not offer to redeem its Common Shares at NAV, damage to the reputation of the Fund or its service providers could cause a decline in the value of the Fund’s Common Shares, perhaps suddenly. Such attacks, failures or other events could also subject the Fund or its Service Providers to regulatory fines, penalties or financial losses, reimbursement or other compensation costs, and/or additional compliance costs. Insurance protection and contractual indemnification provisions may be insufficient to cover these losses. The Fund or its Service Providers may also incur significant costs to manage and control Cyber Risk. While the Fund and its Service Providers have established IT and data security programs and have in place business continuity plans and other systems designed to prevent losses and mitigate Cyber Risk, there are inherent limitations in such plans and systems, including the possibility that certain risks have not been identified or that cyber-attacks may be highly sophisticated.

 

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Cyber Risk is also present for issuers of securities or other instruments in which the Fund invests, which could result in material adverse consequences for such issuers, and may cause a Fund’s investment in such issuers to lose value.

 

Secondary Market for the Common Shares

 

The issuance of Common Shares through the Plan may have an adverse effect on the secondary market for the Common Shares. The increase in the number of outstanding Common Shares resulting from the issuances pursuant to the Plan and the discount to the market price at which such Common Shares may be issued, may put downward pressure on the market price for the Common Shares. When the Common Shares are trading at a premium, the Fund may also issue Common Shares that may be sold through private transactions effected on the NYSE or through broker-dealers. The increase in the number of outstanding Common Shares resulting from these offerings may put downward pressure on the market price for Common Shares.

 

Repurchase Plan Risk

 

There can be no assurance that repurchases of Common Shares pursuant to the Repurchase Plan will cause the Common Shares to trade at a price equal to or in excess of NAV or prevent or reduce any decline in the market price of the Common Shares. Any acquisition of Common Shares by the Fund would decrease the Managed Assets of the Fund and therefore tend to have the effect of increasing the Fund’s gross expense ratio and decreasing the asset coverage with respect to any leverage outstanding. Because of the nature of the Fund’s investment objectives, policies and portfolio, the Adviser and the Subadviser do not anticipate that repurchases of Common Shares should interfere with the ability of the Fund to manage its investments in order to seek its investment objectives, and do not anticipate any material difficulty in borrowing money or disposing of portfolio securities to consummate repurchases, although no assurance can be given that this will be the case. The Repurchase Plan is expected to be in effect for the Repurchase Period only and there is no current expectation or assurance that the Fund will repurchase Common Shares at any time following the Repurchase Period, which may result in a decline in the market price of the Common Shares following the conclusion of the Repurchase Period (however, the Board of Directors reserves the right to extend the Repurchase Period or authorize additional repurchases of Common Shares by the Fund at some time after the conclusion of the Repurchase Plan if the Board of Directors determines such repurchases are in the best interests of the Fund and the Common Shareholders). Further, the Fund may be required to liquidate portfolio investments at an inopportune time or price in order to fund share repurchases under the Repurchase Plan and will incur transaction costs borne by the remaining Common Shareholders. The Fund’s repurchase of shares under the Repurchase Plan will be subject to certain conditions under Rule 10b-18 of the Exchange Act and other applicable laws, including Regulation M, which may prohibit such repurchases under certain circumstances.

 

Anti-Takeover Provisions

 

Maryland law and the Fund’s Charter and Bylaws include provisions that could limit the ability of other entities or persons to acquire control of the Fund or to convert the Fund to open-end status, including the adoption of a staggered Board of Directors and the supermajority voting requirements discussed herein. These provisions could deprive the holders of Common Shares of opportunities to sell their Common Shares at a premium over the then current market price of the Common Shares or at NAV. See “Certain Provisions of the Fund’s Charter and Bylaws and of Maryland Law.” This risk would also apply to many of the Fund’s investments in Underlying Funds.

 

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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, the Subadviser and the other service providers of the Fund. The name and business address of the Board of 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 Capital Management, LLC (“RiverNorth” or the “Adviser”), a registered investment adviser, is the Fund’s investment adviser and will be responsible for the day-to-day management of the Fund’s Managed Assets allocated to the Tactical Municipal Closed-End Fund Strategy, managing the Fund’s business affairs and providing certain administrative services. The Adviser will also be responsible for determining the Fund’s overall investment strategy and overseeing its implementation. Subject to the ranges noted above, the Adviser will determine the portion of the Fund’s Managed Assets to allocate to each strategy and may, from time to time, adjust the allocations.

 

RiverNorth, founded in 2000, is a wholly-owned subsidiary of RiverNorth Financial Holdings LLC and is located at 325 N. LaSalle Street, Suite 645, Chicago, Illinois 60654. As of November 30, 2020, RiverNorth managed approximately $4.3 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.

 

Subadviser

 

MacKay Shields LLC is the Fund’s subadviser and will be responsible for the day-to-day management of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy. The Subadviser is located at 1345 Avenue of the Americas, 43rd Floor, New York, New York 10105. The Subadviser is registered with the SEC and, as of September 30, 2020, had approximately $144 billion in assets under management. The Subadviser was incorporated in 1969 as an independent investment advisory firm and was privately held until 1984 when it was acquired by New York Life Insurance Company. The Subadviser is an indirect wholly owned subsidiary of New York Life Insurance Company.

 

Portfolio Management

 

Patrick W. Galley, CFA is a co-portfolio manager of the Tactical Municipal Closed-End Fund Strategy for 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 Tactical Municipal Closed-End Fund Strategy for the Fund. Mr. O’Neill conducts qualitative and quantitative analysis of closed-end funds and their respective asset classes at RiverNorth. Prior to joining RiverNorth Capital 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.

 

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Robert DiMella, CFA is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. DiMella is an Executive Director of the Subadviser. He has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High Yield Municipal Bond Fund since 2010, the MainStay New York Tax Free Opportunities Fund since May 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Previously, he co-founded Mariner Municipal Managers LLC (2007 to 2009). Prior to BlackRock’s merger with Merrill Lynch Investment Managers (“MLIM”), he served as a Senior Portfolio Manager and Managing Director of the Municipal Products Group. Mr. DiMella earned his Master’s degree at Rutgers University Business School and a Bachelors Degree at the University of Connecticut, and he has received the CFA designation.

 

John Loffredo, CFA is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Loffredo is an Executive Managing Director of the Subadviser. Mr. Loffredo has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High Yield Municipal Bond Fund since 2010, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. He has been a municipal portfolio manager and/or municipal analyst on Wall Street since 1990, with a broad range of portfolio management and analytic experience in the municipal markets. He previously co-founded Mariner Municipal Managers LLC (2007 to 2009). Prior to BlackRock’s merger with MLIM, he served as Chief Investment Officer of the Municipal Products Group of MLIM. Mr. Loffredo graduated cum laude with an MBA from Utah State University where he was a Harry S. Truman Scholar. He also has a Certificate of Public Management from Boston University, and he has received the CFA designation.

 

Michael Petty is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Petty is a Senior Managing Director of the Subadviser. Mr. Petty has managed the MainStay High Yield Municipal Bond Fund since 2010, the MainStay Tax Free Bond Fund since 2011, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Before joining the Subadviser in 2009, he was a Portfolio Manager for Mariner Municipal Managers. He has been a portfolio manager on Wall Street since 1992, and has worked in the municipal products market since 1985. Mr. Petty has a broad array of trading, portfolio management, and sales experience. Prior to joining Mariner Municipal Managers, he was a Senior Portfolio Manager at Dreyfus Corporation from 1997 to 2009. From 1992 to 1997, he served as a Portfolio Manager for Merrill Lynch Investment Managers. Mr. Petty graduated from Hobart College with a B.S. in Mathematics and Economics.

 

Scott Sprauer is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Sprauer is a Senior Managing Director of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free Bond Fund since February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser, he was the Head Trader, Fixed Income at Financial Guaranty Insurance Company from 2006 to 2009. He has a BSBA from Villanova University, and has been in the investment management industry since 1991.

 

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David Dowden is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Dowden is a Managing Director of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free Bond Fund since February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser, he was the Chief Investment Officer at Financial Guaranty Insurance Company from 2006 to 2009. He has a BA from Brown University and an MBA from Columbia University. He has been in the investment management industry since 1989.

 

Robert Burke is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Burke is a Managing Director of the Subadviser. He joined the Subadviser in July 2017. Before joining the Subadviser, Mr. Burke held various leadership roles in capital markets, spending the majority of his time in the municipal markets. In his last role working for Bank of America Merrill Lynch, Mr. Burke managed the Global Futures, Derivatives Clearing and Foreign Exchange Prime Brokerage businesses. Mr. Burke started his career at Bank of America Merrill Lynch in the municipal bond department covering insurance, hedge fund, and asset management clients. He holds a Masters of Business Administration from the Gabelli School at Fordham University, and a Bachelor of Arts with High Honors in Economics from Colgate University. Mr. Burke has received the CFA designation. He has been in the investment management industry since 1985.

 

John Lawlor is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Lawlor joined MacKay Shields in 2016.  Before joining the firm, he was Vice President Equity Sales at Deutsche Bank and was previously at Bank of America Merrill Lynch.  From 1997-2011, he was a senior trader on the floor of the New York Stock Exchange.  John has a broad and diverse set of skills in sales, trading, and electronic trading platforms.  He earned a Bachelor’s degree in Finance from Lehigh University. John graduated college in 1997.  He has 19 years in the financial services industry.

 

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 and Subadvisory Agreements

 

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 Fund’s Board of Directors. The Fund has agreed to pay the Adviser a management fee payable on a monthly basis at the annual rate of 1.40% of the Fund’s average daily Managed Assets for the services it provides. This management fee paid by the Fund to the Adviser is essentially an all-in fee structure (the “unified management fee”) and, as part of the unified management fee, the Adviser will provide or cause to be furnished all supervisory and administrative and other services reasonably necessary for the operation of the Fund, except (unless otherwise described in this Prospectus or otherwise agreed to in writing), the Fund will pay, in addition to the unified management fee, taxes and governmental fees, if any, levied against the Fund; brokerage fees and commissions and other portfolio transaction expenses incurred by or for the Fund; costs, including interest expenses, of borrowing money or engaging in other types of leverage financing including, without limit, through the use by the Fund of tender option bond transactions; costs, including dividend and/or interest expenses and other costs (including, without limit, offering and related legal costs, fees to brokers, fees to auction agents, fees to transfer agents, fees to ratings agencies and fees to auditors associated with satisfying ratings agency requirements for preferred shares or other securities issued by the Fund and other related requirements in the Fund’s organizational documents) associated with the Fund’s issuance, offering, redemption and maintenance of preferred shares or other instruments (such as the use of tender option bond transactions) for the purpose of incurring leverage; fees and expenses of any Underlying Funds in which the Fund invests; dividend and interest expenses on short positions taken by the Fund; fees and expenses, including travel expenses and fees and expenses of legal counsel retained for their benefit, of directors of the Fund who are not officers, employees, partners, shareholders or members of the Adviser or its affiliates; fees and expenses associated with and incident to shareholder meetings and proxy solicitations involving contested elections of directors, shareholder proposals or other non-routine matters that are not initiated or proposed by the Adviser; legal, marketing, printing, accounting and other expenses associated with any future share offerings, such as rights offerings and shelf offerings, following the Fund’s initial offering; expenses associated with tender offers (other than any Eligible Tender Offer) and other share repurchases and redemptions; and other extraordinary expenses, including extraordinary legal expenses, as may arise, including, without limit, expenses incurred in connection with litigation, proceedings, other claims and the legal obligations of the Fund to indemnify its directors, officers, employees, shareholders, distributors and agents with respect thereto.

 

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Pursuant to a Subadvisory Agreement, the Adviser has delegated daily management of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy to the Subadviser, who is paid by the Adviser from the unified management fee and not the Fund. The Adviser (and not the Fund) has agreed to pay the Subadviser a subadvisory fee payable on a monthly basis at the annual rate of 0.20% of the Fund’s average daily Managed Assets for the service it provides.

 

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

 

A discussion of the basis for the Board of Directors’ approval of the Fund’s Investment Advisory and Subadvisory Agreements will be provided in the Fund’s initial shareholder report. The basis for subsequent continuations of these agreements will be provided in annual or semi-annual reports to shareholders for the periods during which such continuations occur.

 

NET ASSET VALUE

 

NAV is determined daily as of the close of the regular trading session on the NYSE (usually 4:00 p.m. Eastern time). NAV 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 Shares, by the total number of Common Shares outstanding.

 

The Fund utilizes an independent pricing service approved by the Fund’s Board of Directors to value its Municipal Bond investments. The Fund’s Underlying Fund investments are generally valued at their market value using market quotations. The Fund may use independent pricing services to provide market quotations. Prices obtained from independent pricing services use various observable inputs and assumptions, including, but not limited to, information provided by broker-dealers, pricing formulas, such as dividend discount models, option valuation formulas, estimates of market values obtained from yield data relating to investments or securities with similar characteristics and discounted cash flow models that might be applicable. In valuing Municipal Bonds, the pricing services may consider, among other factors, the yields or prices of municipal securities of comparable quality, type of issue, coupon, maturity and rating and the obligor’s credit characteristics considered relevant by the pricing service of the Board of Directors. If a market valuation for a security is unavailable or deemed to be an unreliable indicator of current market value, the Fund will seek to obtain a broker quote from an external data vendor or directly from broker-dealers. Certain fixed income securities purchased on a delayed delivery basis are marked-to-market daily until settlement at the forward settlement date. Short-term investments having a maturity of 60 days or less are generally valued at amortized cost; however, securities with a demand feature exercisable within seven days are generally valued at par. Exchange-traded options, futures and options on futures are valued at the settlement price determined by the relevant exchange. If market quotations are not available or, in the Adviser or Subadviser’s opinion, market quotations do not reflect market value, or if an event occurs after the close of trading on the domestic or foreign exchange or market on which the security is principally traded (but prior to the time as of which the NAV is calculated) that materially affects market value, the security will be valued at fair value according to policies approved by the Fund’s Board of Directors. For example, if trading in a portfolio security is halted and does not resume before the Fund calculates its NAV, the security may need to be fair valued using the Fund’s fair value pricing policies. 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. The Fund will invest in Underlying Funds. The Fund’s NAV is calculated based, in part, upon the market prices of the Underlying Funds in its portfolio, and the prospectuses of those companies explain the circumstances under which they will use fair value pricing and the effects of doing so.

 

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DIVIDENDS AND DISTRIBUTIONS

 

Commencing with the Fund’s first dividend, the Fund intends to distribute to Common Shareholders regular monthly cash distributions of all or a portion of its net investment income. The Fund expects to declare its initial monthly dividend within 30 to 45 after the completion of this offering days and pay its initial monthly dividend within approximately 45 to 60 days after the completion of this offering, depending on market conditions. There is no assurance the Fund will make this initial monthly distribution or continue to pay regular monthly distributions or that it will do so at a particular rate.

 

Commencing with the first distribution, the Fund intends to implement a level distribution policy. At times, to maintain a stable level of distributions, the Fund may pay out less than all of its net investment income or pay out accumulated undistributed income, or return capital, in addition to current net investment income.

 

It is expected that the Fund’s distributions will generally be treated as tax-exempt income for purposes of regular U.S. federal income tax; however, a portion of the Fund’s distributions may (i) be subject to U.S. federal income tax and such distributions will generally be subject to state and local taxes, (ii) be includable in taxable income for purposes of the Federal alternative minimum tax, and (iii) constitute a return of capital. For example, the Fund may invest up to 30% of the Managed Assets allocated to the Municipal Bond Income Strategy in Municipal Bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax. Moreover, the Underlying Funds in which the Fund invests pursuant to the Tactical Municipal Closed-End Fund Strategy may themselves invest in municipal bonds that pay interest that may be includable in taxable income for purposes of the Federal alternative minimum tax.

 

The Fund will distribute to Common Shareholders at least annually all or substantially all of its investment company taxable income and net exempt interest income after the payment of dividends and interest, if any, owed with respect to any outstanding Preferred Shares or other forms of leverage utilized by the Fund. The Fund intends to pay any capital gains distributions at least annually. If the Fund realizes a long-term capital gain, it will be required to allocate such gain between the Common Shares and any Preferred Shares issued by the Fund in proportion to the total dividends paid to each class for the year in which the income is realized. A distribution of an amount in excess of the Fund’s current and accumulated earnings and profits will be treated by a Common Shareholder as a return of capital which is applied against and reduces the Common Shareholder’s tax basis in his or her Common Shares. To the extent that the amount of any distribution exceeds the Common Shareholder’s basis in his or her shares, the excess will be treated by the Common Shareholder as gain from a sale or exchange of the Common Shares.

 

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Under the 1940 Act, the Fund may not declare any dividend or other distribution upon any class of its capital shares, or purchase any such capital shares, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, an asset coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be.

 

While any Preferred Shares are outstanding, the Fund may not declare any cash dividend or other distribution on its Common Shares, unless at the time of such declaration, (i) all accumulated preferred dividends have been paid and (ii) the NAV of the Fund’s portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of the liquidation value of the outstanding Preferred Shares (expected to be equal to the original purchase price per share plus any accumulated and unpaid dividends thereon).

 

In addition to the limitations imposed by the 1940 Act described above, certain lenders may impose additional restrictions on the payment of dividends or distributions on the Common Shares in the event of a default on the Fund’s borrowings. If the Fund’s ability to make distributions on its Common Shares is limited, such limitations could, under certain circumstances, impair the ability of the Fund to maintain its qualification for federal income tax purposes as a regulated investment company, which would have adverse tax consequences for shareholders. See “Use of Leverage” and “U.S. Federal Income Tax Matters.”

 

DIVIDEND REINVESTMENT PLAN

 

The Fund has an automatic dividend reinvestment plan commonly referred to as an “opt-out” plan. Unless the registered owner of Common Shares elects to receive cash by contacting DST Systems, Inc. (the “Plan Administrator”), all dividends declared on Common Shares will be automatically reinvested by the Plan Administrator for shareholders in the Fund’s Automatic Dividend Reinvestment Plan (the “Plan”), in additional Common Shares. Common Shareholders who elect not to participate in the Plan will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of record (or, if the Common Shares are held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend disbursing agent. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Such notice will be effective with respect to a particular dividend or other distribution (together, a “Dividend”). Some brokers may automatically elect to receive cash on behalf of Common Shareholders and may re-invest that cash in additional Common Shares. Reinvested Dividends will increase the Fund’s Managed Assets on which the management fee is payable to the Adviser (and by the Adviser to the Subadviser).

 

Whenever the Fund declares a Dividend payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Administrator for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common Shares from the Fund (“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“Open-Market Purchases”) on the NYSE or elsewhere. If, on the payment date for any Dividend, the closing market price plus estimated brokerage commissions per Common Share is equal to or greater than the NAV per Common Share, the Plan Administrator will invest the Dividend amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the Fund’s NAV per Common Share on the payment date. If, on the payment date for any Dividend, the NAV per Common Share is greater than the closing market value plus estimated brokerage commissions (i.e., the Fund’s Common Shares are trading at a discount), the Plan Administrator will invest the Dividend amount in Common Shares acquired on behalf of the participants in Open-Market Purchases.

 

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In the event of a market discount on the payment date for any Dividend, the Plan Administrator will have until the last business day before the next date on which the Common Shares trade on an “ex-dividend” basis or 30 days after the payment date for such Dividend, whichever is sooner (the “Last Purchase Date”), to invest the Dividend amount in Common Shares acquired in Open-Market Purchases. It is contemplated that the Fund will pay monthly income Dividends. If, before the Plan Administrator has completed its Open-Market Purchases, the market price per Common Share exceeds the NAV per Common Share, the average per Common Share purchase price paid by the Plan Administrator may exceed the NAV of the Common Shares, resulting in the acquisition of fewer Common Shares than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Administrator may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at the NAV per Common Share at the close of business on the Last Purchase Date.

 

The Plan Administrator maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants.

 

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 the Plan. In the case of Common Shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners who participate in the Plan.

 

There will be no brokerage charges with respect to Common Shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such Dividends, even though such participants have not received any cash with which to pay the resulting tax. See “U.S. Federal Income Tax Matters” below. Participants that request a sale of Common Shares through the Plan Administrator are subject to brokerage commissions.

 

The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.

 

All correspondence or questions concerning the Plan should be directed to the Plan Administrator at (844) 569-4750.

 

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DESCRIPTION OF THE COMMON SHARES

 

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 Fund’s Charter and the Fund’s Bylaws, copies of which are filed as exhibits to the Registration Statement.

 

The Fund’s authorized capital stock consists of 50,000,000 shares of common stock, $0.0001 par value per share, all of which is initially classified as Common Shares. The Fund’s Board of Directors, with the approval of a majority of the entire Board, but without any action by the shareholders of the Fund, may amend the Fund’s Charter from time to time to increase or decrease the aggregate number of shares of stock of the Fund or the number of shares of stock of any class or series that the Fund has authority to issue.

 

In general, shareholders or subscribers for the Fund’s stock 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 stock has not been paid.

 

The Common Shares to be issued in the offering will be, upon payment as described in this Prospectus, fully paid and non-assessable. The Common Shares have no preemptive, conversion, exchange, appraisal or redemption rights, and each share has equal voting, dividend, distribution and liquidation rights.

 

Common Shareholders are entitled to receive dividends if and when the Board of Directors declares dividends from funds legally available. Whenever Fund 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, 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 Preferred Shares, if any Preferred Shares are outstanding at such time.

 

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 are 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 shares of common stock 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 shares of common stock 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 Fund’s 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 shares of common stock.

 

It is expected that the Fund’s Common Shares will be approved for listing on the NYSE, upon notice of issuance, under the symbol “RFMZ.” 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.

 

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Preferred Shares

 

The Fund’s Charter authorizes the Board of Directors to classify and reclassify any unissued shares of stock into other classes or series of stock, including Preferred Shares, without the approval of the holders of the common stock. Prior to issuance of any shares of 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 holders of the Fund’s Common Shares or otherwise be in their best interest. No Preferred Shares are currently outstanding.

 

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 Shares 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 Shares. Among other requirements, including other voting rights, the 1940 Act requires that the holders of any Preferred Shares, 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 Shares would have the right to elect a majority of the Fund’s directors at any time two years’ dividends on any Preferred Shares are unpaid.

 

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 objectives.

 

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.

 

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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 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 at least two-thirds of the Common Shares and Preferred Shares (if any) 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 person;

 

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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, unless shareholder approval is required under federal or Maryland law, the Common Shareholder vote described above will not be required with respect to the foregoing transactions if they are approved by a vote of two-thirds of the Continuing Directors (as defined below). If Maryland law or the 1940 Act requires Common Shareholder approval (and two-thirds of the Continuing Directors have approved the transaction), the affirmative vote by Common Shareholders, at a meeting of such shareholders, of the lesser of (a) 67% or more of the voting securities present at such meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy; or (b) more than 50% of the outstanding voting securities of the Fund, will be required. In addition, if the Fund has any Preferred Shares outstanding, the holders of a majority of the outstanding Preferred Shares 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 Shares, 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 January 15, 2021, 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:

 

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the election and removal of officers;

 

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 Common Shareholders); and

 

Charter amendments not requiring shareholder approval under the 1940 Act.

 

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. See also “Conversion to Open-End Fund.”

 

Action by Shareholders

 

Under the MGCL, Common Shareholder action can be taken only at an annual or special meeting of Common Shareholders or, unless the charter provides for Common 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 Common Shareholder-requested special meeting, as discussed below, may have the effect of delaying consideration of a Common Shareholder proposal until the next annual meeting.

 

Procedures for Shareholder Nominations and Proposals

 

The Fund’s Bylaws provide that any Common Shareholder desiring to make a nomination for the election of directors or a proposal for new business at a meeting of Common 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 Common 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 Common Shareholders generally. Similarly, adequate advance notice of Common Shareholder proposals will give management time to study such proposals and to determine whether to recommend to the Common Shareholders that such proposals be adopted. For Common Shareholder proposals to be included in the Fund’s proxy materials, the Common 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 Common 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 Common Shareholders requesting the meeting, a special meeting of Common Shareholders will be called by the Fund’s Secretary upon the written request of Common Shareholders entitled to cast not less than a majority of all the votes entitled to be cast at such meeting.

 

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No Appraisal Rights

 

As permitted by the MGCL, the Fund’s Charter provides that Common 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 proven 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 and the 1940 Act, 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 Common Shareholders or directors or otherwise.

 

Authorized Shares

 

The Fund’s Charter authorizes the issuance of 50,000,000 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 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 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;

 

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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 Fund has elected to be subject to the classified board provision and the requirement that a vacancy on the Board of Directors 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. The Fund retains its right to opt into any of the other provisions. 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.

 

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 ten percent 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 ten percent 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.

 

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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 Maryland Control Share Acquisition Act (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.

 

The Staff of the SEC’s Division of Investment Management (“Staff”) has previously taken the position that, if a closed-end fund opted into a state control share statute (“control shares statutes”), such as the MCSAA, its actions would be inconsistent with the requirements in Section 18(i) of the 1940 Act, which generally requires that shares of the fund have equal voting rights. However, in May 2020, the Staff withdrew its previous position and has stated that it would not recommend enforcement action to the SEC against a closed-end fund for opting into a control share statute if the decision to do so by the fund’s board was taken with reasonable care on a basis consistent with other applicable duties and laws and the duty to the fund and its shareholders generally. The Staff’s current position reflects only the views of the Staff and is not made part of any SEC rule, regulation or court interpretation or ruling. The Fund’s Board of Directors reserves the right to consider and determine, in the future, whether the Fund will opt in and be subject to the MCSAA.

 

COMMON SHARE REPURCHASE PLAN

 

The Fund intends to implement a Repurchase Plan with respect to the Fund’s Common Shares for a limited period following the Fund’s initial public offering in an attempt to provide additional liquidity in the marketplace for the Fund’s Common Shares. The Repurchase Plan is currently expected to commence approximately 60 calendar days following the date on which the overallotment period ends and terminate on the earlier of (i) 90 calendar days after the commencement of the Repurchase Plan,or (ii) the date on which the Fund has purchased under the Repurchase Plan 10% of the Common Shares issued in this offering prior to any exercise of the overallotment option. The Repurchase Plan will permit a broker-dealer acting as the Fund’s agent to repurchase in the open market the Fund’s Common Shares on the Fund’s behalf when the Common Shares are trading at or below a specified level of discount to NAV. Under the Repurchase Plan, on any day that shares are repurchased, the Fund’s agent may repurchase the Fund's shares in an amount up to the maximum number of Common Shares the Fund may purchase under Rule 10b-18, which, generally, is currently 25% of the average daily trading volume of the Common Shares over the trailing four week period. The date of commencement of the Repurchase Plan and the repurchases of shares under the Repurchase Plan will be subject to certain conditions under Rule 10b-18 under the Exchange Act and other applicable laws, including Regulation M, which may prohibit the commencement repurchases under certain circumstances.

 

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In addition to providing potential additional liquidity in the marketplace, any repurchases under the Repurchase Plan will be made by the Fund at a discount to then current NAV of the Common Shares and therefore would be accretive to the NAV of the remaining Common Shares following the repurchases, and the Repurchase Plan may also have the effect of preventing or reducing a significant decline in the market price of the Common Shares in comparison to their NAV. However, there can be no assurance that repurchases of Common Shares under the Repurchase Plan will cause the Common Shares to trade at a price equal to or in excess of NAV or prevent or reduce any trading discount. Although there is no current expectation or assurance that the Fund will repurchase Common Shares at any time following the Repurchase Period, which may result in a decline in the market price of the Common Shares following the conclusion of the Repurchase Period, the Board of Directors reserves the right to extend the Repurchase Period or authorize additional repurchases of Common Shares by the Fund at some time after the conclusion of the Repurchase Plan if the Board of Directors determines such repurchases are in the best interests of the Fund and the Common Shareholders. Also, any acquisition of Common Shares by the Fund would decrease the Managed Assets of the Fund and therefore tend to have the effect of increasing the Fund’s gross expense ratio and decreasing the asset coverage with respect to any leverage outstanding. Further, the Fund may be required to liquidate portfolio investments at an inopportune time or price in order to fund share repurchases under the Repurchase Plan and will incur related transaction costs borne by the remaining Common Shareholders. See “Risks—Structural Risks—Repurchase Plan Risk.”

 

REPURCHASE OF SHARES

 

Shares of closed-end funds often trade at a discount to NAV, and the Fund’s shares may also trade at a discount to their NAV, although it is possible that they may trade at a premium above NAV. The market price of the Common Shares will be determined by such factors as relative demand for and supply of shares in the market, the Fund’s NAV, general market and economic conditions and other factors beyond the control of the Fund.

 

Although Common Shareholders will not have the right to redeem their shares, the Fund may (but is not obligated to other than pursuant to the Repurchase Plan) take action to repurchase shares in the open market or make tender offers for its shares at or near NAV. During the pendency of any tender offer, the Fund will publish how Common Shareholders may readily ascertain the NAV. Repurchase of the Common Shares may have the effect of reducing any market discount to NAV.

 

There is no assurance that, if action is undertaken to repurchase or tender for shares, such action will result in the shares trading at a price that approximates their NAV. Although share repurchases and tenders could have a favorable effect on the market price of the shares, you should be aware that the acquisition of shares by the Fund will decrease the total assets of the Fund and, therefore, have the effect of increasing the Fund’s expense ratio and may adversely affect the ability of the Fund to pursue its investment objectives. To the extent the Fund may need to liquidate investments to fund repurchases of shares, this may result in portfolio turnover that may result in additional expenses being borne by the Fund and its shareholders. The Board of Directors currently considers the following factors to be relevant to a potential decision to repurchase shares: the extent and duration of the discount, the liquidity of the Fund’s portfolio, and the impact of any action on the Fund and market considerations. Such a decision is a matter on which the Board would exercise its fiduciary judgment, and the Board will consider other factors that may be relevant at the time it considers the matter. Any share repurchases or tender offers will be made in accordance with the requirements of the Exchange Act and the 1940 Act.

 

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CONVERSION TO OPEN-END FUND

 

The Fund may be converted to an open-end investment company at any time if approved by the Board of Directors and the shareholders. See “Certain Provisions of the Fund’s Charter and Bylaws and of Maryland Law” for a discussion of the voting requirements applicable to conversion of the Fund to an open-end investment company and any related Charter amendments. If the Fund converted to an open-end investment company, it would be required to redeem all Preferred Shares then outstanding (possibly requiring in turn that it liquidate a portion of its investment portfolio). Conversion to open-end status could also require the Fund to modify certain investment restrictions and policies. Shareholders of an open-end investment company may require the company to redeem their shares at any time (except in certain circumstances as authorized by or permitted under the 1940 Act) at their NAV, less such redemption charge, if any, as might be in effect at the time of redemption. In order to avoid maintaining large cash positions or liquidating favorable investments to meet redemptions, open-end investment companies typically engage in a continuous offering of their shares. Open-end investment companies are thus subject to periodic asset in-flows and out-flows that can complicate portfolio management. The Board of Directors may at any time (but is not required to) propose conversion of the Fund to open-end status, depending upon its judgment regarding the advisability of such action in light of circumstances then prevailing. Before deciding whether to make such a proposal, the Board of Directors would consider all relevant factors, including the extent and duration of the discount, the liquidity of the Fund’s portfolio, the impact of the conversion on the Fund or its shareholders, and market considerations. Based on these considerations, even if the Fund’s shares trade at a discount, the Board of Directors may determine that, in the interest of the Fund and its shareholders, no action should be taken. 

 

LIMITED TERM AND ELIGIBLE TENDER OFFER

 

The Fund will terminate on or before the Termination Date; provided, that if the Board of Directors believes that under then-current market conditions it is in the best interests of the Fund to do so, the Fund may extend the Termination Date (i) once for up to one year (i.e., up to February 26, 2037), and (ii) once for up to an additional six months (i.e., up to August 26, 2037), in each case upon the affirmative vote of a majority of the Board of Directors and without a vote of Common Shareholders. In addition, as of a date within twelve months preceding the Termination Date, the Board of Directors may cause the Fund to conduct an Eligible Tender Offer, which is a tender offer by the Fund to all Common Shareholders to purchase Common Shares of the Fund at a price equal to the NAV per Common Share on the expiration date of the tender offer. Following the completion of an Eligible Tender Offer, the Board of Directors may eliminate the limited term structure of the Fund and convert the Fund to a perpetual fund upon the affirmative vote of a majority of the Board of Directors and without a vote of Common Shareholders.

 

The Fund is not a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time as its target date, often associated with retirement, approaches. In addition, the Fund is not a “target term” fund whose investment objective is to return its original NAV on the termination date. The Fund’s investment objectives and policies are not designed to seek to return to investors that purchase Common Shares in this offering their initial investment of $20.00 per Common Share on the Termination Date or in an Eligible Tender Offer, and such investors and investors that purchase Common Shares after the completion of this offering may receive more or less than their original investment upon termination or in an Eligible Tender Offer.

 

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Upon its termination, the Fund will distribute substantially all of its net assets to Common Shareholders, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated, of the Fund, as may be determined by the Board Trustees. In anticipation of an Eligible Tender Offer or the Termination Date, the Fund may begin liquidating all or a portion of the Fund’s portfolio, and may deviate from its investment policies, including its policy of investing at least 80% of the value of its Managed Assets in municipal bonds and may not achieve its investment objective. During such period(s), the Fund’s portfolio composition may change as more of its portfolio holdings are called or sold and portfolio holdings are disposed of in anticipation of liquidation or an Eligible Tender Offer. Rather than reinvesting the proceeds of matured, called or sold securities in accordance with the investment program described above, the Fund may invest such proceeds in short term or other lower yielding securities or hold the proceeds in cash, which may adversely affect its performance. The Fund’s distributions during the wind-down period may decrease, and such distributions may include a return of capital. The Fund may distribute the proceeds in one or more liquidating distributions prior to the final liquidation, which may cause fixed expenses to increase when expressed as a percentage of assets under management. It is expected that Common Shareholders will receive cash in any liquidating distribution from the Fund, regardless of their participation in the Fund’s Dividend Reinvestment Plan. However, if on the Termination Date the Fund owns securities for which no market exists or securities trading at depressed prices, such securities may be placed in a liquidating trust. Common Shareholders generally will realize capital gain or loss upon the termination of the Fund in an amount equal to the difference between the amount of cash or other property received by the Common Shareholder (including any property deemed received by reason of its being placed in a liquidating trust) and the Common Shareholder’s adjusted tax basis in the Common Shares of the Fund for U.S. federal income tax purposes.

 

If the Board of Directors believes that under then-current market conditions it is in the best interests of the Fund to do so, the Fund may extend the Termination Date (i) once for up to one year (i.e., up to February 26, 2037), and (ii) once for up to an additional six months (i.e. up to August 26, 2037), in each case upon the affirmative vote of a majority of the Board of Directors and without a vote of Commons Shareholders. In determining whether to extend the Termination Date, the Board of Directors may consider, for example, the Fund’s inability to sell its assets in a time frame consistent with termination due to lack of market liquidity or other extenuating circumstances. Additionally, the Board of Directors may determine that market conditions are such that it is reasonable to believe that, with an extension, the Fund’s remaining assets will appreciate and generate income in an amount that, in the aggregate, is meaningful relative to the cost and expense of continuing the operation of the Fund.

 

The Board of Directors may cause the Fund to conduct an Eligible Tender Offer. An Eligible Tender Offer would consist of a tender offer to all Common Shareholders to purchase Common Shares of the Fund at a price equal to the NAV per Common Share on the expiration date of the tender offer, which shall be as of a date within twelve months preceding the Termination Date. The Board of Directors has established that, following an Eligible Tender Offer, the Fund must have at least $100 million of net assets to ensure the continued viability of the Fund (the “Termination Threshold”). In an Eligible Tender Offer, the Fund will offer to purchase all Common Shares held by each Common Shareholder; provided, that if the number of properly tendered Common Shares would result in the Fund’s net assets totaling less than the Termination Threshold, the Eligible Tender Offer will be terminated and no Common Shares will be repurchased pursuant to the Eligible Tender Offer. Instead, the Fund will begin (or continue) liquidating its portfolio and proceed to terminate on or before the Termination Date.

 

If the number of properly tendered Common Shares would result in the Fund’s net assets equaling or totaling greater than the Termination Threshold, all Common Shares properly tendered and not withdrawn will be purchased by the Fund pursuant to the terms of the Eligible Tender Offer. The Fund’s purchase of tendered Common Shares pursuant to a tender offer will have tax consequences for tendering Common Shareholders and may have tax consequences for non-tendering Common Shareholders. In addition, the Fund would continue to be subject to its obligations with respect to its issued and outstanding preferred stock or debt securities, if any. See “Risks—Structural Risks—Limited Term and Eligible Tender Offer Risk.” Following the completion of an Eligible Tender Offer, the Board of Directors may eliminate the limited term structure of the Fund upon the affirmative vote of a majority of the Board of Directors and without the approval of Common Shareholders. In making a decision to do so to provide for the Fund’s perpetual existence, the Board of Directors will take such actions with respect to the continued operations of the Fund as it deems to be in the best interests of the Fund, based on market conditions at such time, the extent of Common Shareholder participation in the Eligible Tender Offer and all other factors deemed relevant by the Board of Directors in consultation with the Adviser, taking into account that the Adviser may have a potential conflict of interest in recommending to the Board of Directors that the limited term structure be eliminated and the Fund have a perpetual existence (or that the Termination Date be extended). The Fund is not required to conduct additional tender offers following an Eligible Tender Offer and conversion to a perpetual structure. Therefore, remaining Common Shareholders may not have another opportunity to participate in a tender offer or exchange their Common Shares for the then-existing NAV per Common Share.

 

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An Eligible Tender Offer would be made, and Common Shareholders would be notified thereof, in accordance with the requirements of the 1940 Act, the Exchange Act and the applicable tender offer rules thereunder (including Rule 13e-4 and Regulation 14E under the Exchange Act or successor rules to the same general effect). The repurchase of tendered Common Shares by the Fund in a tender offer would be a taxable event to Common Shareholders. The Adviser will pay all costs and expenses associated with the making of an Eligible Tender Offer, other than brokerage and related transaction costs associated with the disposition of portfolio investments in connection with the Eligible Tender Offer, which will be borne by the Fund and its Common Shareholders.

 

An Eligible Tender Offer may be commenced upon approval of a majority of the Board of Directors, without a vote of Common Shareholders. The Fund is not required to conduct an Eligible Tender Offer. If no Eligible Tender Offer is conducted, the Fund will liquidate on or before the Termination Date (subject to extension as described above), unless the limited term provisions of the Articles of Incorporation are amended with the vote of Common Shareholders, as described above. See “Certain Provisions of the Fund’s Charter and Bylaws and of Maryland Law.”

 

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 shareholder that acquires, holds and/or disposes of common shares of the Fund. 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 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 or other financial institutions, insurance companies, dealers in securities or foreign currencies, traders in securities that have elected to mark-to-market their securities holdings, foreign holders, persons who hold their shares as or in a hedge against currency risk, or as part of a constructive sale, straddle 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 Internal Revenue Service (“IRS”) retroactively or prospectively, which 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 advisors 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. See “California Tax Matters.”

 

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The Fund intends to elect to be treated, and to qualify each year, as a “regulated investment company” under Subchapter M of the Code, so that it will generally not pay U.S. federal income tax on income and capital gains timely distributed (or treated as being distributed, as described below) to shareholders. 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 the 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, and taking into account certain deferrals and elections), 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 on which the Fund paid no federal income tax. The Fund generally intends to make distributions in a timely manner in an amount at least equal to the required minimum distribution and therefore, under normal circumstances, does not expect to be subject to this excise tax. However, the Fund may also decide to distribute less and pay the federal excise taxes.

 

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.

 

A Common Shareholder will have all dividends and distributions automatically reinvested in shares of common stock of the Fund (unless the shareholder “opts out” of the Plan). For shareholders subject to U.S. federal income tax, Fund dividends that are not “exempt-interest” dividends will generally be taxable regardless of whether the shareholder takes them in cash or they are reinvested in additional shares of the Fund. 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. The Fund does not generally expect to pay dividends that 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. Distributions of net capital gain, if any, that are properly reported by the Fund 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 of the Fund. If the Fund received dividends from an Underlying Fund that qualifies as a regulated investment company, and the Underlying Fund designates such dividends as qualified dividend income or as eligible for the dividends received deduction, then the Fund is permitted in turn to designate a portion of its distributions as qualified dividend income and/or as eligible for the dividends received deduction, provided the Fund meets holding period and other requirements with respect to shares of the Underlying Fund.

 

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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 can provide no assurance regarding the portion of its dividends that will qualify for the dividends received deduction or for qualified dividend income treatment. As long as the Fund qualifies as a RIC under the Code, it is not expected that any significant part of its distributions to Common Shareholders from its investments will so qualify.

 

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 Common Shares, for U.S. federal income tax purposes, the shareholder will be treated as having received a 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 distribution equal to the fair market value of the stock the shareholder receives.

 

Certain of the investment practices of the Fund or an Underlying Fund 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 or an Underlying 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, (vi) produce income that will not be qualifying income for purposes of the 90% income test and (vii) 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.

 

The Fund will not be able to offset gains distributed by one Underlying Fund in which it invests against losses realized by another Underlying Fund in which the Fund invests. Redemptions of shares in an Underlying Fund, including those resulting from changes in the allocation among Underlying Funds, could also cause additional distributable gains to shareholders of the Fund. A portion of any such gains may be short-term capital gains that would be distributable as ordinary income to shareholders of the Fund. Further, a portion of losses on redemptions of shares in the Underlying Funds may be deferred under the wash sale rules. Additionally, the Fund’s investment in an Underlying Fund may result in the Fund’s receipt of cash in excess of the Underlying Fund’s earnings; if the Fund distributes these amounts, the distributions could constitute a return of capital to Fund shareholders for federal income tax purposes. As a result of these factors, the use of the fund of funds structure by the Fund could therefore affect the amount, timing and character of distributions to shareholders.

 

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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.

 

The Fund may qualify to pay “exempt-interest” dividends, as defined in the Code, on its Common Shares by satisfying the requirement that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consists of municipal securities. Exempt-interest dividends are dividends or any part thereof (other than a capital gain dividend) paid by the Fund which are attributable to interest on municipal securities and which are so reported by the Fund. As an alternative, the Fund may qualify to pay exempt-interest dividends if it is a qualified fund-of-funds, i.e., if at least 50% of the value of its total assets are invested in the shares of Underlying RICs at the close of each quarter of its taxable year. Exempt-interest dividends will be exempt from federal income tax, subject to the possible application of the federal alternative minimum tax applicable to individuals.

 

The Fund or an Underlying 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.

 

Sales, exchanges and other dispositions of the Fund’s 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 Fund’s 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 one year and short-term if it is one year 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. Additionally, any loss realized by a shareholder of the Fund upon the sale of shares held for six months or less may be disallowed to the extent of any exempt-interest dividends received 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.

 

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An additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions received from the Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in the case of an estate or trust) exceeds certain threshold amounts.

 

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 Fund’s shares paid to certain holders of the Fund’s shares 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.

 

This Prospectus does not address the U.S. federal income tax consequences to a non-U.S. shareholder of an investment in common stock. Non-U.S. shareholders should consult their tax advisors concerning the tax consequences of ownership of shares of the Fund, 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 its non-U.S. status).

 

A separate U.S. withholding tax may apply in the case of distributions to (i) certain non-U.S. financial institutions that have not agreed to collect and disclose certain account holder information and are not resident in a jurisdiction that has entered into such an agreement with the U.S. Treasury and (ii) certain other non-U.S. entities that do not provide certain certifications and information about the entity’s U.S. owners.

 

The foregoing is a general and abbreviated summary of the 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. A more complete 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.

 

CALIFORNIA TAX MATTERS

 

The assets of the Fund will consist of one or more of the following: (i) interest bearing obligations issued by or on behalf of a state or a local government (the “Bonds”), and (ii) shares (the “RIC Shares”) in funds qualifying as regulated investment companies (“RICs”) that are treated as interests in regulated investment companies for federal income tax purposes. A portion of the Bonds will be issued by the State of California or a local government in California (the “California Bonds”). The discussion in this section is based on the assumption that: (i) the California Bonds were validly issued by the State of California or a local government in California, and (ii) the interest on the Bonds is excludable from gross income for federal income tax purposes. This portion of the disclosure does not address the taxation of taxpayers other than individuals who are full-time residents of the State of California and corporations that are subject to California corporate income or franchise tax.

 

If you are an individual, you may be able to exclude from taxable income for purposes of the California personal income tax dividends received from the Fund that are properly reported by the Fund as exempt-interest dividends for California personal income tax purposes in written statements furnished to you. The portion of the Fund’s dividends reported as California exempt-interest dividends may not exceed the amount of interest the Fund receives during its taxable year on obligations the interest on which, if held by an individual, is exempt from taxation by the State of California and the amount of California exempt-interest dividends the Fund receives from the RIC Shares, reduced by certain non-deductible expenses. The Fund may designate California exempt-interest dividends only if the Fund qualifies as a regulated investment company under the Code, and, if at the close of each quarter of its taxable year, (i) at least 50 percent of the value of the total assets of the Fund consists of obligations the interest on which, when held by an individual, is exempt from taxation by the State of California or (ii) at least 50 percent of the value of the total assets of the Fund consists of interests in other entities qualifying as regulated investment companies for federal income tax purposes in a taxable year. It is not anticipated that at least 50 percent of the value of the total assets of the Fund will consist of obligations the interest on which, when held by an individual, is exempt from taxation by the State of California. However, at least 50 percent of the value of the total assets of the Fund may consist of interests in other entities qualifying as regulated investment companies for federal income tax purposes. Depending upon the nature and source of the income from the Bonds and the RICs, the Fund may be eligible to distribute dividends that are properly reported by the Fund as exempt-interest dividends for purposes of the California personal income tax.

 

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Distributions from the Fund, other than those properly reported by the Fund as exempt-interest dividends for California personal income tax purposes, will generally be subject to the California personal income tax. Please note that all distributions from the Fund, including California exempt-interest dividends, received by taxpayers subject to the California corporation tax laws may be subject to the California corporate franchise tax or the California corporate income tax. If a taxpayer is subject to California personal income tax, corporate franchise tax or corporate income tax, any gain recognized on the sale or redemption of shares of the Fund generally will be taxable for purposes of such taxes. Interest on indebtedness incurred or continued to purchase or carry shares of the Fund, if the Fund distributes California exempt-interest dividends during a tax year, is generally not deductible for purposes of the California personal income tax.

 

Fund counsel has not independently examined the RIC Shares, the Bonds or the opinions of bond counsel rendered in connection with the issuance of the Bonds. Ownership of shares in the Fund may result in other California tax consequences to certain taxpayers, and prospective investors should consult their tax advisors.

 

UNDERWRITERS

 

The underwriters named below (the “Underwriters”), acting through UBS Securities, LLC, 1285 Avenue of the Americas, New York, NY 10171; Wells Fargo Securities, LLC, 550 South Tryon Street, Charlotte, NC 28202; RBC Capital Markets, LLC, 200 Vesey Street, New York, NY 10281; Stifel, Nicolaus & Company, Incorporated, 787 7th Avenue, New York, NY 10019, have severally and not jointly agreed, subject to the terms and conditions of an underwriting agreement with the Fund and the Adviser (the “Underwriting Agreement”), to purchase from the Fund the number of Common Shares set forth opposite their respective names. The Underwriters are committed to purchase and pay for all such shares (other than those covered by the over-allotment option described below) if any are purchased.

 

Underwriters Number of Common Shares
UBS Securities, LLC  
Wells Fargo Securities, LLC  
RBC Capital Markets, LLC  
Stifel, Nicolaus & Company, Incorporated  
B. Riley Securities, Inc.,  

Bancroft Capital, LLC

 

Brookline Capital Markets, a division of Arcadia Securities, LLC

 

D.A. Davidson & Co.

 

GMS Group, LLC

 

Hilltop Securities Inc.

 

Incapital LLC

 

Janney Montgomery Scott LLC

 

JonesTrading Institutional Services LLC

 

Ladenburg Thalmann & Co. Inc

 

Maxim Group LLC

 

National Securities Corporation

 

Newbridge Securities Corporation

 
Pershing LLC  
Rockefeller Financial LLC  
Wedbush Securities Inc.  
Total:  

 

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If an Underwriter fails to purchase the Common Shares it has agreed to purchase, the Underwriting Agreement provides that one or more substitute underwriters may be found, the purchase commitments of the remaining Underwriters may be increased or the Underwriting Agreement may be terminated.

 

The Fund has granted to the Underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to an additional         Common Shares to cover over-allotments, if any, at the initial offering price. The Underwriters may exercise such option solely for the purpose of covering over-allotments incurred in the sale of the Common Shares offered hereby. To the extent that the Underwriters exercise this option, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase an additional number of Common Shares proportionate to such Underwriter’s initial commitment.

 

The Underwriting Agreement provides that the obligations of the Underwriters to purchase the Common Shares included in this offering are subject to approval of certain legal matters by counsel and certain other conditions.

 

Investors purchasing Common Shares in this offering will not be charged a sales load. The Representatives have advised the Fund that the Underwriters may pay up to $     per Share from such commission to selected dealers who sell the Common Shares and that such dealers may reallow a concession of up to $     per Share to certain other dealers who sell Common Shares.

 

Investors must pay for any Common Shares purchased on or before                     , 2021.

 

The Adviser, and not the Fund, will pay all organizational expenses of the Fund and all offering costs associated with this offering. The Fund is not obligated to repay any such organizational expenses or offering costs paid by the Adviser.

 

Prior to this offering, there has been no public or private market for the Common Shares or any other securities of the Fund. Consequently, the offering price for the Common Shares was determined by negotiation among the Fund and the Representatives. There can be no assurance, however, that the price at which the Common Shares sell after this offering will not be lower than the price at which they are sold by the Underwriters or that an active trading market in the Common Shares will develop and continue after this offering. The Fund’s Common Shares are expected to be listed on the NYSE under the trading or ticker symbol “RFMZ”, subject to notice of issuance.

 

In connection with the requirements for listing the Common Shares on the NYSE, the Underwriters have undertaken to sell lots of 100 or more Common Shares to a minimum of 400 beneficial owners in the United States. The minimum investment requirement is 100 Common Shares.

 

The Fund, the Adviser and the Subadviser have each agreed to indemnify the several Underwriters for or to contribute to the losses arising out of certain liabilities, including liabilities under the 1933 Act, or to contribute to payments the Underwriters may be required to make in respect of those liabilities, except in the cases of willful misfeasance, bad faith, gross negligence or reckless disregard of applicable obligations and duties.

 

The Fund has agreed not to offer, sell or register with the SEC any additional equity securities of the Fund, other than issuances (1) of Common Shares hereby, (2) of preferred shares or (3) pursuant to the Fund’s Dividend Reinvestment Plan, for a period of 180 days after the date of the Underwriting Agreement without the prior written consent of the Representatives.

 

In connection with this offering, the Underwriters may purchase and sell Common Shares in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with this offering in each case in accordance with Regulation M under the Exchange Act. “Covered” short sales are sales of Common Shares made in an amount up to the number of Common Shares represented by the Underwriters’ over-allotment option. In determining the source of Common Shares to close out the covered syndicate short position, the Underwriters will consider, among other things, the price of the Common Shares available for purchase in the open market as compared to the price at which they may purchase Common Shares through the over-allotment option. Transactions to close out the covered syndicate short position involve either purchases of Common Shares in the open market after the distribution has been completed or the exercise of the over-allotment option. The Underwriters may also make “naked” short sales of the Common Shares in excess of the over-allotment option. The Underwriters must close out any naked short position by purchasing Common Shares in the open market. A naked short position is more likely to be created if the Underwriters are concerned that there may be downward pressure on the price of the Common Shares in the open market after pricing that could adversely affect investors who purchase in the offering.

 

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Stabilizing transactions consist of certain bids or purchases of Common Shares in the open market while the offering is in progress.

 

The Underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of the Common Shares sold in this offering for their account may be reclaimed by the syndicate if such Common Shares are repurchased by the syndicate in stabilizing or covering transactions and have therefore not been effectively placed by such syndicate member.

 

Any of these activities may have the effect of preventing or retarding a decline in the market price of the Common Shares. These activities may stabilize, maintain or otherwise affect the market price of the Common Shares, which may be higher than the price that might otherwise prevail in the open market; and these activities, if commenced, may be discontinued at any time without notice. These transactions may be effected on the NYSE or otherwise.

 

In connection with the offering, certain of the Underwriters or selected dealers may distribute prospectuses electronically.

 

The Fund anticipates that from time to time certain of the Underwriters may act as brokers or dealers in connection with the execution of the Fund’s portfolio transactions after they have ceased to be Underwriters and, subject to certain restrictions, may act as brokers while they are Underwriters. Certain Underwriters have performed investment banking and advisory services for the Adviser and its affiliates from time to time, for which they have received customary fees and expenses. Certain Underwriters may, from time to time, engage in transactions with or perform services for the Adviser and its affiliates in the ordinary course of business.

 

Additional Underwriter Compensation

 

The Adviser (and not the Fund) has agreed to pay, from its own assets, additional compensation of $ to the Underwriters in connection with this offering, which amount will not exceed        % of the total public offering price of the shares sold in this offering.

 

The Adviser (and not the Fund) has agreed to pay to each of UBS Securities, LLC, Wells Fargo Securities, LLC, RBC Capital Markets, LLC and Stifel, Nicolaus & Company, Incorporated from the Adviser’s own assets, a fee for advice relating to the structure, design and organization of the Fund as well as for services related to the sale and distribution of the Fund’s Common Shares in the amount of $ , $, $ and $ , respectively. If the over-allotment option is not exercised, the structuring fee paid to each of UBS Securities, LLC, Wells Fargo Securities, LLC, RBC Capital Markets, LLC and Stifel, Nicolaus & Company, Incorporated will not exceed %, %, % and %, respectively, of the total public offering price of the Common Shares sold in this offering. If the over-allotment option is exercised in full, the structuring fee paid to each of UBS Securities, LLC, Wells Fargo Securities, LLC, RBC Capital Markets, LLC and Stifel, Nicolaus & Company, Incorporated will not exceed %,%, % and %, respectively, of the total public offering price of the Common Shares sold in this offering.

 

  81  

 

The Adviser (and not the Fund) also may pay certain qualifying underwriters from among those named in the table above a structuring fee, additional compensation or a sales incentive fee in connection with the offering.

 

The sum of all compensation to the Underwriters and                in connection with this public offering of Common Shares, including the structuring fees, sales incentive fees, if any, and all forms of additional payments to the Underwriters and                 and certain other expenses, will not exceed                 % of the total public offering price of the Common Shares sold in this offering.

 

ADMINISTRATOR, FUND ACCOUNTANT, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN

 

The Fund’s administrator is ALPS Fund Services, Inc. (“AFS”), an affiliate of the Fund’s transfer agent. 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 Adviser pays AFS customary fees, out of its unified management fee, based on the Fund’s net assets plus out of pocket expenses.

 

State Street Bank and Trust Company, located at State Street Financial Center, One Lincoln Street, Boston, MA 02111, will serve as the Fund’s custodian and will maintain custody of the securities and cash of the Fund. For its services, the custodian will receive a monthly fee based upon, among other things, the average value of the net assets of the Fund, plus certain charges for securities transactions.

 

DST Systems, Inc., an affiliate of the Fund’s administrator, located at 333 West 9th Street, 2nd floor, Kansas City, Missouri 64105, will serve as the Fund’s transfer agent, registrar, Plan Administrator and dividend disbursing agent.

 

LEGAL MATTERS

 

Certain legal matters in connection with the Common Shares will be passed upon for the Fund by Chapman and Cutler LLP, and for the Underwriters by Dechert LLP. Chapman and Cutler LLP and Dechert LLP may rely as to certain matters of Maryland law on the opinion of Shapiro Sher Guinot & Sandler, P.A.

 

ADDITIONAL INFORMATION

 

The Fund will be subject to the informational requirements of the Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy statements and other information filed by the Fund with the SEC pursuant to the informational requirements of such Acts can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Washington, D.C. 20549. The SEC maintains a website at http://www.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 (http://www.sec.gov).

 

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                        Shares

 

RiverNorth Flexible Municipal Income Fund II, Inc.

 

Common Stock

$20.00 per Share

 

 

 

 

PROSPECTUS

 

 

                  , 2021

  

 

    

 

    

 

    

 

    

 

  

 

    

 

    

 

Until                  (25 days after the date of this Prospectus), all dealers that buy, sell or trade the shares of common stock, 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 and with respect to their unsold allotments or subscriptions.    

 

 

 

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 February 22, 2021

 

RiverNorth Flexible Municipal Income Fund II, Inc.

 

Statement of Additional Information

 

RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”) is a Maryland corporation that is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a newly organized, diversified, closed-end management investment company. The Fund’s primary investment objective is current income exempt from regular U.S. Federal income taxes (but which may be includable in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective is total return. RiverNorth Capital Management, LLC, the investment adviser of the Fund (“RiverNorth” or the “Adviser”), and MacKay Shields LLC, the subadviser of the Fund (“MacKay Shields” or the “Subadviser”), will attempt to achieve the Fund’s investment objectives by allocating the Fund’s assets among two principal investment strategies: Tactical Municipal Closed-End Fund Strategy and Municipal Bond Income Strategy. See “Investment Objectives, Strategies and Policies—Principal Investment Strategies” in the Fund’s Prospectus (as defined below). There is no assurance that the Fund will achieve its investment objectives.

 

This Statement of Additional Information (“SAI”) relating to the shares of common stock of the Fund (the “Common Shares”) is not a prospectus, but should be read in conjunction with the prospectus for the Fund dated (the “Prospectus”). This SAI does not include all information that a prospective investor should consider before purchasing Common Shares. Investors should obtain and read the Prospectus prior to purchasing such Common Shares. 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 registration statement may be obtained from the SEC upon payment of the fee prescribed, or inspected at the SEC’s office or via its website (www.sec.gov) at no charge. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus.

 

This Statement of Additional Information is dated          .

 

     

 

TABLE OF CONTENTS

 

  Page
INVESTMENT RESTRICTIONS 1
INVESTMENT POLICIES AND TECHNIQUES 3
MANAGEMENT OF THE FUND 19
Investment Adviser 19
Investment Subadviser 19
Investment Advisory Agreement and Subadvisory Agreement 19
Portfolio Managers 20
Compensation of Portfolio Managers 21
Portfolio Manager Ownership of Fund Shares 22
Conflicts of Interest 22
Other Accounts Managed 23
Administrator 23
Codes of Ethics 24
FUND SERVICE PROVIDERS 24
Independent Registered Public Accounting Firm 24
Legal Counsel 24
Custodian and Transfer Agent 24
PORTFOLIO TRANSACTIONS 24
U.S. FEDERAL INCOME TAX MATTERS 25
Fund Taxation 25
Shareholder Taxation 27
Other Taxes 31
BOARD MEMBERS AND OFFICERS 31
Director Ownership in the Fund 37
Securities Beneficially Owned 38
PROXY VOTING GUIDELINES 38
ADDITIONAL INFORMATION 38
FINANCIAL STATEMENT AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 39
APPENDIX A - PROXY VOTING GUIDELINES OF THE ADVISER A-1
APPENDIX B - PROXY VOTING GUIDELINES OF THE SUBADVISER B-1

 

 

 

INVESTMENT RESTRICTIONS

 

Except as otherwise indicated, the Fund’s investment policies are not fundamental and may be changed without a vote of Common Shareholders. There can be no assurance the Fund’s investment objectives will be met.

 

Any investment restrictions herein that involve a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after and is caused by an acquisition or encumbrance of securities or assets of, or borrowings by, the Fund. However, the asset coverage requirement applicable to borrowings will be maintained as required under the 1940 Act.

 

The Fund’s primary investment objective and 80% policy (as set forth in the Prospectus) are considered fundamental. In addition, as a matter of fundamental policy, the Fund will not:

 

(1) 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;

 

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

 

1 

 

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

 

(4) purchase any security if, as a result, 25% or more of the Fund’s total assets (taken at current value) would be invested in any single industry or group of industries, except that the Fund’s investments in Underlying Funds shall not be deemed to be investments in a single industry or group of industries, and except that this limitation shall not apply to municipal securities other than those municipal securities backed principally by the assets and revenues of non-governmental users. (For purposes of this restriction, governments and their political subdivisions are not members of any industry.);

 

(5) engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities;

 

(6) purchase or sell real estate; provided that this restriction shall not prevent the Fund from investing in municipal securities secured by real estate or interests therein or foreclosing upon and selling such real estate or from managing and maintaining it in the interim;

 

(7) purchase or sell commodities, unless acquired as a result of ownership of securities or other instruments; provided that this restriction shall not prohibit the Fund from purchasing or selling options, futures contracts and related options thereon, forward contracts, swaps, caps, floors, collars and any other financial 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; or

 

(8) make loans, except as permitted under the 1940 Act, as it may be 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 except as may be permitted by exemptive orders granted under the 1940 Act.

 

A fundamental policy may not be changed without the approval of a majority of the outstanding voting securities of the Fund which, under the 1940 Act and the rules thereunder and as used in this SAI, means the lesser of (1) 67% or more of the voting securities present at such meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy, or (2) more than 50% of the outstanding voting securities of the Fund.

 

Fundamental Investment Restriction (1)

 

For the purpose of applying the limitation in fundamental investment restriction (1), 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. When a municipal bond is insured by bond insurance, it shall not be considered a security that is issued or guaranteed by the insurer; instead, the issuer of such municipal bond will be determined in accordance with the principles set forth above. The foregoing restrictions do not limit the percentage of the Fund’s assets that may be invested in municipal securities insured by any given insurer.

 

Fundamental Investment Restriction (2)

 

The 1940 Act permits the Fund to borrow money in an amount up to one-third of its total assets (including the amount borrowed) less its liabilities (not including any borrowings but including the fair market value at the time of computation of any other senior securities then outstanding). The Fund may also borrow an additional 5% of its total assets without regard to the foregoing limitation for temporary purposes such as clearance of portfolio transactions.

 

Practices and investments that may involve leverage but are not considered to be borrowings are not subject to the policy. For more information on leverage and the risks relating thereto, see “Risks—Structural Risk—Leverage Risk” in the Prospectus.

 

Fundamental Investment Restriction (3)

 

The ability of a closed-end fund to issue senior securities is severely circumscribed by complex regulatory constraints under the 1940 Act that restrict, for instance, the amount, timing, and form of senior securities that may be issued. Certain portfolio management techniques, such as reverse repurchase agreements, credit default swaps, futures contracts, the purchase of securities on margin, short sales, or the writing of puts on portfolio securities, may be considered senior securities unless appropriate steps are taken to segregate assets or otherwise cover obligations. To the extent the Fund covers its commitment under these transactions, including by the segregation of liquid assets, such instrument will not be considered a “senior security” by the Fund and therefore will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by the Fund (or, as the case may be, the 200% asset coverage requirement applicable to preferred stock issued by the Fund). However, forthcoming changes under Rule 18f-4 of the 1940 Act will, among other things, eliminate the current asset segregation framework the Fund initially intends to use by the third quarter of 2022. See “Investment Policies and Techniques—Derivatives—Segregation and Cover Requirements” below.

 

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The Fund does not anticipate issuing any class of equity senior securities within 12 months of the date of this SAI. Under the 1940 Act, the issuance of any other type of senior security by the Fund is subject to a requirement that provision is made that, (i) if on the last business day of each of 12 consecutive calendar months the asset coverage with respect to the senior security is less than 100%, the holders of such securities voting as a class shall be entitled to elect at least a majority of the Board with such voting right to continue until the asset coverage for such class of senior security is at least 110% on the last business day of each of 3 consecutive calendar months or, (ii) if on the last business day of each of 24 consecutive calendar months the asset coverage for such class of senior security is less than 100%, an event of default shall be deemed to have occurred.

 

Fundamental Investment Restriction (4)

 

The limitation in fundamental investment restriction (4) will apply to municipal securities if the payment of principal and interest for such securities is derived principally from a specific project associated with an issuer that is not a governmental entity or a political subdivision of a government, and in that situation the Fund will consider such municipal securities to be in an industry associated with the project. Although the Fund’s investments in Underlying Funds are not deemed to be investments in a particular industry, to the extent that the Fund is aware of the investments held by the Underlying Funds, the Fund will consider such information when determining compliance with fundamental investment restriction (4).

 

Fundamental Investment Restriction (7)

 

The ability of the Fund to invest directly in commodities, and in certain commodity-related securities and other instruments, is subject to significant limitations in order to enable the Fund to maintain its status as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”).

 

Fundamental Investment Restriction (8)

 

The 1940 Act does not prohibit a fund from making loans; however, SEC staff interpretations currently prohibit funds from lending more than one-third of their total assets, except through the purchase of debt obligations or the use of repurchase agreements. A repurchase agreement is an agreement to purchase a security, coupled with an agreement to sell that security back to the original seller on an agreed-upon date at a price that reflects current interest rates. The SEC frequently treats repurchase agreements as loans.

 

INVESTMENT POLICIES AND TECHNIQUES

 

The following describes certain investment practices and techniques in which the Fund may engage, and certain of the risks associated with such practices and techniques, and includes a discussion of the spectrum of investments that the Adviser and the Subadviser in their discretion may, but are not required to, use in managing the Fund’s assets. Certain risks may only apply to a particular investment strategy of the Fund, or may apply to both investment strategies. The following descriptions supplement the descriptions of the investment objectives, policies, strategies and risks as set forth in the Fund’s Prospectus.

 

These same investment practices or techniques may be used by the Underlying Funds in which the Fund invests (as described in the Prospectus) and, therefore, the risks described below may apply to the Underlying Funds as well. The Underlying Funds are not subject to the Fund’s investment policies and restrictions, and the Underlying Funds may invest their assets in securities and other instruments, and may use investment techniques and strategies, that are not described in the Prospectus.

 

Furthermore, 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.

 

Municipal Securities. Municipal securities are either general obligation or revenue bonds and typically are issued to finance public projects (such as roads or public buildings), to pay general operating expenses or to refinance outstanding debt.

 

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Municipal securities may also be issued on behalf of private entities or for private activities, such as housing, medical and educational facility construction, or for privately owned industrial development and pollution control projects. General obligation bonds are backed by the full faith and credit, or taxing authority, of the issuer and may be repaid from any revenue source; revenue bonds may be repaid only from the revenues of a specific facility or source. The Fund and the Underlying Funds may also purchase municipal securities that represent lease obligations, municipal notes, pre-refunded municipal bonds, private activity bonds, tender option bonds and other forms of municipal bonds and securities.

 

Municipal securities of below investment grade quality (Ba/BB or below) are commonly referred to as junk bonds. Issuers of securities rated Ba/BB or B are regarded as having current capacity to make principal and interest payments but are subject to business, financial or economic conditions which could adversely affect such payment capacity. Municipal securities rated Baa or BBB or above are considered “investment grade” securities; municipal securities rated Baa are considered medium grade obligations that lack outstanding investment characteristics and have speculative characteristics, while municipal securities rated BBB are regarded as having adequate capacity to pay principal and interest. Municipal securities rated Aaa or AAA in which the Fund may invest may have been so rated on the basis of the existence of insurance guaranteeing the timely payment, when due, of all principal and interest. Municipal securities rated below investment grade quality are obligations of issuers that are considered predominately speculative with respect to the issuer’s capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater investment risk, including the possibility of issuer default and bankruptcy and increased market price volatility. Municipal securities rated below investment grade tend to be less marketable than higher-quality securities because the market for them is less broad. The market for municipal securities unrated by any NRSRO is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly and the Fund may have greater difficulty selling its portfolio securities. The Fund will be more dependent on the Adviser’s and the Subadviser’s research and analysis when investing in these securities.

 

The Fund and the Underlying Funds may invest in distressed securities which are securities of issuers that may be experiencing financial difficulties, such as being in default on their obligations to pay principal or interest thereon when due or that are involved in bankruptcy or insolvency proceedings. The issuers of such securities may be in transition, out of favor, financially leveraged or troubled, or potentially troubled, and may be or have recently been involved in major strategic actions, restructurings, bankruptcy, reorganization or liquidation. These characteristics of these issuers can cause their securities to be particularly risky, although they also may offer the potential for high returns. These issuers’ securities may be considered speculative, and the ability of the issuers to pay their debts on schedule could be affected by adverse interest rate movements, changes in the general economic climate, economic factors affecting a particular industry or specific developments within the issuers. Distressed securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to protect and recover its investment. See “—Below Investment Grade Securities Risk.”

 

Investments in lower rated or unrated securities may present special tax issues for the Fund to the extent that the issuers of these securities default on their obligations pertaining thereto, and the federal income tax consequences to the Fund as a holder of such distressed securities may not be clear.

 

The ratings of S&P, Moody’s and Fitch represent their opinions as to the quality of the municipal securities they rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, municipal securities with the same maturity, coupon and rating may have different yields while obligations of the same maturity and coupon with different ratings may have the same yield.

 

During temporary defensive periods (e.g., times when, in the Adviser’s or the Subadviser’s opinion, temporary imbalances of supply and demand or other temporary dislocations in the tax-exempt securities market adversely affect the price at which long-term or intermediate-term Municipal Bonds are available), and in order to keep the Fund’s cash fully invested, including the period during which the net proceeds of an offering are being invested, the Fund may invest any percentage of its net assets in short-term investments including high quality, short-term securities that may be either tax-exempt or taxable. Tax-exempt short-term investments include various obligations issued by state and local governmental issuers, such as tax-exempt notes (bond anticipation notes, tax anticipation notes and revenue anticipation notes or other such Municipal Bonds maturing in three years or less from the date of issuance) and municipal commercial paper. Taxable short-term investments of the Fund may include certificates of deposit issued by U.S. banks with assets of at least $1 billion, or commercial paper or corporate notes, bonds or debentures with a remaining maturity of one year or less, or repurchase agreements. To the extent the Fund invests in taxable investments, the Fund will not at such times be in a position to achieve its investment objective of tax-exempt income.

 

The Fund may also invest in securities of other open- or closed-end investment companies that invest primarily in municipal bonds of the types in which the Fund may invest directly. See “—Investment Company Securities.”

 

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Obligations of issuers of municipal securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to the laws enacted in the future by Congress, state legislatures or referenda extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon municipalities to levy taxes. There is also the possibility that, as a result of legislation or other conditions, the power or ability of any issuer to pay, when due, the principal of, and interest on, its municipal securities may be materially affected.

 

Subject to the concentration limits of the Fund’s investment policies and guidelines, the Fund may invest a significant portion of its total assets in certain sectors of the municipal securities market, such as hospitals and other health care facilities, charter schools and other private educational facilities, special taxing districts and start-up utility districts and private activity bonds including industrial development bonds on behalf of transportation companies such as airline companies, whose credit quality and performance may be more susceptible to economic, business, political, regulatory and other developments than other sectors of municipal issuers. If the Fund invests a significant portion of its total assets in one or more particular sectors, the Fund’s performance may be subject to additional risk and variability. To the extent that the Fund focuses its total assets in the hospital and healthcare facilities sector, for example, the Fund will be subject to risks associated with such sector, including adverse government regulation and reduction in reimbursement rates, as well as government approval of products and services and intense competition. Securities issued with respect to special taxing districts will be subject to various risks, including real-estate development related risks and taxpayer concentration risk. Further, the fees, special taxes or tax allocations and other revenues established to secure the obligations of securities issued with respect to special taxing districts are generally limited as to the rate or amount that may be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate guarantees. Charter schools and other private educational facilities will be subject to various risks, including the reversal of legislation authorizing or funding charter schools, the failure to renew or secure a charter, the failure of a funding entity to appropriate necessary funds and competition from alternatives such as voucher programs. Issuers of municipal utility securities can be significantly affected by government regulation, financing difficulties, supply and demand of services or fuel and natural resource conservation. The transportation sector, including airports, airlines, ports and other transportation facilities, can be significantly affected by changes in the economy, fuel prices, labor relations, insurance costs and government regulation.

 

Municipal Leases and Certificates of Participation. Also included within the general category of municipal securities are municipal leases, certificates of participation in such lease obligations or installment purchase contract obligations (collectively, “Municipal Lease Obligations”) of municipal authorities or entities. Although a Municipal Lease Obligation does not constitute a general obligation of the municipality for which the municipality’s taxing power is pledged, a Municipal Lease Obligation is ordinarily backed by the municipality’s covenant to budget for, appropriate and make the payments due under the Municipal Lease Obligation. However, certain Municipal Lease Obligations contain “nonappropriation” clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In the case of a “non-appropriation” lease, the Fund’s ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property, without recourse to the general credit of the lessee, and disposition or releasing of the property might prove difficult. To the extent that the Fund invests directly in unrated municipal leases or participates in such leases, the credit quality rating and risk of cancellation of such unrated leases will be monitored on an ongoing basis. In order to reduce this risk, the Fund will only purchase Municipal Lease Obligations where the Adviser or Subadviser believes the issuer has a strong incentive to continue making appropriations until maturity.

 

Below Investment Grade Securities. The Fund and the Underlying Funds 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:

 

Greater Risk of Loss. 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.

 

Sensitivity to Interest Rate and Economic Changes. 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.

 

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Valuation Difficulties. 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.

 

Liquidity. 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. 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.

 

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

 

Borrowing. The Fund may borrow funds and/or issue preferred stock, notes or other debt securities to the extent permitted by the 1940 Act for investment and other purposes, such as for satisfying Common Share repurchase requests (if any) or to otherwise provide the Fund with liquidity. The Fund’s use of leverage may include borrowing through a line of credit with a bank or other financial institution. In addition, the Fund may enter into derivative and other transactions that have the effect of leverage. Such other transactions may include investing in inverse floating rate securities issued by tender option bond trusts. Under the requirements of the 1940 Act, the Fund, immediately after any borrowing, must have an “asset coverage” of at least 300% (i.e., such indebtedness may not exceed 33-1/3% of the value of the Fund’s total assets including the amount borrowed). With respect to such borrowing, asset coverage means the ratio which the value of the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of such borrowing represented by senior securities issued by the Fund. Under the 1940 Act, the Fund is also not permitted 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 (i.e., such liquidation value may not exceed 50% of the Fund’s total assets).

 

The use of borrowing and other leverage by the Fund involves special risk considerations that may not be associated with other funds having similar policies. Because substantially all of the Fund’s assets fluctuate in value, whereas the interest obligation resulting from a borrowing may be fixed by the terms of the Fund’s agreement with its lender, the net asset value (“NAV”) per Common Share of the Fund will tend to increase more when its portfolio securities increase in value and decrease more when its portfolio securities decrease in value than would otherwise be the case if the Fund did not use leverage. In addition, interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the return earned on borrowed funds. Under adverse market conditions, the Fund might have to sell portfolio securities to meet interest or principal payments at a time when investment considerations would not favor such sales. The interest that the Fund must pay on borrowed money, together with any additional fees to establish and maintain a borrowing facility, are additional costs that will reduce or eliminate any net investment income and may also offset any potential capital gains. Unless appreciation and income, if any, on assets acquired with borrowed funds exceed the costs of borrowing, the use of leverage will diminish the investment performance of the Fund compared with what it would have been without leverage. See “Use of Leverage” and “ Risks—Structural Risk—Leverage Risk” in the Fund’s Prospectus.

 

Closed-End Funds. The Fund may invest in shares of closed-end funds offered in initial or secondary offerings or through purchasing shares in the secondary market. An initial public offering of closed-end fund shares is typically distributed by a group of underwriters who retain a spread or underwriting commission based on the initial public offering price. Such shares are then listed for trading on an exchange and, in some cases, may be traded in other over-the-counter markets. Because the shares of closed-end funds cannot be redeemed upon demand to the issuer like the shares of an open-end fund, investors seek to buy and sell shares of closed-end funds in the secondary market. The Fund will incur normal brokerage costs on its secondary purchases similar to the expenses the Fund would incur for the purchase of securities of any other type of issuer in the secondary market.

 

The shares of many closed-end funds, after their initial public offering, frequently trade at a price per share that is less than the NAV per share, the difference representing the “market discount” of such shares. This market discount may be due in part to the investment objective of long-term appreciation, which is sought by many closed-end funds, as well as to the fact that the shares of closed-end funds are not redeemable by the holder upon demand to the issuer at the next determined NAV but, rather, are subject to supply and demand in the secondary market. A relative lack of secondary market purchasers of closed-end fund shares also may contribute to such shares trading at a discount to their NAV.

 

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The Fund may invest in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance that the market discount on shares of any closed-end fund purchased by the Fund will ever decrease. In fact, it is possible that this market discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price of the securities of such closed-end funds, thereby adversely affecting the NAV of the Common Shares. Similarly, there can be no assurance that any shares of a closed-end fund purchased by the Fund at a premium will continue to trade at a premium or that the premium will not decrease subsequent to a purchase of such shares by the Fund.

 

Closed-end funds may issue senior securities (including preferred stock and debt obligations) for the purpose of leveraging the closed-end fund’s common shares in an attempt to enhance the current return to such closed-end fund’s common shareholders. The Fund’s investment in the common shares of closed-end funds that are financially leveraged may create an opportunity for greater total return on its investment, but in a down market may also lose money at a faster rate. In general, leveraged funds may be expected to exhibit more volatility in market price and NAV than an investment in shares of investment companies without a leveraged capital structure.

 

Derivatives. The Fund may utilize various other investment strategies as described below for a variety of purposes, such as hedging various market risks or enhancing return. These strategies may be executed through the use of derivative contracts. The Underlying Funds may also utilize derivative contracts and are thus subject to the same risks described below.

 

In the course of pursuing these investment strategies, the Fund may purchase and sell exchange-listed and over-the-counter put and call options on securities, equity and fixed-income indices and other instruments, purchase and sell futures contracts and options thereon, enter into various transactions such as swaps, caps, floors or collars, (collectively, all the above are called “Derivative Transactions”). In addition, Derivative Transactions may also include new techniques, instruments or strategies that are permitted as regulatory changes occur. Derivative Transactions may be used without limit (subject to certain limits imposed by the 1940 Act) to attempt to protect against possible changes in the market value of securities held in or to be purchased for the Fund’s portfolio resulting from securities markets fluctuations, to protect the Fund’s unrealized gains in the value of its portfolio securities, to facilitate the sale of such securities for investment purposes, to manage the effective maturity or duration of the Fund’s portfolio, or to establish a position in the derivatives markets as a substitute for purchasing or selling particular securities. Some Derivative Transactions may also be used to enhance potential gain. Any or all of these investment techniques may be used at any time and in any combination, and there is no particular strategy that dictates the use of one technique rather than another, as use of any Derivative Transaction is a function of numerous variables including, but not limited to, market conditions. The ability of the Fund to utilize these Derivative Transactions successfully will depend on the Adviser’s or Subadviser’s ability to predict pertinent market movements, which cannot be assured. The Fund’s use of Derivative Transactions may also be limited by the requirements of the Code for qualification as a regulated investment company for U.S. federal income tax purposes. The Fund will comply with applicable regulatory requirements when implementing these strategies, techniques and instruments. Derivative Transactions will not be used to alter fundamental investment purposes and characteristics of the Fund, and the Fund will segregate assets (or as provided by applicable regulations, enter into certain offsetting positions) to cover its obligations under options, futures and swaps to limit leveraging of the Fund. See forthcoming changes to the current asset segregation framework the Fund initially intends to use as described below under “—Segregation and Cover Requirements.”

 

Derivative Transactions, including derivative contracts, have risks associated with them including, but not limited to, possible default by the other party to the transaction, illiquidity and, to the extent the Adviser’s or Subadviser’s view as to certain market movements is incorrect, the risk that the use of such Derivative Transactions could result in losses greater than if they had not been used. Use of Derivative Transactions may result in losses to the Fund, force the sale or purchase of portfolio securities at inopportune times or for prices higher than or lower than current market values, limit the amount of appreciation the Fund can realize on its investments or cause the Fund to hold a security it might otherwise sell.

 

The use of options and futures transactions entails certain other risks. In particular, the variable degree of correlation between price movements of futures contracts and price movements in the related portfolio position of the Fund creates the possibility that losses on the hedging instrument may be greater than gains in the value of the position the Fund is attempting to hedge. In addition, futures and options markets may not be liquid in all circumstances and certain over-the-counter options may have no markets. As a result, in certain markets, the Fund might not be able to close out a transaction without incurring substantial losses, if at all. Although the use of futures and options transactions for hedging should tend to reduce the risk of loss due to a decline in the value of the hedged position, at the same time they tend to limit any potential gain which might result from an increase in value of such position. Finally, the daily variation margin requirements for futures contracts would create a greater ongoing potential financial risk than would purchases of options, where the exposure is limited to the cost of the initial premium. Losses resulting from the use of Derivative Transactions would reduce NAV, and possibly income, and such losses can be greater than if the Derivative Transactions had not been utilized.

 

General Characteristics of Options. Put options and call options typically have similar structural characteristics and operational mechanics regardless of the underlying instrument on which they are purchased or sold. Thus, the following general discussion relates to each of the particular types of options discussed in greater detail below. In addition, many Derivative Transactions involving options require segregation of Fund assets in special accounts, as described below under “—Segregation and Cover Requirements.”

 

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A put option gives the purchaser of the option, upon payment of a premium, the right to sell, and the writer the obligation to buy, the underlying security, commodity, index or other instrument at the exercise price. For instance, the Fund’s purchase of a put option on a security might be designed to protect its holdings in the underlying instrument (or, in some cases, a similar instrument) against a substantial decline in the market value by giving the Fund the right to sell such instrument at the option exercise price. A call option, upon payment of a premium, gives the purchaser of the option the right to buy, and the seller the obligation to sell, the underlying instrument at the exercise price. The Fund’s purchase of a call option on a security, financial future, index or other instrument might be intended to protect the Fund against an increase in the price of the underlying instrument that it intends to purchase in the future by fixing the price at which it may purchase such instrument. An American style put or call option may be exercised at any time during the option period while a European style put or call option may be exercised only upon expiration or during a fixed period prior thereto. The Fund is authorized to purchase and sell exchange listed options and over-the-counter options (“OTC options”). Exchange listed options are issued by a regulated intermediary such as the Options Clearing Corporation (“OCC”), which guarantees the performance of the obligations of the parties to such options. The discussion below uses the OCC as an example, but is also applicable to other financial intermediaries.

 

With certain exceptions, OCC issued and exchange listed options generally settle by physical delivery of the underlying security, although in the future cash settlement may become available. Index options are cash settled for the net amount, if any, by which the option is “in-the-money” (i.e., where the value of the underlying instrument exceeds, in the case of a call option, or is less than, in the case of a put option, the exercise price of the option) at the time the option is exercised. Frequently, rather than taking or making delivery of the underlying instrument through the process of exercising the option, listed options are closed by entering into offsetting purchase or sale transactions that do not result in ownership of the new option.

 

The Fund’s ability to close out its position as a purchaser or seller of an OCC or exchange listed put or call option is dependent, in part, upon the liquidity of the option market. Among the possible reasons for the absence of a liquid option market on an exchange are: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities including reaching daily price limits; (iv) interruption of the normal operations of the OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to handle current trading volume; or (vi) a decision by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which event the relevant market for that option on that exchange would cease to exist, although outstanding options on that exchange would generally continue to be exercisable in accordance with their terms.

 

The hours of trading for listed options may not coincide with the hours during which the underlying financial instruments are traded. To the extent that the option markets close before the markets for the underlying financial instruments, significant price and rate movements can take place in the underlying markets that cannot be reflected in the option markets.

 

OTC options are purchased from or sold to securities dealers, financial institutions or other parties (“Counterparties”) through direct bilateral agreement with the Counterparty. In contrast to exchange listed options, which generally have standardized terms and performance mechanics, all the terms of an OTC option, including such terms as method of settlement, term, exercise price, premium, guarantees and security, are set by negotiation of the parties. The Fund will only sell OTC options that are subject to a buy-back provision permitting the Fund to require the Counterparty to sell the option back to the Fund at a formula price within seven days. The Fund expects generally to enter into OTC options that have cash settlement provisions, although it is not required to do so.

 

Unless the parties provide for it, there is no central clearing or guaranty function in an OTC option. As a result, if the Counterparty fails to make or take delivery of the security or other instrument underlying an OTC option it has entered into with the Fund or fails to make a cash settlement payment due in accordance with the terms of that option, the Fund will lose any premium it paid for the option as well as any anticipated benefit of the transaction. Accordingly, the Adviser or Subadviser, as applicable, must assess the creditworthiness of each such Counterparty or any guarantor or credit enhancement of the Counterparty’s credit to determine the likelihood that the terms of the OTC option will be satisfied. The Fund will engage in OTC option transactions only with U.S. government securities dealers recognized by the Federal Reserve Bank of New York as “primary dealers” or broker/dealers, domestic or foreign banks or other financial institutions which have received (or the guarantors of the obligation of which have received) a short-term credit rating of “A-1” from Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”) or “P-1” from Moody’s Investor Services, Inc. (“Moody’s”) or an equivalent rating from any nationally recognized statistical rating organization (“NRSRO”) or, in the case of OTC currency options, are determined to be of equivalent credit quality by the Adviser or Subadviser, as applicable. The staff of the SEC currently takes the position that OTC options purchased by the Fund, and portfolio securities “covering” the amount of the Fund’s obligation pursuant to an OTC option sold by it (the cost of the sell-back plus the in-the-money amount, if any) are illiquid.

 

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If the Fund sells a call option, the premium that it receives may serve as a partial hedge, to the extent of the option premium, against a decrease in the value of the underlying securities or instruments in its portfolio or will increase the Fund’s income. The sale of put options can also provide income.

 

The Fund may purchase and sell call options on securities including U.S. Treasury and agency securities, corporate debt securities and equity securities (including convertible securities) that are traded on U.S. securities exchanges and in the over-the-counter markets, and on securities indices and futures contracts. All calls sold by the Fund must be “covered” (i.e., the Fund must own the securities or futures contract subject to the call) or must meet the asset segregation requirements described below as long as the call is outstanding. However, see forthcoming changes to the current asset segregation framework the Fund initially intends to use as described below under “—Segregation and Cover Requirements.” Even though the Fund will receive the option premium to help protect it against loss, a call sold by the Fund exposes the Fund during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or instrument and may require the Fund to hold a security or instrument which it might otherwise have sold.

 

The Fund may purchase and sell put options on securities including U.S. Treasury and agency securities, corporate debt securities and equity securities (including convertible securities), whether or not it holds the above securities in its portfolio, and on securities indices and futures contracts other than futures on individual corporate debt and individual equity securities. In selling put options, there is a risk that the Fund may be required to buy the underlying security at a disadvantageous price above the market price.

 

General Characteristics of Futures. The Fund may enter into futures contracts or purchase or sell put and call options on such futures as a hedge against anticipated interest rate or equity market changes or to enhance returns. Futures are generally bought and sold on the commodities exchanges where they are listed with payment of initial and variation margin as described below. The sale of a futures contract creates a firm obligation by the Fund, as seller, to deliver to the buyer the specific type of financial instrument called for in the contract at a specific future time for a specified price (or, with respect to index futures, the net cash amount). Options on futures contracts are similar to options on securities except that an option on a futures contract gives the purchaser the right in return for the premium paid to assume a position in a futures contract and obligates the seller to deliver such position.

 

Typically, maintaining a futures contract or selling an option thereon requires the Fund to deposit with a financial intermediary as security for its obligations an amount of cash or other specified assets (initial margin), which initially is typically 1% to 10% of the face amount of the contract (but may be higher in some circumstances). Additional cash or assets (variation margin) may be required to be deposited thereafter on a daily basis as the mark-to-market value of the contract fluctuates. The purchase of an option on financial futures involves payment of a premium for the option without any further obligation on the part of the Fund. If the Fund exercises an option on a futures contract it will be obligated to post initial margin (and potential subsequent variation margin) for the resulting futures position just as it would for any position. Futures contracts and options thereon are generally settled by entering into an offsetting transaction but there can be no assurance that the position can be offset prior to settlement at an advantageous price, nor that delivery will occur.

 

Options on Securities Indices and Other Financial Indices. The Fund also may purchase and sell call and put options on securities indices and other financial indices and in so doing can achieve many of the same objectives it would achieve through the sale or purchase of options on individual securities or other instruments. Options on securities indices and other financial indices are similar to options on a security or other instrument except that, rather than settling by physical delivery of the underlying instrument, they settle by cash settlement, i.e., an option on an index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the index upon which the option is based exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option (except if, in the case of an OTC option, physical delivery is specified). This amount of cash is equal to the excess of the closing price of the index over the exercise price of the option, which also may be multiplied by a formula value. The seller of the option is obligated, in return for the premium received, to make delivery of this amount. The gain or loss on an option on an index depends on price movements in the instruments making up the market, market segment, industry or other composite on which the underlying index is based, rather than price movements in individual securities, as is the case with respect to options on securities.

 

Swaps, Caps, Floors and Collars. Among the Derivative Transactions into which the Fund may enter are interest rate, index and other swaps and the purchase or sale of related caps, floors and collars. The Fund expects to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, as a duration management technique or to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. The Fund will not sell interest rate caps or floors where it does not own securities or other instruments providing the income stream the Fund may be obligated to pay. Interest rate swaps involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. An index swap is an agreement to swap cash flows on a notional amount based on changes in the values of the reference indices. The purchase of a cap entitles the purchaser to receive payments on a notional principal amount from the party selling such cap to the extent that a specified index exceeds a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on a notional principal amount from the party selling such floor to the extent that a specified index falls below a predetermined interest rate or amount. A collar is a combination of a cap and a floor that preserves a certain return within a predetermined range of interest rates or values.

 

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The Fund will usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Inasmuch as the Fund will segregate assets (or enter into offsetting positions) to cover its obligations under swaps, the Fund believes such obligations do not, as of the date of this statement of additional information, constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to its borrowing restrictions. However, see forthcoming changes to the current asset segregation framework the Fund initially intends to use as described below under “—Segregation and Cover Requirements.” If there is a default by the Counterparty, the Fund may have contractual remedies pursuant to the agreements related to the transaction.

 

Credit Default Swap Agreements. The Fund may enter into credit default swap agreements. The “buyer” in a credit default contract is obligated to pay the “seller” a periodic stream of payments over the term of the contract provided that no event of default on an underlying reference obligation has occurred. If an event of default occurs, the seller must pay the buyer the full notional value, or “par value,” of the reference obligation. Credit default swap transactions are either “physical delivery” settled or “cash” settled. Physical delivery entails the actual delivery of the reference asset to the seller in exchange for the payment of the full par value of the reference asset. Cash settled entails a net cash payment from the seller to the buyer based on the difference of the par value of the reference asset and the current value of the reference asset that may have, through default, lost some, most or all of its value. The Fund may be either the buyer or seller in a credit default swap transaction. If the Fund is a buyer and no event of default occurs, the Fund will have made a series of periodic payments and recover nothing of monetary value. However, if an event of default occurs, the Fund (if the buyer) will receive the full notional value of the reference obligation either through a cash payment in exchange for the asset or a cash payment in addition to owning the reference assets. As a seller, the Fund receives a fixed rate of income throughout the term of the contract, which typically is between six months and five years, provided that there is no event of default. If an event of default occurs, the seller must pay the buyer the full notional value of the reference obligation.

 

Credit default swap transactions involve greater risks than if the Fund had invested in the reference obligation directly. In addition to general market risks, credit default swaps are subject to liquidity risk, counterparty risk and credit risks, each as further described below. Moreover, if the Fund is a buyer, it will lose its investment and recover nothing should no event of default occur. If an event of default were to occur, the value of the reference obligation received by the seller, coupled with the periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. When the Fund acts as a seller of a credit default swap agreement it is exposed to the risks of leverage since if an event of default occurs the seller must pay the buyer the full notional value of the reference obligation. Accordingly, when the Fund acts as a seller of a credit default swap agreement, it will segregate assets equal to the full notional amount of the reference obligation. However, see forthcoming changes to the current asset segregation framework the Fund initially intends to use as described below under “—Segregation and Cover Requirements.”

 

A credit default index swap is a swap on an index of credit default swaps. Credit default index swaps allow an investor to manage credit risk or to take a position on a basket of credit default swaps (or other instruments) in a more efficient manner than transacting in single name credit default swaps. If a credit event occurs in one of the underlying companies, the protection is paid out via the delivery of the defaulted bond by the buyer of protection in return for payment of the notional value of the defaulted bond by the seller of protection or it may be settled through a cash settlement between the two parties. The underlying company is then removed from the index.

 

Structured Notes. Structured notes are derivative debt securities, the interest rate or principal of which is determined by reference to changes in value of a specific security, reference rate, or index. Indexed securities, similar to structured notes, are typically, but not always, debt securities whose value at maturity or coupon rate is determined by reference to other securities. The performance of a structured note or indexed security is based upon the performance of the underlying instrument, but may involve a formula that multiplies the effect of certain aspects of the performance of that instrument, so that the performance of the derivative is more or less volatile than that of the underlying instrument.

 

The terms of a structured note may provide that, in certain circumstances, no principal is due on maturity and, therefore, may result in loss of investment. Structured notes may be indexed positively or negatively to the performance of the underlying instrument such that the appreciation or deprecation of the underlying instrument will move in the same direction as the value of the structured note at maturity or of any coupon payment. In addition, changes in the interest rate and value of the principal at maturity may be fixed at a specific multiple of the change in value of the underlying instrument, making the value of the structured note more volatile than the underlying instrument. In addition, structured notes may be less liquid and more difficult to price accurately than less complex securities or traditional debt securities.

 

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Commodity-Linked Derivatives. The Fund may invest in instruments with principal and/or coupon payments linked to the value of commodities, commodity futures contracts, or the performance of commodity indices such as “commodity-linked” or “index-linked” notes. These instruments are sometimes referred to as “structured notes” because the terms of the instrument may be structured by the issuer of the note and the purchaser of the note, such as the Fund.

 

The values of these notes will rise and fall in response to changes in the underlying commodity or related index or investment. These notes expose the Fund economically to movements in commodity prices, but a particular note has many features of a debt obligation. These notes also are subject to credit and interest rate risks that in general affect the value of debt securities. Therefore, at the maturity of the note, the Fund may receive more or less principal than it originally invested. The Fund might receive interest payments on the note that are more or less than the stated coupon interest rate payments.

 

Structured notes may involve leverage, meaning that the value of the instrument will be calculated as a multiple of the upward or downward price movement of the underlying commodity future or index. The prices of commodity-linked instruments may move in different directions than investments in traditional equity and debt securities in periods of rising inflation, which may provide the Fund with a desired degree of diversity. Of course, there can be no guarantee that the Fund’s commodity-linked investments would not be correlated with traditional financial assets under any particular market conditions.

 

Commodity-linked notes may be issued by U.S. and foreign banks, brokerage firms, insurance companies and other corporations. These notes, in addition to fluctuating in response to changes in the underlying commodity assets, will be subject to credit and interest rate risks that typically affect debt securities.

 

The commodity-linked instruments may be wholly principal protected, partially principal protected or offer no principal protection. With a wholly principal protected instrument, the Fund will receive at maturity the greater of the par value of the note or the increase in value of the underlying index. Partially protected instruments may suffer some loss of principal up to a specified limit if the underlying index declines in value during the term of the instrument. For instruments without principal protection, there is a risk that the instrument could lose all of its value if the index declines sufficiently. The Adviser’s or Subadviser’s decision on whether and to what extent to use principal protection depends in part on the cost of the protection. In addition, the ability of the Fund to take advantage of any protection feature depends on the creditworthiness of the issuer of the instrument.

 

Commodity-linked derivatives are generally hybrid instruments which are excluded from regulation under the Commodity Exchange Act (the “CEA”) and the rules thereunder. Additionally, from time to time the Fund may invest in other hybrid instruments that do not qualify for exemption from regulation under the CEA.

 

Segregation and Cover Requirements. As an investment company registered with the SEC, the Fund must segregate liquid assets, or engage in other measures to “cover” open positions with respect to certain kinds of derivatives and other transactions. The Fund or the Underlying Funds may incur losses on derivatives and other leveraged investments (including the entire amount of a fund’s investment in such investments) even if they are covered. To the extent that a fund does not segregate liquid assets or otherwise cover its obligations under any such transactions (e.g., through offsetting positions), certain types of these transactions will be treated as senior securities representing leverage for purposes of the requirements under the 1940 Act; and, therefore, a fund may not enter into any such transactions if the fund’s leverage would thereby exceed the limits of the 1940 Act. The Fund may employ a combination of segregation and cover with respect to any particular derivative or other transaction.

 

The Fund’s derivative transactions are generally subject to earmarking and coverage requirements of either the Commodity Futures Trading Commission (the “CFTC”) or the SEC, with the result that, if the Fund does not hold the security or futures contract underlying the instrument, the Fund intends to designate on its books and records on an ongoing basis, cash or liquid securities in an amount at least equal to the Fund’s obligations with respect to such instruments. Such amounts may fluctuate as the obligations increase or decrease. The earmarking requirement can result in the Fund maintaining securities positions it would otherwise liquidate, segregating assets at a time when it might be disadvantageous to do so and otherwise restrict portfolio management.

 

In general, either the full amount of any obligation by the Fund to pay or deliver securities or assets must be covered at all times by the securities or instruments required to be delivered, or, subject to any regulatory restrictions, an amount of liquid assets at least equal to the current amount of the obligation must be segregated with the custodian or sub-custodian of the Fund in accordance with established procedures. The segregated assets cannot be sold or transferred unless equivalent assets are substituted in their place or it is no longer necessary to segregate them. A call option on securities written by the Fund, for example, will require the Fund to hold the securities subject to the call (or securities convertible into the needed securities without additional consideration) or to segregate liquid high grade debt obligations sufficient to purchase and deliver the securities if the call is exercised. A call option sold by the Fund on an index will require the Fund to own portfolio securities that correlate with the index or to segregate liquid high grade debt obligations equal to the excess of the index value over the exercise price on a current basis. A put option on securities written by the Fund will require the Fund to segregate liquid high grade debt obligations equal to the exercise price.

 

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Over-the-counter options entered into by the Fund, including those on securities, financial instruments or indexes, and OCC-issued and exchange-listed index options will generally provide for cash settlement, although the Fund will not be required to do so. As a result, when the Fund sells these instruments it will segregate an amount of assets equal to its obligations under the options. OCC-issued and exchange-listed options sold by the Fund other than those described above generally settle with physical delivery, and the Fund will segregate an amount of assets equal to the full value of the option. OTC options settling with physical delivery or with an election of either physical delivery or cash settlement will be treated the same as other options settling with physical delivery.

 

In the case of a futures contract or an option on a futures contract, the Fund must deposit the initial margin and, in some instances, the daily variation margin in addition to segregating liquid assets sufficient to meet its obligations to purchase or provide securities or currencies, or to pay the amount owed at the expiration of an index-based futures contract. The Fund will accrue the net amount of the excess, if any, of its obligations relating to swaps over its entitlements with respect to each swap on a daily basis and will segregate with its custodian, or designated sub-custodian, an amount of liquid assets having an aggregate value equal to at least the accrued excess. Caps, floors and collars require segregation of liquid assets with a value equal to the Fund’s net obligation, if any.

 

In the case of forward currency contracts that are not contractually required to cash settle, the Fund must set aside liquid assets equal to such contracts’ full notional value while the positions are open. With respect to forward currency contracts that are contractually required to cash settle, however, the Fund is permitted to set aside liquid assets in an amount equal to the Fund’s daily marked-to-market net obligations (i.e., the Fund’s daily net liability) under the contracts, if any, rather than such contracts’ full notional value.

 

In the case of swaps that do not cash settle, for example, the Fund must set aside liquid assets equal to the full notional amount of the swaps while the positions are open. With respect to swaps that cash settle, however, the Fund may set aside liquid assets in an amount equal to the Fund’s daily marked-to-market net obligations (i.e., the Fund’s daily net liability) under the swaps, if any, rather than their full notional amount.

 

Derivatives may be covered by means other than those described above when consistent with applicable regulatory policies. The Fund may also enter into offsetting transactions so that its combined position, coupled with any segregated assets, equals its net outstanding obligation in related derivatives. Other derivatives may also be offset in combinations. If the offsetting transaction terminates at the time of or after the primary transaction, no segregation is required, but if it terminates prior to that time, assets equal to any remaining obligation would need to be segregated. The Fund reserves the right to modify its asset segregation policies in the future to comply with any changes in the positions from time to time articulated by the SEC or its staff regarding asset segregation.

 

The use of segregation and cover does not eliminate the risk of loss on a derivative or other leveraging position.

 

Notwithstanding the foregoing, the current framework for asset segregation described above will no longer apply to the Fund by the third quarter of 2022. On October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). The Fund will be required to implement and comply with Rule 18f-4 by the third quarter of 2022. Once implemented, Rule 18f-4 will impose new limits on the amount of derivatives, short sales, and tender option bond transactions that the Fund can enter into; eliminate the asset segregation framework the Fund initially intends to use to comply with Section 18 of the 1940 Act; treat certain derivatives as senior securities so that a failure to comply with the limits might be alleged by a regulator to be a statutory violation; and potentially require the Fund to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. The extent of the impact of such new regulations on the Fund, including the ability of the Fund to continue to utilize derivatives, short sales and tender option bond transactions in an amount similar to its intended initial use of such transactions, remains uncertain as of the date of this statement of additional information.

 

Combined Transactions. The Fund may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple currency transactions (including forward currency contracts) and multiple interest rate transactions and any combination of futures, options, currency and interest rate transactions (“component” transactions), instead of a single Derivative Transaction, as part of a single or combined strategy when, in the opinion of the Adviser or Subadviser, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions are normally entered into based on the Adviser’s or Subadviser’s judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the portfolio management objectives.

 

Regulation as a “Commodity Pool.” The CFTC has adopted amendments to CFTC Rule 4.5 which requires operators of registered investment companies to either limit such investment companies’ use of futures, options on futures and swaps or register as a commodity pool operator (“CPO”) and submit to dual regulation by the CFTC and the SEC. In order to be able to comply with the exclusion from the CPO definition pursuant to CFTC Rule 4.5 with respect to the Fund, the Adviser must limit the Fund’s transactions in commodity futures, commodity option contracts and swaps for non-hedging purposes by either (a) limiting the aggregate initial margin and premiums required to establish non-hedging commodities positions to not more than 5% of the liquidation value of the Fund’s portfolio after taking into account unrealized profits and losses on any such contract or (b) limiting the aggregate net notional value of non-hedging commodities positions to not more than 100% of the liquidation value of the Fund’s portfolio after taking into account unrealized profits and losses on such positions. In the event that the Fund’s investments in such instruments exceed such thresholds, the Adviser would no longer be excluded from the CPO definition and may be required to register as a CPO, and the Subadviser may be required to register as a commodity trading advisor (“CTA”). In the event the Adviser or Subadviser is required to register as a CPO or CTA, as applicable, it will become subject to additional recordkeeping and reporting requirements with respect to the Fund. The Adviser has claimed an exclusion from the definition of a CPO with respect to the Fund under the amended rules. The Fund reserves the right to engage in transactions involving futures, options thereon and swaps in accordance with the Fund’s policies. The Fund does not anticipate that it will invest in commodity futures, commodity options contracts and swaps to an extent or in a manner that would require the Adviser and the Subadviser to register as a CPO or CTA (as applicable) in connection with their management of the Fund.

 

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Exchange-Traded Funds. The Fund may invest in a range of exchange-traded funds (“ETFs”). When the Fund invests in sector ETFs, there is a risk that securities within the same group of industries will decline in price due to sector-specific market or economic developments. If the Fund invests more heavily in a particular sector, the value of its Common Shares may be especially sensitive to factors and economic risks that specifically affect that sector. As a result, the Fund’s Common Share price may fluctuate more widely than the value of shares of a mutual fund that invests in a broader range of industries. Additionally, some sectors could be subject to greater government regulation than other sectors. Therefore, changes in regulatory policies for those sectors may have a material effect on the value of securities issued by companies in those sectors. The sectors in which the Fund may be more heavily invested will vary.

 

The shares of an ETF may be assembled in a block (typically 25,000 or 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) 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. The Fund may redeem creation units for the underlying securities (and any applicable cash), and may assemble a portfolio of the underlying securities and use it (and any required cash) to purchase creation units, if the Adviser or Subadviser believes it is in the Fund’s interest to do so. The Fund’s ability to redeem creation units may be limited by the 1940 Act, which provides that the ETFs will not be obligated to redeem shares held by the Fund in an amount exceeding one percent of their total outstanding securities during any period of less than 30 days.

 

There is a risk that the underlying ETFs in which the Fund invests may terminate due to extraordinary events that may cause any of the service providers to the ETFs, such as the trustee or sponsor, to close or otherwise fail to perform their obligations to the ETF. Also, because the ETFs in which the Fund intends to invest may be granted licenses by agreement to use the indices as a basis for determining their compositions and/or otherwise to use certain trade names, the ETFs may terminate if such license agreements are terminated. In addition, an ETF may terminate if its entire net asset value falls below a certain amount. Although the Fund believes that, in the event of the termination of an underlying ETF they will be able to invest instead in shares of an alternate ETF tracking the same market index or another market index with the same general market, there is no guarantee that shares of an alternate ETF would be available for investment at that time. To the extent the Fund invests in a sector product, the Fund will be subject to the risks associated with that sector. See “Additional Risks of Investing in the Fund—ETFs Risk.”

 

Illiquid Securities and Restricted Securities. Certain securities may be subject to legal or contractual restrictions on resale (“restricted securities”). Generally speaking, restricted securities may be sold: (i) only to qualified institutional buyers; (ii) in a privately negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering for which a registration statement is in effect under the Securities Act of 1933, as amended (“1933 Act”). Issuers of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded.

 

Restricted securities are often illiquid, but they may also be liquid. For example, restricted securities that are eligible for resale under Rule 144A are often deemed to be liquid. The Fund and Underlying Funds may also purchase securities that are not subject to legal or contractual restrictions on resale, but that are deemed illiquid. Such securities may be illiquid, for example, because there is a limited trading market for them.

 

The Fund or an Underlying Fund may be unable to sell a restricted or illiquid security. In addition, it may be more difficult to determine a market value for restricted or illiquid securities. Moreover, if adverse market conditions were to develop during the period between the Fund’s or an Underlying Fund’s decision to sell a restricted or illiquid security and the point at which the Fund or an Underlying Fund is permitted or able to sell such security, the Fund or an Underlying Fund might obtain a price less favorable than the price that prevailed when it decided to sell.

 

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Investment Company Securities. The Fund and the Underlying Funds may invest in the securities of other investment companies, including closed-end funds, open-end funds, ETFs, unit investment trusts and BDCs registered under the 1940 Act (collectively, the “Investment Companies”), to the extent permitted under applicable law and subject to certain restrictions.

 

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. The Fund intends to rely on Section 12(d)(1)(F) of the 1940 Act, which 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.

 

In addition, to comply with provisions of the 1940 Act, in any matter upon which Investment Company stockholders are solicited to vote, the Adviser or Subadviser, as applicable, may be required to vote Investment Company shares in the same proportion as shares held by other stockholders of the Investment Company.

 

Acquired funds typically incur fees that are separate from those fees incurred directly by the Fund or an Underlying Fund. The Fund’s or an Underlying Fund’s purchase of Investment Company securities results in the layering of expenses as Common Shareholders would indirectly bear a proportionate share of the operating expenses of such Investment Companies, including advisory fees, in addition to paying Fund or Underlying Fund expenses. In addition, the securities of Investment Companies may also be leveraged and will therefore will be subject to certain leverage risks. The NAV and market value of leveraged securities will be more volatile and the yield to Common Shareholders will tend to fluctuate more than the yield generated by unleveraged securities. Investment Companies may also have investment policies that differ from those of the Fund or an Underlying Fund.

 

Under certain circumstances an open-end investment company in which the Fund or an Underlying Fund invests may determine to make a payment of a redemption by the Fund or an Underlying Fund wholly or in part by a distribution in kind of securities from its portfolio, instead of in cash. As a result, the Fund or an Underlying Fund may hold such securities until the Adviser, Subadviser or manager of the Underlying Fund, as applicable, determines it is appropriate to dispose of them. Such disposition will impose additional costs on the Fund or an Underlying Fund.

 

Investment decisions by the investment advisers to the registered investment companies in which the Fund invests are made independently of the Fund. At any particular time, an Underlying Fund may be purchasing shares of an issuer whose shares are being sold by another Underlying Fund. As a result, under these circumstances the Fund indirectly would incur certain transactional costs without accomplishing any investment purpose. See also “—Exchange Traded Funds.”

 

Investment Grade Debt Securities. Investment grade securities are those rated “Baa” or higher by Moody’s or “BBB” or higher by S&P or rated similarly by another NRSRO or, if unrated, judged to be of equivalent quality as determined by the Adviser or Subadviser, as applicable. Moody’s considers bonds it rates “Baa” to have speculative elements as well as investment-grade characteristics. To the extent that the Fund invests in higher-grade securities, the Fund will not be able to avail itself of opportunities for higher income which may be available at lower grades.

 

Inverse Floating Rate Securities. Inverse floating rate securities (sometimes referred to as “inverse floaters”) are securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. Generally, inverse floating rate securities represent beneficial interests in a special purpose trust formed for the purpose of holding municipal bonds. The special purpose trust typically sells two classes of beneficial interests or securities: floating rate securities (sometimes referred to as short-term floaters or tender option bonds) and inverse floating rate securities (sometimes referred to as inverse floaters). Both classes of beneficial interests are represented by certificates. The short-term floating rate securities have first priority on the cash flow from the municipal bonds held by the special purpose trust. Typically, a third party, such as a bank, broker-dealer or other financial institution, grants the floating rate security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees. The holder of the short-term floater effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. However, the institution granting the tender option will not be obligated to accept tendered short-term floaters in the event of certain defaults or a significant downgrade in the credit rating assigned to the bond issuer. For its inverse floating rate investment, the Fund receives the residual cash flow from the special purpose trust. Because the holder of the short-term floater is generally assured liquidity at the face value of the security, the Fund as the holder of the inverse floater assumes the interest rate cash flow risk and the market value risk associated with the municipal security deposited into the special purpose trust. The volatility of the interest cash flow and the residual market value will vary with the degree to which the trust is leveraged. This is expressed in the ratio of the total face value of the short-term floaters in relation to the value of the residual inverse floaters that are issued by the special purpose trust. In addition, all voting rights and decisions to be made with respect to any other rights relating to the municipal bonds held in the special purpose trust are passed through to the Fund, as the holder of the residual inverse floating rate securities.

 

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Because increases in the interest rate on the short-term floaters reduce the residual interest paid on inverse floaters, and because fluctuations in the value of the municipal bond deposited in the special purpose trust affect the value of the inverse floater only, and not the value of the short-term floater issued by the trust, inverse floaters’ value is generally more volatile than that of fixed rate bonds. The market price of inverse floating rate securities is generally more volatile than the underlying securities due to the leveraging effect of this ownership structure. These securities generally will underperform the market of fixed rate bonds in a rising interest rate environment (i.e., when bond values are falling), but tend to outperform the market of fixed rate bonds when interest rates decline or remain relatively stable. Although volatile, inverse floaters typically offer the potential for yields exceeding the yields available on fixed rate bonds with comparable credit quality, coupon, call provisions and maturity. Inverse floaters have varying degrees of liquidity based upon, among other things, the liquidity of the underlying securities deposited in a special purpose trust.

 

The Fund may invest in TOB Residuals that have recourse to the Fund. In the Adviser’s or Subadviser’s discretion, the Fund may enter into a separate shortfall and forbearance agreement with the third party granting liquidity to the floating rate security holders of the special purpose trust. The Fund may enter into such recourse agreements (i) when the liquidity provider to the special purpose trust requires such an agreement because the level of leverage in the special purpose trust exceeds the level that the liquidity provider is willing to support absent such an agreement; and/or (ii) to seek to prevent the liquidity provider from collapsing the special purpose trust in the event that the municipal obligation held in the trust has declined in value. Such an agreement would require the Fund to reimburse the third party granting liquidity to the floating rate security holders of the special purpose trust, upon termination of the trust issuing the inverse floater, the difference between the liquidation value of the bonds held in the trust and the principal amount due to the holders of floating rate interests. In such instances, the Fund may be at risk of loss that exceeds its investment in the inverse floating rate securities. Absent a shortfall and forbearance agreement, the Fund would not be required to make such a reimbursement. If the Fund chooses not to enter into such an agreement, the special purpose trust could be liquidated and the Fund could incur a loss.

 

The Fund will segregate or earmark liquid assets with its custodian in accordance with the 1940 Act to cover its obligations with respect to its investments in special purpose trusts.

 

The Fund may invest in both inverse floating rate securities and floating rate securities (as discussed below) issued by the same special purpose trust.

 

Investments in inverse floating rate securities have the economic effect of leverage. The use of leverage creates special risks for Common Shareholders. See the Prospectus under “Risks—Structural Risk—Leverage Risk.”

 

Floating Rate Securities. The Fund may also invest in floating rate securities, as described above, issued by special purpose trusts. Floating rate securities may take the form of short-term floating rate securities or the option period may be substantially longer. Generally, the interest rate earned will be based upon the market rates for municipal securities with maturities or remarketing provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods of one year or multiple years. Since the option feature has a shorter term than the final maturity or first call date of the underlying bond deposited in the trust, the Fund as the holder of the floating rate security relies upon the terms of the agreement with the financial institution furnishing the option as well as the credit strength of that institution. As further assurance of liquidity, the terms of the trust provide for a liquidation of the municipal security deposited in the trust and the application of the proceeds to pay off the floating rate security. The trusts that are organized to issue both short-term floating rate securities and inverse floaters generally include liquidation triggers to protect the investor in the floating rate security.

 

Auction Rate Securities. Municipal securities also include auction rate municipal securities and auction rate preferred securities issued by closed-end investment companies that invest primarily in municipal securities (collectively, “auction rate securities”). In recent market environments, auctions have failed, which adversely affects the liquidity and price of auction rate securities, and are unlikely to resume. Provided that the auction mechanism is successful, auction rate securities usually permit the holder to sell the securities in an auction at par value at specified intervals. The dividend is reset by “Dutch” auction in which bids are made by broker-dealers and other institutions for a certain amount of securities at a specified minimum yield. The dividend rate set by the auction is the lowest interest or dividend rate that covers all securities offered for sale. While this process is designed to permit auction rate securities to be traded at par value, there is a risk that an auction will fail due to insufficient demand for the securities. Moreover, between auctions, there may be no secondary market for these securities, and sales conducted on a secondary market may not be on terms favorable to the seller. Auction rate securities may be called by the issuer. Thus, with respect to liquidity and price stability, auction rate securities may differ substantially from cash equivalents, notwithstanding the frequency of auctions and the credit quality of the security. The Fund’s investments in auction rate securities of closed-end funds are subject to the limitations prescribed by the 1940 Act. The Fund will indirectly bear its proportionate share of any management and other fees paid by such closed-end funds in addition to the advisory fees payable directly by the Fund.

 

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Taxable Municipal Securities. The Fund and the Underlying Funds may invest in taxable municipal securities, which include obligations issued pursuant to the legislation providing for the issuance of taxable municipal debt on which the issuer receives federal support. The Fund’s investments in taxable municipal bonds will result in taxable income, and the Fund may elect to pass through to Common Shareholders the corresponding tax credits. The tax credits can generally be used to offset federal income taxes and the alternative minimum tax, but such credits are generally not refundable. Taxable municipal bonds involve similar risks as tax-exempt municipal bonds. See “Risks—Investment-Related Risks—Municipal Bond Risks” in the Prospectus and “—Municipal Securities” in this SAI.

 

Temporary Investments and Defensive Position. During the period where the net proceeds of this offering of Common Shares are being invested or during periods in which the Adviser or Subadviser determines that it is temporarily unable to follow the Fund’s investment strategy or that it is impractical to do so, the Fund may deviate from its investment strategy and invest all or any portion of its net assets in cash, cash equivalents or other securities. The Adviser’s or Subadviser’s determination that it is temporarily unable to follow the Fund’s investment strategy or that it is impracticable to do so generally will occur only in situations in which a market disruption event has occurred and where trading in the securities selected through application of the Fund’s investment strategy is extremely limited or absent. In such a case, the Fund may not pursue or achieve its investment objectives.

 

Cash and cash equivalents are defined to include, without limitation, the following:

 

(1) U.S. Government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities. U.S. Government agency securities include securities issued by: (a) the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, and the Government National Mortgage Association, whose securities are supported by the full faith and credit of the United States; (b) the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the Tennessee Valley Authority, whose securities are supported by the right of the agency to borrow from the U.S. Treasury; (c) the Federal National Mortgage Association; and (d) the Student Loan Marketing Association. While the U.S. Government typically provides financial support to such U.S. Government-sponsored agencies or instrumentalities, no assurance can be given that it always will do so since it is not so obligated by law. The U.S. Government, its agencies, and instrumentalities do not guarantee the market value of their securities. Consequently, the value of such securities may fluctuate.

 

(2) Certificates of deposit issued against funds deposited in a bank or a savings and loan association. Such certificates are for a definite period of time, earn a specified rate of return, and are normally negotiable. The issuer of a certificate of deposit agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon. Under current Federal Deposit Insurance Corporation (“FDIC”) regulations, the maximum insurance payable as to any one certificate of deposit is $250,000, therefore, certificates of deposit purchased by the Fund may not be fully insured.

 

(3) Repurchase agreements, which involve purchases of debt securities. At the time the Fund purchases securities pursuant to a repurchase agreement, it simultaneously agrees to resell and redeliver such securities to the seller, who also simultaneously agrees to buy back the securities at a fixed price and time. This assures a predetermined yield for the Fund during its holding period, since the resale price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for the Fund to invest temporarily available cash. Pursuant to the Fund’s policies and procedures, the Fund may enter into repurchase agreements only with respect to obligations of the U.S. Government, its agencies or instrumentalities; certificates of deposit; or bankers’ acceptances in which the Fund may invest. Repurchase agreements may be considered loans to the seller, collateralized by the underlying securities. The risk to the Fund is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event of default, the repurchase agreement provides that the Fund is entitled to sell the underlying collateral. If the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, the Fund could incur a loss of both principal and interest. The Adviser or Subadviser, as applicable, monitors the value of the collateral at the time the action is entered into and at all times during the term of the repurchase agreement. The Adviser or Subadviser does so in an effort to determine that the value of the collateral always equals or exceeds the agreed-upon repurchase price to be paid to the Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of the Fund to liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws.

 

(4) Commercial paper, which consists of short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. There is no secondary market for such notes. However, they are redeemable by the Fund at any time. The Adviser or Subadviser, as applicable, will consider the financial condition of the corporation (e.g., earning power, cash flow, and other liquidity measures) and will continuously monitor the corporation’s ability to meet all its financial obligations, because the Fund’s liquidity might be impaired if the corporation were unable to pay principal and interest on demand. Investments in commercial paper will be limited to commercial paper rated in the highest categories by a NRSRO and which mature within one year of the date of purchase or carry a variable or floating rate of interest.

 

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(5) The Fund may invest in bankers’ acceptances which are short-term credit instruments used to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then “accepted” by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an asset or it may be sold in the secondary market at the going rate of interest for a specific maturity.

 

(6) The Fund may invest in bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest. There may be penalties for the early withdrawal of such time deposits, in which case the yields of these investments will be reduced.

 

(7) The Fund may invest in shares of money market funds in accordance with the provisions of the 1940 Act.

 

Zero Coupon Bonds. A zero coupon bond is a bond that typically does not pay interest either for the entire life of the obligation or for an initial period after the issuance of the obligation. When held to its maturity, the holder receives the par value of the zero coupon bond, which generates a return equal to the difference between the purchase price and its maturity value. A zero coupon bond is normally issued and traded at a deep discount from face value. This original issue discount (“OID”) approximates the total amount of interest the security will accrue and compound prior to its maturity and reflects the payment deferral and credit risk associated with the instrument. Because zero coupon securities and other OID instruments do not pay cash interest at regular intervals, the instruments’ ongoing accruals require ongoing judgments concerning the collectability of deferred payments and the value of any associated collateral. As a result, these securities may be subject to greater value fluctuations and less liquidity in the event of adverse market conditions than comparably rated securities that pay cash on a current basis. Because zero coupon bonds, and OID instruments generally, allow an issuer to avoid or delay the need to generate cash to meet current interest payments, they may involve greater payment deferral and credit risk than coupon loans and bonds that pay interest currently or in cash. The Fund generally will be required to distribute dividends to Common Shareholders representing the income of these instruments as it accrues, even though the Fund will not receive all of the income on a current basis or in cash. Thus, the Fund may have to sell other investments, including when it may not be advisable to do so, and use the cash proceeds to make income distributions to Common Shareholders. For accounting purposes, these cash distributions to Common Shareholders will not be treated as a return of capital.

 

Further, the Adviser collects management fees on the value of a zero coupon bond or OID instrument attributable to the ongoing non-cash accrual of interest over the life of the bond or other instrument. As a result, the Adviser receives non-refundable cash payments based on such non-cash accruals while investors incur the risk that such non-cash accruals ultimately may not be realized.

 

Additional Risks of Investing in the Fund

 

Below Investment Grade Securities Risk. The Fund or the Underlying Funds 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 or the Underlying Funds 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.

 

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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. Because of the substantial risks associated with below investment grade securities, you could lose money on your investment in Common Shares, both in the short term and the long term.

 

Call Risk. If interest rates fall, it is possible that issuers of securities with high interest rates will prepay or “call” their securities before their maturity dates. In this event, the proceeds from the called securities would likely be reinvested by the Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the Fund’s income and distributions to Common Shareholders.

 

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 (as defined below) in ETFs, those assets will be subject to the risks of the purchased funds’ portfolio securities, and a Common Shareholder will bear not only his or her proportionate share of the Fund’s expenses, but also indirectly the expenses of the purchased funds. Common 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 described in the Prospectus 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.

 

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 the Common 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.

 

Reinvestment Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the proceeds from matured, traded or called bonds at market interest rates that are below the portfolio’s current earnings rate. A decline in income could affect the Common Shares’ market price or their overall returns.

 

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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 325 North LaSalle Street, Suite 645, Chicago, Illinois 60654. Under the oversight of the Board of Directors, the Adviser will be 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 will also be responsible for determining the Fund’s overall investment strategy and overseeing its implementation. Subject to the ranges noted above, the Adviser will determine the portion of the Fund’s Managed Assets to allocate to each strategy and may, from time to time, adjust the allocations. Founded in 2000, RiverNorth is registered with the SEC and as of November 30, 2020 managed approximately $4.3 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 RiverNorth Holding Co., the indirect parent company of the Adviser and each may be deemed to control the Adviser.

 

Investment Subadviser

 

MacKay Shields LLC is the Fund’s subadviser and will be responsible for the day-to-day management of the Fund’s Managed Assets allocated to the Municipal Bond Income Strategy. The Subadviser is registered with the SEC and as of, September 30, 2020 had approximately $144 billion in assets under management. The Subadviser was incorporated in 1969 as an independent investment advisory firm and was privately held until 1984 when it was acquired by New York Life Insurance Company. The Subadviser is an indirect wholly owned subsidiary of New York Life Insurance Company.

 

Investment Advisory Agreement and Subadvisory Agreement

 

For its services under the Investment Advisory Agreement, the Fund pays the Adviser a monthly management fee computed at the annual rate of 1.40% of the average daily Managed Assets. Pursuant to a Subadvisory Agreement, the Adviser has delegated daily management of the Fund’s Municipal Bond Income Strategy to the Subadviser, who is paid by the Adviser and not the Fund. The Adviser (and not the Fund) has agreed to pay the Subadviser a subadvisory fee payable on a monthly basis at the annual rate of 0.20% of the Fund’s average daily 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, who are not compensated by the Fund), 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.

 

If the Fund determines to use leverage, the fees paid to the Adviser and Subadviser for investment management services will be higher than if the Fund did not use leverage because the fees paid will be calculated based on Managed Assets, which would include assets attributable to leverage. Because the fees paid to the Adviser and Subadviser are determined on the basis of Managed Assets, this creates a conflict of interest for the Adviser and Subadviser. The Board of Directors monitors the Fund’s use of leverage and in doing so monitors this potential conflict.

 

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 will pay 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 will be required to pay 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 and the Subadvisory Agreement will remain in effect for an initial term ending two years from the effective date of that agreement (unless sooner terminated). The Investment Advisory Agreement shall remain in effect from year to year thereafter if approved annually (i) by a majority of the outstanding voting securities of the Fund or by a vote of the Fund’s 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. The Subadvisory Agreement shall remain in effect from year to year after its initial two year term if approved annually by the Fund’s Board of Directors or a vote of the lesser of (x) 67% of the shares of the Fund represented at a meeting if Common Shareholders of more than 50% of the outstanding shares of the Fund are present in person or by proxy or (y) more than 50% of the outstanding shares of the Fund; provided that in either event its continuance is also approved by a majority of the Fund’s directors who are not “interested persons” of any party to the Subadvisory Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. Information regarding the Board of Directors’ approval of the Investment Advisory Agreement and the Subadvisory Agreement will be available in the Fund’s semi-annual report to Common Shareholders for the period ended December 31, 2020. The Investment Advisory Agreement and the Subadvisory 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 or, as applicable, the Subadviser.

 

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Portfolio Managers

 

Patrick W. Galley, CFA is a co-portfolio manager of the Tactical Municipal Closed-End Fund Strategy for 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 Tactical Municipal Closed-End Fund Strategy for the Fund. Mr. O’Neill conducts qualitative and quantitative analysis of closed-end funds and their respective asset classes at RiverNorth. Prior to joining RiverNorth Capital 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.

 

Robert DiMella, CFA is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. DiMella is an Executive Director of the Subadviser. He has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High Yield Municipal Bond Fund since 2010, the MainStay New York Tax Free Opportunities Fund since May 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Previously, he co-founded Mariner Municipal Managers LLC (2007 to 2009). Prior to BlackRock’s merger with Merrill Lynch Investment Managers (“MLIM”), he served as a Senior Portfolio Manager and Managing Director of the Municipal Products Group. Mr. DiMella earned his Master’s degree at Rutgers University Business School and a Bachelors Degree at the University of Connecticut, and he has received the CFA designation.

 

John Loffredo, CFA is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Loffredo is an Executive Managing Director of the Subadviser. Mr. Loffredo has managed the MainStay Tax Free Bond Fund since 2009, the MainStay High Yield Municipal Bond Fund since 2010, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. He has been a municipal portfolio manager and/or municipal analyst on Wall Street since 1990, with a broad range of portfolio management and analytic experience in the municipal markets. He previously co-founded Mariner Municipal Managers LLC (2007 to 2009). Prior to BlackRock’s merger with MLIM, he served as Chief Investment Officer of the Municipal Products Group of MLIM. Mr. Loffredo graduated cum laude with an MBA from Utah State University where he was a Harry S. Truman Scholar. He also has a Certificate of Public Management from Boston University, and he has received the CFA designation.

 

Michael Petty is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Petty is a Senior Managing Director of the Subadviser. Mr. Petty has managed the MainStay High Yield Municipal Bond Fund since 2010, the MainStay Tax Free Bond Fund since 2011, the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Before joining the Subadviser in 2009, he was a Portfolio Manager for Mariner Municipal Managers. He has been a portfolio manager on Wall Street since 1992, and has worked in the municipal products market since 1985. Mr. Petty has a broad array of trading, portfolio management, and sales experience. Prior to joining Mariner Municipal Managers, he was a Senior Portfolio Manager at Dreyfus Corporation from 1997 to 2009. From 1992 to 1997, he served as a Portfolio Manager for Merrill Lynch Investment Managers. Mr. Petty graduated from Hobart College with a B.S. in Mathematics and Economics.

 

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Scott Sprauer is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Sprauer is a Senior Managing Director of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free Bond Fund since February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser, he was the Head Trader, Fixed Income at Financial Guaranty Insurance Company from 2006 to 2009. He has a BSBA from Villanova University, and has been in the investment management industry since 1991.

 

David Dowden is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Dowden is a Managing Director of the Subadviser. He joined the Subadviser in 2009 as a Portfolio Manager in the Municipal Bond Division. He has managed the MainStay New York Tax Free Opportunities Fund since 2012, the MainStay Defined Term Municipal Opportunities Fund since 2012, the MainStay California Tax Free Opportunities Fund since 2013, the MainStay High Yield Municipal Bond Fund and MainStay Tax Free Bond Fund since February 2014 and the MainStay Tax Advantaged Short Term Bond Fund since June 2015. Prior to joining the Subadviser, he was the Chief Investment Officer at Financial Guaranty Insurance Company from 2006 to 2009. He has a BA from Brown University and an MBA from Columbia University. He has been in the investment management industry since 1989.

 

Robert Burke is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Burke is a Managing Director of the Subadviser. He joined the Subadviser in July 2017. Before joining the Subadviser, Mr. Burke held various leadership roles in capital markets, spending the majority of his time in the municipal markets. In his last role working for Bank of America Merrill Lynch, Mr. Burke managed the Global Futures, Derivatives Clearing and Foreign Exchange Prime Brokerage businesses. Mr. Burke started his career at Bank of America Merrill Lynch in the municipal bond department covering insurance, hedge fund, and asset management clients. He holds a Masters of Business Administration from the Gabelli School at Fordham University, and a Bachelor of Arts with High Honors in Economics from Colgate University. Mr. Burke has received the CFA designation. He has been in the investment management industry since 1985.

 

John Lawlor is a co-portfolio manager of the Municipal Bond Income Strategy for the Fund. Mr. Lawlor joined MacKay Shields in 2016.  Before joining the firm, he was Vice President Equity Sales at Deutsche Bank and was previously at Bank of America Merrill Lynch.  From 1997-2011, he was a senior trader on the floor of the New York Stock Exchange.  John has a broad and diverse set of skills in sales, trading, and electronic trading platforms.  He earned a Bachelor’s degree in Finance from Lehigh University. John graduated college in 1997.  He has 19 years in the financial services industry.

 

Compensation of Portfolio Managers

 

RiverNorth Capital Management, LLC

 

Mr. Galley’s and Mr. 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 managers 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. Mr. Galley and Mr. 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 managers 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.

 

MacKay Shields LLC

 

The Subadviser establishes salaries at competitive levels, verified through industry surveys, to attract and maintain the best professional talent.  Incentives are paid annually to the firm’s employees based upon an individual’s performance and the profitability of the firm, and in some instances may be fixed and guaranteed for a period of time. Incentive bonuses (both cash and deferred) are an integral portion of total compensation at MacKay Shields and vary based upon an individual’s role, responsibility and performance. A significant percentage of the compensation program for the Fund’s portfolio managers is incentive based.

 

  21  

 

The Subadviser has a phantom equity program and awards are an integral component of the firm’s compensation structure.  Awards vest and pay out after several years.  Thus, eligible professionals share in the results and success of the firm.

 

The compensation received by portfolio managers is generally based on both quantitative and qualitative factors.  The quantitative factors may include:  (i) investment performance; (ii) assets under management; (iii) revenues and profitability; and (iv) industry benchmarks.  The qualitative factors may include, among others, leadership, adherence to the firm’s policies and procedures, and contribution to the firm’s goals and objectives. 

 

To the extent that an increase in the size of the Fund or another account managed by a portfolio manager has a positive impact on revenues/profitability, a portfolio manager’s compensation may also increase.  There is no difference between the method used in determining portfolio managers’ compensation with respect to the Fund and other accounts they manage.  The Subadviser does not believe the compensation structure provides an incentive for an employee who provides services to the Fund to take undue risks in managing the assets of the Fund.

 

Portfolio Manager Ownership of Fund Shares

 

As of the date of the SAI, none of the portfolio managers beneficially owns any equity securities of the Fund.

 

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 or Subadviser 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, the Subadviser 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 or Subadviser 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 Subadviser or result in the Adviser or Subadviser receiving material, non-public information, or the Adviser or Subadviser 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 or Subadviser 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 and Subadviser 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 or Subadviser 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.

 

  22  

 

The Adviser and Subadviser have 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.

 

The Underlying Funds in which the Fund invests will not include those that are advised or subadvised by the Adviser, the Subadviser or their affiliates.

 

Other Accounts Managed

 

As of December 31, 2020, 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 December 31, 2020
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

Number: 11

Assets: $3.6 billion

Number: 0
Assets: $0
Number: 4
Assets: $727.2 million
Number: 3
Assets: $634.9 million
Number: 2
Assets: $32.1 million
Number: 1
Assets: $26.8 million
Stephen O’Neill

Number: 10

Assets: $3.5 billion

Number: 0
Assets: $0
Number: 4
Assets: $727.2 million
Number: 3
Assets: $634.9 million
Number: 2
Assets: $32.1 million
Number: 1
Assets: $26.8 million
Robert DiMella

Number: 15

Assets: $26.7 billion

Number: 0
Assets: $0
Number: 7
Assets: $10.6 billion
Number: 2
Assets: $646 Million
Number: 70
Assets: $25.9 billion
Number: 2
Assets: $553.5 million
John Loffredo

Number: 15

Assets: $26.7 billion

Number: 0
Assets: $0
Number: 7
Assets: $10.6 billion
Number: 2
Assets: $646 Million
Number: 70
Assets: $25.9 billion
Number: 2
Assets: $553.5 million
Michael Petty

Number: 15

Assets: $26.7 billion

Number: 0
Assets: $0
Number: 7
Assets: $10.6 billion
Number: 2
Assets: $646 Million
Number: 70
Assets: $25.9 billion
Number: 2
Assets: $553.5 million
Scott Sprauer

Number: 15

Assets: $26.7 billion

Number: 0
Assets: $0
Number: 7
Assets: $10.6 billion
Number: 2
Assets: $646 Million
Number: 70
Assets: $25.9 billion
Number: 2
Assets: $553.5 million
David Dowden

Number: 15

Assets: $26.7 billion

Number: 0
Assets: $0
Number: 7
Assets: $10.6 billion
Number: 2
Assets: $646 Million
Number: 70
Assets: $25.9 billion
Number: 2
Assets: $553.5 million
Robert Burke

Number: 6

Assets: $3.9 billion

Number: 0
Assets: $0
Number: 7
Assets: $10.6 billion
Number: 2
Assets: $646 Million
Number: 70
Assets: $25.9 billion
Number: 2
Assets: $553.5 million
John Lawlor

Number: 6

Assets: $3.9 billion

Number: 0
Assets: $0
Number: 7
Assets: $10.6 billion
Number: 2
Assets: $646 Million
Number: 70
Assets: $25.9 billion
Number: 2
Assets: $553.5 million

 

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 will bear all expenses in connection with the performance of its services under the Administration Agreement, except for certain out-of-pocket expenses described therein. AFS will not bear any expenses incurred by the Fund, including but not limited to, initial organization and offering expenses; litigation expenses; costs of preferred shares (if any); 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.

 

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

 

Codes of Ethics

 

The Fund, Adviser and Subadviser 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. These codes can be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (202) 942-8090. The codes of ethics are available on the EDGAR Database on the SEC’s website (http://www.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

 

Cohen & Company, Ltd., 1350 Euclid Avenue, Suite 800, Cleveland, Ohio 44115, has been appointed as the independent registered public accounting firm for the Fund. Cohen & Company, Ltd. audits the financial statements of the Fund and provides other audit, tax and related services. The Statement of Assets and Liabilities of the Fund as of January 15, 2021 appearing in this SAI has been audited by Cohen & Company, Ltd., as set forth in its report thereon appearing elsewhere herein, and is included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing.

 

Legal Counsel

 

Chapman and Cutler LLP serves as legal co-counsel to the Fund in connection with the offering of Common Shares contemplated by the Prospectus, and Dechert LLP serves as legal counsel to the independent directors of the Fund and legal co-counsel to the Fund.

 

Custodian and Transfer Agent

 

State Street Bank and Trust Company, located at State Street Financial Center, One Lincoln Street, Boston, MA 02111, will serve as the Fund’s custodian and will maintain 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. For its services, the custodian will receive a monthly fee based upon, among other things, the average value of the total assets of the Fund, plus certain charges for securities transactions.

 

DST Systems, Inc., located at 333 West 9th Street, 2nd Floor, Kansas City, Missouri 64105, and an affiliate of the Administrator, will serve as the transfer agent and registrar for the Fund.

 

PORTFOLIO TRANSACTIONS

 

Subject to policies established by the Board of Directors of the Fund, the Adviser or Subadviser is responsible for the Fund’s portfolio decisions and the placing of the Fund’s portfolio transactions. In placing portfolio transactions, the Adviser or Subadviser 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 or Subadviser generally seeks favorable prices and commission rates that are reasonable in relation to the benefits received under the circumstances under which that particular trade is placed.

 

The Adviser or Subadviser 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 or Subadviser 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 or Subadviser 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 or Subadviser’s overall responsibilities with respect to the Fund and to other accounts over which it exercises investment discretion. The Adviser or Subadviser may not give consideration to sales of Common Shares of the Fund as a factor in the selection of brokers and dealers to execute portfolio transactions. However, the Adviser or Subadviser may place portfolio transactions with brokers or dealers that promote or sell the Fund’s Common 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.

 

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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. (Much, if not all, of this information is the usual and customary research provided to the Adviser and Subadviser irrespective of any trading activity effected with that broker). The research services and other information furnished by brokers through whom the Fund effects securities transactions may also be used by the Adviser or Subadviser in servicing other accounts. Similarly, research and information provided by brokers or dealers when serving other clients may be useful to the Adviser or Subadviser in connection with its services to the Fund. Although research services and other information are useful to the Fund and the Adviser or Subadviser, it is not possible to place a dollar value on the research and other information received. It is the opinion of the Board of Directors and the Adviser or Subadviser that the review and study of the research and other information will not increase or reduce the overall cost to the Adviser or Subadviser 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 asked prices.

 

When the Fund and another of the Adviser’s or Subadviser’s clients seek to purchase or sell the same security at or about the same time, the Adviser or Subadviser 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 or Subadviser may adjust the allocation when, taking into account such factors as the size of the individual orders and transaction costs, the Adviser or Subadviser believes an adjustment is reasonable.

 

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 Common Shareholder that acquires, holds and/or disposes of Common Shares of the Fund. This discussion only addresses U.S. federal income tax consequences to U.S. Common Shareholders who hold their Common Shares as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant to particular Common Shareholders in light of their individual circumstances. This discussion also does not address the tax consequences to Common Shareholders who are subject to special rules, including, without limitation, banks and other financial institutions, insurance companies, dealers in securities or foreign currencies, traders in securities that have elected to mark-to-market their securities holdings, foreign holders, persons who hold their Common Shares as or in a hedge against currency risk, or as part of a constructive sale, straddle 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 Internal Revenue Service (“IRS”) retroactively or prospectively, which 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 Common Shareholders, and the discussion set forth herein does not constitute tax advice. Investors are urged to consult their own tax advisors 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

 

The Fund intends to elect to be treated, and to qualify each year, as a “regulated investment company” under Subchapter M of the Code, so that it will generally not pay U.S. federal income tax on income and capital gains timely distributed (or treated as being distributed, as described below) to Common Shareholders. If the Fund qualifies as a regulated investment company and distributes to its Common 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 Common 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 the 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, 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, and taking into account certain deferrals and elections), 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 on which the Fund paid no federal income tax. The Fund generally intends to make distributions in a timely manner in an amount at least equal to the required minimum distribution and therefore, under normal circumstances, does not expect to be subject to this excise tax. However, the Fund may also decide to distribute less and pay the federal excise taxes.

 

  25  

 

If for any taxable year the Fund does 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 Common 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 generally would be eligible for the dividends received deduction available to corporate Common Shareholders under Section 243 of the Code, discussed below, and non-corporate Common Shareholders of the Fund generally would be able to treat such distributions as qualified dividend income eligible for reduced rates of U.S. federal income taxation, as discussed below, provided in each case that certain holding period and other requirements are satisfied.

 

If the Fund or an Underlying 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 or Underlying Fund elects to include market discount in income currently), the Fund or Underlying 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 Common 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 or an Underlying Fund may also acquire market discount bonds. A market discount bond is a security acquired in the secondary market at a price below its stated redemption price at maturity (or its adjusted issue price if it is also an original issue discount bond). If the Fund or an Underlying 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 or Underlying Fund elects to include the market discount in income as it accrues.

 

The Fund or an Underlying 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. Tax rules are not entirely clear about issues such as when the Fund or an Underlying 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.

 

The Fund will not be able to offset gains distributed by one Underlying Fund in which it invests against losses realized by another Underlying Fund in which the Fund invests. Redemptions of shares in an Underlying Fund, including those resulting from changes in the allocation among Underlying Funds, could also cause additional distributable gains to Common Shareholders. A portion of any such gains may be short-term capital gains that would be distributable as ordinary income to Common Shareholders. Further, a portion of losses on redemptions of shares in the Underlying Funds may be deferred under the wash sale rules. Additionally, the Fund’s investment in an Underlying Fund may result in the Fund’s receipt of cash in excess of the Underlying Fund’s earnings; if the Fund distributes these amounts, the distributions could constitute a return of capital to Common Shareholders for federal income tax purposes. As a result of these factors, the use of the fund of funds structure by the Fund could therefore affect the amount, timing and character of distributions to Common Shareholders.

 

The Fund or an Underlying Fund may engage in various transactions utilizing options, futures contracts, forward contracts, hedge instruments, straddles, and other similar transactions. Such transactions may be subject to special provisions of the Code that, among other things, affect the character of any income realized by the Fund from such investments, accelerate recognition of income to the Fund, defer Fund losses and affect the determination of whether capital gain or loss is characterized as long-term or short-term capital gain or loss. These rules could therefore affect the character, amount and timing of distributions to Common Shareholders. These provisions may also require the Fund to mark-to-market certain positions in its portfolio (i.e., treat them as if they were closed out), which may cause the Fund to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the distribution requirements for avoiding U.S. federal income and excise taxes. In addition, certain Fund investments may produce income that will not be qualifying income for purposes of the 90% income test. The Fund will monitor its investments and transactions, will make the appropriate tax elections, and will make the appropriate entries in its books and records when it acquires an option, futures contract, forward contract, hedge instrument or other similar investment in order to mitigate the effect of these rules, prevent disqualification of the Fund as a regulated investment company and minimize the imposition of U.S. federal income and excise taxes, if possible.

 

  26  

 

The Fund’s transactions in broad based equity index futures contracts, exchange-traded options on such indices and certain other futures contracts (if any) are generally considered “Section 1256 contracts” for federal income tax purposes. Any unrealized gains or losses on such Section 1256 contracts are treated as though they were realized at the end of each taxable year. The resulting gain or loss is treated as sixty percent long-term capital gain or loss and forty percent short-term capital gain or loss. Gain or loss recognized on actual sales of Section 1256 contracts is treated in the same manner. As noted below, distributions of net short-term capital gain are taxable to Common Shareholders as ordinary income while distributions of net long-term capital gain are generally taxable to Common Shareholders as long-term capital gain, regardless of how long the Common Shareholder has held Common Shares of the Fund.

 

The Fund’s entry into a short sale transaction, an option or certain other contracts (if any) could be treated as the constructive sale of an appreciated financial position, causing the Fund to realize gain, but not loss, on the position.

 

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 common stock 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 discussed above. 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 Common 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

 

Distributions of investment company taxable income are generally taxable as ordinary income to the extent of the Fund’s current and accumulated earnings and profits. Distributions of net investment income designated by the Fund as derived from qualified dividend income will be taxed in the hands of individuals and other non-corporate taxpayers at the rates applicable to long-term capital gain, provided certain holding period and other requirements are met at both the shareholder and Fund levels. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (i) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (ii) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (iii) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (iv) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the U.S. which the IRS has approved for these purposes (with the exception of dividends paid on stock of such a foreign corporation that is readily tradable on an established securities market in the U.S.) or (b) treated as a passive foreign investment company. If the Fund received dividends from an Underlying Fund that qualifies as a regulated investment company, and the Underlying Fund designates such dividends as qualified dividend income, then the Fund is permitted in turn to designate a portion of its distributions as qualified dividend income, provided the Fund meets holding period and other requirements with respect to shares of the Underlying Fund. Qualified dividend income does not include interest from fixed income securities and generally does not include income from REITs. If the Fund lends portfolio securities, amounts received by the Fund that is the equivalent of the dividends paid by the issuer on the securities loaned will not be eligible for qualified dividend income treatment. The Fund can provide no assurance regarding the portion of its dividends that will qualify for qualified dividend income treatment.

 

Distributions of net capital gain, if any, that are properly reported by the Fund are taxable at long-term capital gain rates for U.S. federal income tax purposes without regard to the length of time the Common Shareholder has held Common Shares of the Fund. A distribution of an amount in excess of the Fund’s current and accumulated earnings and profits, if any, will be treated by a Common Shareholder as a tax-free return of capital, which is applied against and reduces the Common Shareholder’s basis in his, her or its Common Shares. To the extent that the amount of any such distribution exceeds the Common Shareholder’s basis in his, her or its Common Shares, the excess will be treated by the Common Shareholder as gain from the sale or exchange of such Common Shares. The U.S. federal income tax status of all distributions will be designated by the Fund and reported to Common Shareholders annually.

 

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The Fund may qualify to pay “exempt-interest” dividends, as defined in the Code, on its Common Shares by satisfying the requirement that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consists of municipal securities. As an alternative, the Fund may qualify to pay exempt-interest dividends if it is a qualified fund-of-funds, i.e., if at least 50% of the value of its total assets are invested in the shares of underlying RICs at the close of each quarter of its taxable year. Exempt-interest dividends are dividends or any part thereof (other than a capital gain dividend) paid by the Fund which are attributable to interest on municipal securities and which are so reported by the Fund. Exempt-interest dividends will be exempt from federal income tax, subject to the possible application of the federal alternative minimum tax applicable to individuals. Interest paid on a municipal bond issued after December 31, 2017 to advance refund another municipal bond is subject to federal income tax. Insurance proceeds received by the Fund under any insurance policies in respect of scheduled interest payments on defaulted municipal bonds, as described herein, will generally be correspondingly excludable from federal gross income. In the case of non-appropriation by a political subdivision, however, there can be no assurance that payments made by the issuer representing interest on municipal lease obligations will be excludable from gross income for federal income tax purposes. Any gains of the Fund that are attributable to market discount on municipal securities are treated as ordinary income to the extent of accrued market discount on those securities.

 

A portion of the Fund’s expenditures that would otherwise be deductible may not be allowed as deductions by reason of the Fund’s investment in municipal securities (such disallowed portion, in general, being the same percentage of the Fund’s aggregate expenses as the percentage of the Fund’s aggregate gross income that constitutes exempt interest income from municipal securities). A similar disallowance rule also applies to interest expense paid or incurred by the Fund, if any. Any such disallowed deductions will offset the Fund’s gross exempt-interest income for purposes of calculating the dividends that the Fund can report as exempt-interest dividends. Interest on indebtedness incurred or continued to purchase or carry the Fund’s shares is not deductible to the extent the interest relates to exempt-interest dividends. Under rules used by the IRS for determining when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase or ownership of shares may be considered to have been made with borrowed funds even though such funds are not directly used for the purchase or ownership of such shares.

 

Distributions to Common Shareholders of net investment income received by the Fund from taxable investments, if any, including temporary taxable investments, and of net short-term capital gains realized by the Fund, if any, will be taxable to Common Shareholders as ordinary income. Distributions by the Fund of net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss), if any, are taxable as long-term capital gain, regardless of the length of time the Common Shareholder has owned the shares with respect to which such distributions are made. The amount of taxable income allocable to the Fund’s shares will depend upon the amount of such income realized by the Fund. Distributions, if any, in excess of the Fund’s earnings and profits will first reduce the adjusted tax basis of a Common Shareholder’s shares and, after that basis has been reduced to zero, will constitute capital gain to the Common Shareholder (assuming the shares are held as a capital asset). As long as the Fund qualifies as a RIC under the Code, it is not expected that any part of its distributions to Common Shareholders from its investments will qualify as “qualified dividend income” taxable to non-corporate Common Shareholders at reduced rates.

 

The interest on private activity bonds in most instances is not federally tax-exempt to a person who is a “substantial user” of a facility financed by such bonds or a “related person” of such “substantial user.” As a result, the Fund may not be an appropriate investment for a Common Shareholder who is considered either a “substantial user” or a “related person” within the meaning of the Code. In general, a “substantial user” of a facility includes a “nonexempt person who regularly uses a part of such facility in his trade or business.” “Related persons” are in general defined to include persons among whom there exists a relationship, either by family or business, which would result in a disallowance of losses in transactions among them under various provisions of the Code (or if they are members of the same controlled group of corporations under the Code), including a partnership and each of its partners (and certain members of their families), an S corporation and each of its shareholders (and certain members of their families) and various combinations of these and other relationships. The foregoing is not a complete description of all of the provisions of the Code covering the definitions of “substantial user” and “related person.”

 

Federal income tax law imposes an alternative minimum tax with respect to individuals, trusts, and estates. Interest on certain municipal securities, such as bonds issued to make loans for housing purposes or to private entities (but not to certain tax-exempt organizations such as universities and non-profit hospitals), is included as an item of tax preference in determining the amount of a taxpayer’s alternative minimum taxable income. To the extent that the Fund receives income from such municipal securities, a portion of the dividends paid by the Fund, although otherwise exempt from federal income tax, will be taxable to Common Shareholders whose tax liabilities are determined under the federal alternative minimum tax. The Fund will annually provide a report indicating the percentage of the Fund’s income attributable to municipal securities and the portion thereof the interest on which is a tax preference item.

 

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The Fund may invest in municipal securities that pay interest that is taxable under the federal alternative minimum tax applicable to individuals. If you are, or as a result of investment in the Fund would become, subject to the federal alternative minimum tax, the Fund may not be a suitable investment for you. In addition, distributions of taxable ordinary income (including any net short-term capital gain) will be taxable to Common Shareholders as ordinary income (and not eligible for favorable taxation as “qualified dividend income”), and capital gain dividends will be taxable as long-term capital gains.

 

Any loss realized by a shareholder of the Fund upon the sale of shares held for six months or less may be disallowed to the extent of any exempt-interest dividends received with respect to such shares.

 

Certain distributions by the Fund may qualify for the dividends received deduction available to corporate Common Shareholders under Section 243 of the Code, subject to certain holding period and other requirements, but generally only to the extent the Fund earned dividend income from stock investments in U.S. domestic corporations (but not including real estate investment trusts). Additionally, if the Fund received dividends from an Underlying Fund that qualifies as a regulated investment company, and the Underlying Fund designates such dividends as eligible for the dividends received deduction, then the Fund is permitted in turn to designate a portion of its distributions as eligible for the dividends received deduction, provided the Fund meets holding period and other requirements with respect to shares of the Underlying Fund. As long as the Fund qualifies as a RIC under the Code, it is not expected that any significant part of its distributions to Common Shareholders from its investments will qualify for the dividends-received deduction available to corporate Common Shareholders.

 

A Common Shareholder may elect to have all dividends and distributions automatically reinvested in Common Shares of the Fund. For U.S. federal income tax purposes, all dividends are generally taxable regardless of whether a Common Shareholder takes them in cash or they are reinvested in additional Common Shares of the Fund.

 

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

 

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 Common 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. For U.S. federal income tax purposes, the tax basis of Common Shares owned by a Common Shareholder will be increased by the difference between the amount of undistributed net capital gain included in the Common Shareholder’s gross income and the federal income tax deemed paid by the Common 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 Common Shareholders on December 31 of the calendar year in which it is declared.

 

At the time of an investor’s purchase of the Fund’s Common Shares, a portion of the purchase price may be attributable to realized or unrealized appreciation in the Fund’s portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions by the Fund with respect to these Common Shares from such appreciation or income may be taxable to such investor even if the net asset value of the investor’s Common Shares is, as a result of the distributions, reduced below the investor’s cost for such Common Shares and the distributions economically represent a return of a portion of the investment. Investors should consider the tax implications of purchasing Common Shares just prior to a distribution.

 

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’ 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’ 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, ordinary income, exempt interest 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 Fund’s common stock. 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 holders of common stock.

 

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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, Common Shareholders will be treated as having received such dividends in the taxable year in which the distribution was actually made.

 

Sales, exchanges and other dispositions of the Fund’s Common Shares generally are taxable events for Common Shareholders that are subject to federal income tax. Common Shareholders should consult their own tax advisors regarding their individual circumstances to determine whether any particular transaction in the Fund’s Common 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. Generally, gain or loss will be equal to the difference between the amount of cash and the fair market value of other property received (including securities distributed by the Fund) and the Common Shareholder’s adjusted tax basis in the Common Shares sold or exchanged. In general, any gain or loss realized upon a taxable disposition of Common Shares will be treated as long-term capital gain or loss if the Common Shares have been held for more than one year. Otherwise, the gain or loss on the taxable disposition of the Fund’s Common Shares will be treated as short-term capital gain or loss. However, any loss realized by a Common Shareholder upon the sale or other disposition of Common 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 Common Shares. For the purposes of calculating the six-month period, the holding period is suspended for any periods during which the Common 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 maximum individual rate applicable to long-term capital gains is generally either 15% or 20%, depending on whether the individual’s income exceeds certain threshold amounts. The ability to deduct capital losses may be subject to limitations. In addition, losses on sales or other dispositions of Common Shares may be disallowed under the “wash sale” rules in the event a Common Shareholder acquires substantially identical stock or securities (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 Common 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 Common Shares acquired.

 

An additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions received from the Fund and net gains from redemptions or other taxable dispositions of Common Shares) of U.S. individuals, estates and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in the case of an estate or trust) exceeds certain threshold amounts.

 

From time to time, the Fund may repurchase its Common Shares. Common Shareholders who tender all Common Shares held, and those considered to be held (through attribution rules contained in the Code), by them will be treated as having sold their Common Shares and generally will realize a capital gain or loss. If a Common Shareholder tenders fewer than all of his, her or its Common Shares (including those considered held through attribution), such Common Shareholder may be treated as having received a taxable dividend upon the tender of its Common Shares. If a tender offer is made, there is a risk that non-tendering Common 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 Common Shares, the Fund will be required to make additional distributions to its Common 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.

 

The Code requires that the Fund withhold, as “backup withholding,” 24% of reportable payments, including dividends, capital gain distributions and the proceeds of sales or other dispositions of the Fund’s stock paid to Common Shareholders who have not complied with IRS regulations. In order to avoid this withholding requirement, Common Shareholders must certify on their account applications, or on a separate IRS Form W-9, that the social security number or other taxpayer identification number they provide is their correct number and that they are not currently subject to backup withholding, or that they are exempt from backup withholding. The Fund may nevertheless be required to withhold if it receives notice from the IRS or a broker that the number provided is incorrect or backup withholding is applicable. Backup withholding is not an additional tax. Any amount withheld may be allowed as a refund or a credit against the Common Shareholder’s U.S. federal income tax liability if the appropriate information (such as the timely filing of the appropriate federal income tax return) is provided to the IRS.

 

Under Treasury regulations, if a Common Shareholder recognizes a loss with respect to Common Shares of $2 million or more in a single taxable year (or $4 million or more in any combination of taxable years) for an individual Common Shareholder, S corporation or trust or $10 million or more in a single taxable year (or $20 million or more in any combination of years) for a Common Shareholder who is a C corporation, such Common Shareholder will generally be required to file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are generally excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Common Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.

 

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Other Taxes

 

The description of certain U.S. federal income tax provisions above relates only to U.S. federal income tax consequences for Common Shareholders who are U.S. persons (i.e., U.S. citizens or residents or U.S. corporations, partnerships, trusts or estates). Non-U.S. Common Shareholders should consult their tax advisors concerning the tax consequences of ownership of Common Shares of the Fund, 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 its non-U.S. status).

 

A separate U.S. withholding tax may apply in the case of distributions to (i) certain non-U.S. financial institutions that have not agreed to collect and disclose certain account holder information and are not resident in a jurisdiction that has entered into such an agreement with the U.S. Treasury and (ii) certain other non-U.S. entities that do not provide certain certifications and information about the entity’s U.S. owners.

 

Common 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 following table presents certain information regarding the members of the Board of Directors (each, a “Board Member”). Each Board Member’s year of birth is set forth in parentheses after his or her name. 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 of directors will expire at the first, second and third annual meetings of Common Shareholders, respectively, and, in each case, until their successors are duly elected and qualify, or until a director sooner dies, retires, resigns or is removed as provided in the governing documents of the Fund. 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 Common Shareholders.

 

Except as otherwise noted, the address for all directors and officers is 325 North LaSalle Street, Suite 645, Chicago, Illinois 60654. 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”).

 

Name Address and Year of Birth Position(s) Held with Registrant Term of Office and Length of Time Served Principal Occupation(s) During Past 5 Years Number of Portfolios in Fund Complex(1) Overseen by Director Other Directorships(2) Held by Director During Past 5 Years
Independent Directors        
John K. Carter (1961) Director Initial term expires in 2024.  Has served since 2021.

Partner, Law Office of John K. Carter, P.A. dba Carter Reymann Law, P.A. (a general practice and corporate law firm) (2015 to present); Managing Partner, Global Recruiters of St. Petersburg (a financial services consulting and recruiting firm) (2012 to 2015).

 

10 Carillon Mutual Funds (14 funds) (2016 to present); RiverNorth Specialty Finance Corporation (1 fund) (2016 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2016 to present); RiverNorth Funds (3 funds) (2013 to present); RiverNorth Opportunities Fund, Inc. (1 fund)(2013 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present)(1 fund); RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present)(1 Fund).   

 

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Name Address and Year of Birth Position(s) Held with Registrant Term of Office and Length of Time Served Principal Occupation(s) During Past 5 Years Number of Portfolios in Fund Complex(1) Overseen by Director Other Directorships(2) Held by Director During Past 5 Years

John S. Oakes

(1943)

Director Initial term expires in 2024.  Has served since 2021. Principal, Financial Search and Consulting (a recruiting and consulting firm) (2013 to 2017); Regional Vice President, Securities America (a broker-dealer) (2007 to 2013). 10 RiverNorth Specialty Finance Corporation (1 fund) (2016 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2016 to present); RiverNorth Funds (3 funds) (2010 to present); RiverNorth Opportunities Fund, Inc. (1 fund)(2013 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present)(1 fund); RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present)(1 Fund). 

J. Wayne Hutchens

(1944)

 

Director Initial term expires in 2022.  Has served since 2021. Mr. Hutchens is currently retired. Mr. Hutchens is Trustee of the Denver Museum of Nature and Science (2000 to present), Director of AMG National Trust Bank (June 2012 to present) and Trustee of Children’s Hospital Colorado (May 2012 to present). Prior to these positions, Mr. Hutchens spent 29 years in the banking industry, retiring as Chairman of Chase Bank Colorado. 7

ALPS Series Trust (9 funds) (2012 to present); RiverNorth Opportunities Fund, Inc. (1 fund)(2013 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth Managed Duration Municipal Income Fund, Inc.(2019 to present)(1 fund); RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present)(1 Fund). 

 

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Name Address and Year of Birth Position(s) Held with Registrant Term of Office and Length of Time Served Principal Occupation(s) During Past 5 Years Number of Portfolios in Fund Complex(1) Overseen by Director Other Directorships(2) Held by Director During Past 5 Years

David M. Swanson

(1957)

Director Initial term expires in 2022.  Has served since 2021.

Founder & Managing Partner of SwanDog Strategic Marketing since 2006.

 

10

Managed Portfolio Series (28 funds) (2011 to present); Trustee, ALPS Variable Investment Trust (9 funds) (2006 to present); RiverNorth Opportunities Fund, Inc. (1 fund)(2013 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present)(1 fund); RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present)(1 Fund). 

 

 

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Name Address and Year of Birth Position(s) Held with Registrant Term of Office and Length of Time Served Principal Occupation(s) During Past 5 Years Number of Portfolios in Fund Complex(1) Overseen by Director Other Directorships(2) Held by Director During Past 5 Years
Interested Directors        

Patrick W. Galley (3)

(1975)

Director, Chairman and President Initial term expires in 2023.  Has served since 2021. Chief Investment Officer and Chief Executive Officer, RiverNorth Capital Management, LLC (2004 to present); Board of Managers of RiverNorth Capital Management, LLC and RiverNorth Securities, LLC (since 2010) and Board of Directors RiverNorth Holdings, Co. (since 2010). 10 RiverNorth Specialty Finance Corp (1 fund) (2016 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2016 to present); RiverNorth Funds (3 funds) (2006 to present); RiverNorth Opportunities Fund, Inc. (1 fund) (2013 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present)(1 fund); RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present)(1 fund).

Jerry Raio (4)

(1965)

 

Director Initial term expires in 2023.  Has served since 2021. Managing Director- Head of Retail Origination, Wells Fargo (2005 to 2018). 7 RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2018 to present); RiverNorth Specialty Finance Corporation (2018 to present)(1 fund); RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 to present)(1 fund); RiverNorth Flexible Municipal Income Fund, Inc. (2020 to present)(1 fund).
Officers        
Jonathan M. Mohrhardt (1974) Chief Financial Officer and Treasurer Has served since. President,  RiverNorth Capital Management LLC (2019 to Present);   Chief Operating Officer, RiverNorth Capital Management LLC (2011 to present). N/A N/A
Marcus L. Collins (1968) Chief Compliance Officer and Secretary Has served since. General Counsel, RiverNorth Capital Management, LLC (2012 to present); Chief Compliance Officer, RiverNorth Capital Management, LLC (2012 to present). N/A N/A

 

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(1) The term “Fund Complex” means two or more registered investment companies that:

 

(a) hold themselves out to investors as related companies for purposes of investment and investor services; or

 

(b) have a common investment adviser or that have an investment adviser that is an affiliated person of the investment adviser of any of the other registered investment companies.

 

For Mr. Galley, Mr. Carter and Mr. Oakes, the Fund Complex consists of the Fund (1 Fund), RiverNorth Specialty Finance Corporation (1 Fund), RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 Fund), RiverNorth Opportunities Fund, Inc. (1 Fund), RiverNorth Opportunistic Municipal Income Fund, Inc (1 Fund), RiverNorth Managed Duration Municipal Income Fund, Inc. (1 Fund), RiverNorth Flexible Municipal Income Fund, Inc. (1 Fund) and the RiverNorth Funds (3 Funds). For Mr. Hutchens and Mr. Swanson, the Fund Complex consists of the Fund (1 Fund), RiverNorth Opportunistic Municipal Income Fund, Inc (1 Fund), RiverNorth Managed Duration Municipal Income Fund, Inc. (1 Fund), RiverNorth Flexible Municipal Income Fund, Inc. (1 Fund) and RiverNorth Opportunities Fund, Inc. (1 Fund). For Mr. Raio, the Fund Complex consists of the Fund (1 Fund), RiverNorth Flexible Municipal Income Fund, Inc. (1 Fund) and RiverNorth Opportunistic Municipal Income Fund, Inc (1 Fund), RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 Fund), RiverNorth Managed Duration Municipal Income Fund, Inc. (1 Fund) and RiverNorth Specialty Finance Corporation (1 Fund).

 

(2) The numbers enclosed in the parentheticals represent the number of funds overseen in each respective directorship held by the director.

 

(3) Mr. Galley is deemed an “interested person” of the Fund due to his position as Chief Investment Officer of RiverNorth Capital Management, LLC, investment adviser to the Fund.

 

(4) Mr. Raio is deemed an “interested person” of the Fund due to his prior position as Managing Director – Head of Retail Origination at Wells Fargo, which has served as a broker and principal underwriter for other funds advised by the Adviser.

 

Board Leadership Structure. The Board of Directors, which has overall responsibility for the oversight of the Fund’s investment programs and business affairs, believes that it has structured itself in a manner that allows it to effectively perform its oversight obligations. Mr. Patrick W. Galley, the Chairman of the Board (“Chairman”), is not an Independent Director. The Board believes that the use of an interested director as Chairman is the appropriate leadership structure for the Fund given (i) Mr. Patrick Galley’s role in the day to day operations of the Adviser, (ii) the extent to which the work of the Board of Directors is conducted through the Audit Committee of the Board of Directors (the “Audit Committee”) and the Nominating and Corporate Governance Committee of the Board of Directors (the “Nominating and Corporate Governance Committee”), each of whose meetings is chaired by an Independent Director, (iii) the frequency that Independent Directors meet with their independent legal counsel and auditors in the absence of members of the Board of Directors who are interested directors of the Fund and management, and (iv) the overall sophistication of the Independent Directors, both individually and collectively. The members of Board of Directors also complete an annual self-assessment during which the directors review their overall structure and consider where and how its structure remains appropriate in light of the Fund’s current circumstances. The Chairman’s role is to preside at all meetings of the Board of Directors and in between meetings of the Board of Directors to generally act as the liaison between the Board of Directors and the Fund’s officers, attorneys and various other service providers, including but not limited to the Adviser and other such third parties servicing the Fund. The Board of Directors believes that having an interested person serve as Chairman of the Board of Directors enables Mr. Patrick Galley to more effectively carry out these liaison activities. The Board of Directors also believes that it benefits during its meetings from having a person intimately familiar with the operation of the Fund to set the agenda for meetings of the Board of Directors to ensure that important matters are brought to the attention of and considered by the Board of Directors.

 

The Fund has two standing committees, each of which enhances the leadership structure of the Board of Directors: the Audit Committee and the Nominating and Corporate Governance Committee. The Audit Committee and Nominating and Corporate Governance Committee are each chaired by, and composed of, members who are Independent Directors.

 

The Audit Committee is comprised of Messrs. Carter, Oakes, Hutchens, and Swanson, all of whom are “independent” as defined in the listing standard of the NYSE. Mr. Hutchens is the Chair of the Audit Committee and has been determined to qualify as an “audit committee financial expert” as such term is defined in Form N-CSR. The role of the Audit Committee is to assist the Board of Directors in its oversight of (i) the quality and integrity of the Fund’s financial statements, reporting process and the independent registered public accounting firm (the “independent accountants”) and reviews thereof, (ii) the Fund’s accounting and financial reporting policies and practices, its internal controls and, as appropriate, the internal controls of certain service providers, (iii) the Fund’s compliance with certain legal and regulatory requirements, and (iv) the independent accountants’ qualifications, independence and performance. The Audit Committee is also required to prepare an audit committee report pursuant to the rules of the SEC for inclusion in the Fund’s annual proxy statement. The Audit Committee operates pursuant to the Audit Committee Charter that was most recently reviewed and approved by the Board of Directors on January 7, 2021. The Audit Committee Charter is available at the Fund’s website, www.rivernorth.com. As set forth in the Audit Committee Charter, management is responsible for maintaining appropriate systems for accounting and internal control, and the Fund’s independent accountants are responsible for planning and carrying out proper audits and reviews. The independent accountants are ultimately accountable to the Board of Directors and to the Audit Committee, as representatives of the Common Shareholders. The independent accountants for the Fund report directly to the Audit Committee. During the last fiscal year, the Audit Committee held no meetings.

 

  35  

 

The Nominating and Corporate Governance Committee is comprised of Messrs. Carter, Oaks, Hutchens, and Swanson. Mr. Carter is the Chair of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for identifying and recommending to the Board of Directors individuals believed to be qualified to become members of the Board of Directors in the event that a position is vacated or created. The Nominating and Corporate Governance Committee will consider director candidates recommended by Common Shareholders. In considering candidates submitted by Common Shareholders, the Nominating and Corporate Governance Committee will take into consideration the needs of the Board of Directors, the qualifications of the candidate and the interests of Common Shareholders. Common Shareholders wishing to recommend candidates to the Nominating and Corporate Governance Committee should submit such recommendations to the Secretary of the Fund, who will forward the recommendations to the committee for consideration. The submission must include: (i) whether the Common Shareholder proposing such nominee believes the proposed nominee is, or is not, an “interested person”, (ii) the name and address, as they appear on the Fund’s books, of the Common Shareholder proposing such business or nomination, (iii) a representation that the Common Shareholder is a holder of record of Shares entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to present such nomination; (iv) whether the Common Shareholder plans to deliver or solicit proxies from other Common Shareholders; (v) the class and number of Shares of the capital stock of the Fund, which are beneficially owned by the Common Shareholder and the proposed nominee to the Board of Directors, (vi) any material interest of the Common Shareholder or nominee in such business; (vii) the extent to which such Common Shareholder (including such Common Shareholder’s principals) or the proposed nominee to the Board of Directors has entered into any hedging transaction or other arrangement with the effect or intent of mitigating or otherwise managing profit, loss or risk of changes in the value of the Shares or the daily quoted market price of the Fund held by such Common Shareholder (including the Common Shareholder’s principals) or the proposed nominee, including independently verifiable information in support of the foregoing; (viii) any substantial interest, direct or indirect, of such Common Shareholder or the proposed nominee in the Fund other than interest arising from ownership of Common Shares; (ix) to the extent known by such Common Shareholder, the name and address of any other Common Shareholder supporting the proposed nominee; (x) the nominee holder for, and number of, Common Shares owned beneficially but not of record by such Common Shareholder; (xi) the investment strategy or objective, if any, of such Common Shareholder who is not an individual and a copy of the prospectus, offering memorandum, or similar document, if any; and (xii) such other information regarding such nominee proposed by such Common Shareholder as would be required to be included in a proxy statement filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Each eligible Common Shareholder or Common Shareholder group may submit no more than one Independent Director nominee each calendar year. The Nominating and Corporate Governance Committee has not determined any minimum qualifications necessary to serve as a director of the Fund. During the last fiscal year, the Nominating and Corporate Governance Committee held no meetings.

 

Director Qualifications. Mr. Patrick Galley is the Chief Investment Officer for the Fund’s investment adviser and a portfolio manager of the Fund. His knowledge regarding the investment strategy of the Fund, more specifically the closed-end mutual fund industry makes him uniquely qualified to serve as the Fund’s President.

 

Risk Oversight. The Fund is confronted with a multitude of risks, such as investment risk, counterparty risk, valuation risk, political risk, risk of operational failures, business continuity risk, regulatory risk, legal risk and other risks not listed here. The Board of Directors recognizes that not all risk that may affect the Fund can be known, eliminated or even mitigated. In addition, there are some risks that may not be cost effective or an efficient use of the Fund’s limited resources to moderate. As a result of these realities, the Board of Directors, through its oversight and leadership, has and will continue to deem it necessary for Common Shareholders to bear certain and undeniable risks, such as investment risk, in order for the Fund to operate in accordance with its Prospectus, SAI and other related documents.

 

  36  

 

However, the Board of Directors has adopted on the Fund’s behalf a vigorous risk program that mandates the Fund’s various service providers, including the Adviser and Subadviser, to adopt a variety of processes, procedures and controls to identify various risks, mitigate the likelihood of adverse events from occurring and/or attempt to limit the effects of such adverse events on the Fund. The Board of Directors fulfills its leadership role by receiving a variety of quarterly written reports prepared by the Fund’s Chief Compliance Officer (“CCO”) that (i) evaluate the operation, policies and procedures of the Fund’s service providers, (ii) make known any material changes to the policies and procedures adopted by the Fund or its service providers since the CCO’s last report, and (iii) disclose any material compliance matters that occurred since the date of the last CCO report. In addition, the Independent Directors meet quarterly in executive sessions without the presence of any interested directors, the Adviser or Subadviser, or any of their affiliates. This configuration permits the Independent Directors to effectively receive the information and have private discussions necessary to perform their risk oversight role, exercise independent judgment and allocate areas of responsibility between the full Board of Directors, its committees and certain officers of the Fund. Furthermore, the Independent Directors have engaged independent legal counsel and auditors to assist the Independent Directors in performing their oversight responsibilities. As discussed above and in consideration of other factors not referenced herein, the Board of Directors has determined its leadership role concerning risk management as one of oversight and not active management of the Fund’s day-to-day risk management operations.

 

Compensation. The Fund pays no salaries or compensation to its officers or to any interested Director affiliated with the Adviser or Subadviser, and the Fund has no employees. For their services, the Directors of the Fund who are not affiliated with the Adviser or Subadviser, receive an annual retainer in the amount of $16,500, and an additional $1,500 for attending each quarterly meeting of the Board. In addition, the lead Independent Director receives $250 annually, the Chair of the Audit Committee receives $500 annually and the Chair of the Nominating and Corporate Governance Committee receives $250 annually. The Directors not affiliated with the Adviser or Subadviser are also reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings of the Board. The following tables show compensation with respect to the Fund and the Fund Complex. Patrick W. Galley is an interested person of the Fund and has not received any compensation from the Fund.

 

Name of Board Member Estimated Compensation with respect to the Fund (1) Estimated Total Compensation with respect to the Fund and Fund Complex (2)
 John K. Carter $22,750 $204,500
 John S. Oakes $22,750 $204,750
 J. Wayne Hutchens $23,000 $206,000
 David M. Swanson $22,500 $213,500
 Jerry Raio $22,500 $161,000

 

(1) The compensation estimated for the first full fiscal year for services to the Fund.

 

(2) The total estimated compensation estimated to be paid to the Director with respect to the Fund and the Fund Complex for a full calendar year.

 

Director Ownership in the Fund

 

The following table shows the dollar range of equity securities beneficially owned by each director in the Fund and Fund Complex as of December 31, 2020.

 

Director Dollar Range of Beneficial Ownership in Fund Aggregate Dollar Range of Ownership in all Funds Overseen by Director in the Fund Complex (1)
Independent Director:    
 John K. Carter None  $50,001 - $100,000
 John S. Oakes None  Over $100,000
 J. Wayne Hutchens None  Over $100,000
 David M. Swanson None $10,001 - $50,000
Interested Director:    
Patrick W. Galley None  Over $100,000
Jerry Raio None  $10,001 - $50,000

 

  37  

 

 

(1) The Fund Complex consists of the Fund, RiverNorth Flexible Municipal Income Fund, RiverNorth Core Opportunity Fund, RiverNorth/DoubleLine Strategic Income Fund, RiverNorth/DoubleLine Strategic Opportunity Fund, Inc., RiverNorth Oaktree High Income Fund, RiverNorth Opportunities Fund, Inc, RiverNorth Opportunistic Municipal Income Fund, Inc. and RiverNorth Specialty Finance Corporation.

 

As of the date of this SAI, 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 the date of this SAI, the directors and officers of the Fund owned, as a group, less than 1% of the outstanding Common Shares of the Fund.

 

Securities Beneficially Owned

 

The Adviser has provided the initial capitalization of the Fund and therefore is deemed to be a control person because it was the sole Common Shareholder of the Fund at that time. However, it is anticipated that the Adviser will no longer be a control person of the Fund by virtue of share ownership once this offering of Common Shares is completed.

 

PROXY VOTING GUIDELINES

 

The Board of Directors of the Fund has delegated responsibilities for decisions regarding proxy voting for securities held by the Fund to the Adviser or Subadviser. The Adviser or Subadviser will vote such proxies in accordance with its proxy policies and procedures. In some instances, the Adviser or Subadviser may be asked to cast a proxy vote that presents a conflict between the interests of the Fund’s Common Shareholders, and those of the Adviser or Subadviser or an affiliated person of the Adviser or Subadviser. In such a case, the Adviser or Subadviser 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 or Subadviser 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 (or Subadviser’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 or Subadviser, is most consistent with the Adviser’s or Subadviser’s proxy voting policies and in the best interests of Common 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 and Subadviser vote proxies pursuant to the proxy voting policies and guidelines set forth in Appendix A and B, respectively, 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 www.sec.gov or by visiting the Fund’s website at www.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 Common Shares offered hereby, has been filed by the Fund with the SEC, Washington, D.C. 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 Common Shares 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 may be viewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information about the SEC’s Public Reference Room may be obtained by calling the SEC at (202) 551-8090. The Registration Statement also may be available on the Edgar Database on the SEC’s website, http://www.sec.gov, or be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov.

 

  38  

 

FINANCIAL STATEMENT AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholder and Board of Directors of

RiverNorth Flexible Municipal Income Fund II, Inc.

 

Opinion on the Financial Statement

 

We have audited the accompanying statement of assets and liabilities of RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”) as of January 15, 2021, and the related notes (collectively referred to as the “financial statement”). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Fund as of January 15, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

This financial statement is the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement whether due to error or fraud.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement and confirmation of cash owned as of January 15, 2021, by correspondence with the custodian. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.

 

We have served as the auditor of one or more investment companies advised by RiverNorth Capital Management, LLC since 2006.

 

COHEN & COMPANY, LTD.

Cleveland, Ohio

January 20, 2021

 

 

  39  

 

RiverNorth Flexible Municipal Income Fund II, Inc.
Statement of Assets and Liabilities
January 15, 2021
       
Assets:        
Cash   $ 100,000  
Total Assets   $ 100,000  
Net Assets   $ 100,000  
Components of Net Assets:        
Paid-in capital   $ 100,000  
Net Assets   $ 100,000  
Shares of beneficial interest outstanding, at $0.0001 par value, and 50,000,000 shares authorized     5,000  
Offering price and net asset value per common share   $ 20.00  

 

The accompanying notes are an integral part of this financial statement.    

 

40 

 

RiverNorth Flexible Municipal Income Fund II, Inc.

Notes to Financial Statement

January 15, 2021

 

Note 1—Organization and Registration

 

RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”) is a diversified, closed-end management investment company that was organized as a Maryland corporation on June 10, 2020, as amended on January 13, 2021. The Fund’s primary investment objective is current income exempt from regular U.S. federal income taxes (but which may be includable in taxable income for purposes of the Federal alternative minimum tax). The Fund’s secondary investment objective is total return. The Fund has not had any operations other than the sale and issuance of 5,000 common shares of beneficial interest at an aggregate purchase price of $100,000 to RiverNorth Capital Management, LLC (“RiverNorth” or the “Adviser”), at a net asset value of $20.00 per share. Shares issued by the Fund are not subject to a sales load. The Fund’s sub-adviser is MacKay Shields LLC (“MacKay” or the “Sub-adviser”).

 

Note 2—Significant Accounting Policies

 

The following is a summary of significant accounting policies followed by the Fund in preparation of its financial statement. The policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Fund is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification Topic 946, Investment Companies.

 

Use of Estimates - The preparation of the financial statement in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement. The Fund believes that these estimates utilized in preparing the financial statement are reasonable and prudent; however, actual results could differ from these estimates.

 

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

 

Income Taxes - For federal income tax purposes, the Fund currently qualifies, and intends to remain qualified, as a regulated investment company under the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended, by distributing substantially all of its investment company taxable net income and realized gain, not offset by capital loss carryforwards, if any, to its shareholders. No provision for federal income taxes has been made. The Fund intends to file U.S. federal, state, and local tax returns as required. The Fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations which is generally three years after the filing of the tax return.

 

Note 3—Organizational Expenses and Offering Costs

 

RiverNorth (and not the Fund) has agreed to pay all of the Fund’s organizational expenses and offering costs. As a result, organizational expenses and offering costs of the Fund are not reflected in the Fund’s financial statement. The Fund is not obligated to repay any such organizational expenses or offering costs paid by RiverNorth.

 

41 

 

RiverNorth Flexible Municipal Income Fund II, Inc.

Notes to Financial Statement

January 15, 2021

 

Note 4—Investment Advisory and Other Agreements

 

RiverNorth will serve as the Fund’s investment adviser pursuant to an Investment Advisory Agreement with the Fund (the “Advisory Agreement”). Pursuant to the Advisory Agreement, the Fund will pay RiverNorth an annual management fee of 1.40% of the Fund’s average Daily Managed Assets (the “Daily Managed Assets”) for the services and facilities it provides to the Fund (the “Unitary Management Fee”). Out of the Unitary Management Fee, the Adviser will pay substantially all expenses of the Fund, including the cost of transfer agency, custody, fund administration, legal, audit, independent directors and other services, except for costs, including interest expenses, of borrowing money or engaging in other types of leverage financing including, without limit, through the use by the Fund of tender option bond transactions or preferred shares, brokerage expenses, taxes and governmental fees, fees and expenses of any underlying funds in which the Fund invests, dividend and interest expense on short positions, fees and expenses of independent directors, certain fees and expenses associated with shareholder meetings, costs associated with any future share offerings, tender offers and other share repurchases and redemptions, and extraordinary expenses not incurred in the ordinary course of the Fund’s business. The Unitary Management Fee is designed to pay substantially all of the Fund’s expenses and to compensate the Adviser for providing services for the Fund.

 

For these purposes, managed assets is defined as 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 provisions of the Investment Company Act of 1940 provide that the Fund may borrow or issue notes or debt securities in an amount up to 33 1/3% of its total assets or may issue Preferred Shares in an amount up to 50% of the Fund’s total assets (including the proceeds from leverage). Under current market conditions, the Fund intends to utilize leverage in an amount equal to 35% of the Fund’s Managed Assets from the proceeds of tender option bond transactions. The adviser will assess whether or not to engage in leverage based on its assessment of conditions in the debt and credit markets. Leverage, if used, is expected to take the form of a borrowing or the issuance of preferred stock, although the Fund currently anticipates that leverage will initially be obtained through the use of proceeds received from tender option bond transactions.

 

Pursuant to an Investment Sub-advisory Agreement, RiverNorth has retained MacKay as the Fund’s sub-adviser and will pay MacKay an annual fee of 0.20% based on the Fund’s average Daily Managed Assets.

 

ALPS Fund Services, Inc. (“AFS”), serves as administrator to the Fund. Under an Administration, Bookkeeping and Pricing Services Agreement, AFS is responsible for calculating the net asset and Daily Managed Assets values, providing additional fund accounting and tax services, and providing fund administration and compliance-related services to the Fund.

 

DST Systems, Inc. (“DST”), an affiliate of AFS, serves as the Transfer Agent to the Fund. Under the Transfer Agency Agreement, DST is responsible for maintaining all shareholder records of the Fund.

 

The Fund’s Board of Directors approved the Investment Advisory Agreement and the Investment Sub-advisory Agreement at its January 7, 2021 organizational meeting.

 

A Director and certain Officers of the Fund are also employees/officers of the Adviser or AFS.

 

The Chief Compliance Officer of the Fund is an affiliate of the Fund.

 

 

42 

 

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 forgoing, 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):

 

  A-1  

 

–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.

 

  A-2  

 

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.

 

  A-3  

 

APPENDIX B

 

MacKay Shields LLC

Proxy Voting Policies and Procedures

Revised February 2020

 

1. Introduction

 

MacKay Shields LLC (“MacKay Shields” or the “Firm”), has adopted these “Proxy Voting Policy and Procedures” (the “Policy”) to ensure the Firm’s compliance with Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) and other applicable fiduciary obligations. The Policy applies to proxies relating to securities held by clients of MacKay Shields who have delegated the responsibility of voting proxies to the Firm. The Policy is designed to assist Firm employees in meeting their specific responsibilities in this area and to reasonably ensure that proxies are voted in the best interests of the Firm’s clients.

 

2. Statement of Policy

 

2.1         It is the policy of MacKay Shields that where the Firm has voting authority, all proxies are to be voted in the best interest of the client without regard to the interests of MacKay Shields or other related parties. Specifically, MacKay Shields shall not subordinate the interests of clients to unrelated objectives, including MacKay Shields’ interests. MacKay Shields shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. For purposes of the Policy, the “best interests of clients” shall mean, unless otherwise specified by the client, the clients’ best economic interests over the long term – that is, the common interest that all MacKay Shields clients share in seeing the value of a common investment increase over time. It is further the policy of the Firm that complete and accurate disclosure concerning its proxy voting policies and procedures and proxy voting records as required by the Advisers Act, be made available to its clients.

 

2.2         When proxies with respect to securities held by clients of MacKay Shields have not been received by MacKay Shields or its proxy voting service provider, MacKay Shields will make reasonable efforts to obtain missing proxies. MacKay Shields is not responsible for voting proxies it or its proxy voting service provider does not receive.

 

2.3         MacKay Shields may choose not to vote proxies under the following circumstances:

 

If the effect on the client’s economic interests or the value of the portfolio holding is indeterminable or insignificant;
If the cost of voting the proxy outweighs the possible benefit to the client; or
If a jurisdiction imposes share blocking restrictions which prevent the Firm from trading shares.

 

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3. Use of Third Party Proxy Voting Service Provider

 

To discharge its responsibility, MacKay Shields has examined third-party services that assist in the researching and voting of proxies and the development of voting guidelines. After such review, the Firm has selected Institutional Shareholder Services, Inc., (“ISS”), to research voting proposals, analyze the financial implications of voting proposals and vote proxies. MacKay Shields utilizes the research and analytical services, operational implementation, administration, record-keeping and reporting services provided by ISS.

 

4. Proxy Voting Guidelines

 

4.1         MacKay Shields has determined that, except as set forth in Sections 6 and 7, proxies for non-union clients who so specify will be voted in accordance with the voting recommendations contained in the applicable ISS non-union domestic or global proxy voting guidelines, as in effect from time to time (“Non-Union Guidelines”). Refer to Exhibit A for the current U.S. Summary Proxy Voting Guidelines.

 

4.2         MacKay Shields has determined that, except as set forth in Sections 6 and 7, proxies for union or Taft-Hartley clients who so specify will be voted in accordance with the voting recommendations contained in the applicable ISS Taft-Hartley domestic or international proxy voting guidelines, as in effect from time to time (“Union Guidelines”). A summary of the current Taft-Hartley U.S. Voting Guidelines and Taft- Hartley International Voting Guidelines are attached as Exhibit B.

 

4.3         For purposes of the Policy, the Non-Union and Union Guidelines are collectively referred to as the Standard Guidelines.

 

4.4         A client may choose to use proxy voting guidelines different from the Standard Guidelines (“Custom Guidelines”). Any Custom Guidelines must be furnished by the client to MacKay Shields in writing.

 

4.5         In the event the Standard Guidelines or any client’s Custom Guidelines do not address how a proxy should be voted or state that the vote is to be determined on a “case- by-case” basis, the proxy will be voted in accordance with ISS recommendations, subject to Section 6. In the event that ISS has not made a recommendation, MacKay Shields will follow the procedure set forth in Section 7.

 

4.6         Notwithstanding the foregoing, MacKay Shields will vote a proxy with respect to a particular security held by a client in accordance with such client’s specific request even if it is in a manner inconsistent with the Standard Guidelines or the client’s Custom Guidelines, as the case may be. Any such specific requests must be furnished to MacKay Shields by the client in writing and must be received by MacKay on a timely basis for instructing ISS how to cast the vote.

 

4.7         In order to avoid possible conflicts of interest, MacKay Shields votes proxies based on the Standard Guidelines or a client’s Custom Guidelines, as the case may be. However, it is recognized that the Firm’s portfolio management team has the ultimate responsibility for proxy voting.

 

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4.8         For clients using the Standard Guidelines, the Firm will instruct ISS to cast votes in accordance with the Standard Guidelines. For clients using Custom Guidelines, the Firm will provide ISS with a copy of such Custom Guidelines and will instruct ISS to cast votes in accordance with such Custom Guidelines. ISS will cast votes in accordance with the Standard Guidelines or Custom Guidelines, as the case may be, unless instructed otherwise by MacKay Shields as set forth in Sections 6 and 7. Upon receipt of a specific request from a client pursuant to Section 4.6, the Firm will instruct ISS to cast such client’s proxy in accordance with such request.

 

5. Client Account Set-up and Review

 

5.1         Initially, MacKay Shields must determine whether the client seeks to retain the responsibility of voting proxies, or seeks to delegate that responsibility to the Firm. The marketing or client service person responsible for setting up the account, in conjunction with MacKay’s Legal/Compliance Department, will have primary responsibility for making that determination. In its sole discretion, the Firm may decline to accept authority to vote a client’s proxies. Any such refusal shall be in writing.

 

5.2         If MacKay Shields has authority to vote a client’s proxies, the marketing or client service person responsible for setting up the account will ask the client to specify in writing (which may be by e-mail) whether the Firm should vote proxies in accordance with the Non-Union Guidelines, Union Guidelines or Custom Guidelines, unless specified in the client’s investment management agreement.

 

5.3         In most cases, the delegation of voting authority to MacKay Shields, and the Firm’s use of a third-party proxy voting service provider shall be memorialized in the client’s investment management agreement.

 

5.4         MacKay Shields shall notify ISS of new client accounts using such form as ISS shall specify from time to time. Designated personnel within the Firm will be responsible for ensuring that each new client’s account for which the Firm has proxy voting authority is established on the appropriate systems and that each such account is properly coded for voting under the appropriate Non-Union Guidelines, Union Guidelines or Custom Guidelines, as the case may be.

 

6. Overriding Guidelines

 

A portfolio manager may propose that a particular proxy vote be cast in a manner different from the Standard Guidelines or an ISS voting recommendation, or may propose an abstention from voting, if he/she believes that to do so, based on all facts and circumstances, is in the best interest of the Firm’s clients as a whole. Any portfolio manager who proposes to override the Standard Guidelines or an ISS voting recommendation on a particular vote or to abstain from voting must complete a Proxy Vote Override/Decision Form, which is set forth in Schedule C.

 

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7. Referral of Voting Decision by ISS to MacKay Shields

 

7.1         In the event that the Standard Guidelines or a client’s Custom Guidelines do not address how a proxy should be voted on a specific proposal for an issuer and ISS has not made a recommendation as to how such proxy should be voted, ISS will so advise MacKay Shields. In that event, the Legal/Compliance Department will request that the appropriate portfolio manager make a voting recommendation and complete a Proxy Vote Override/Decision Form.

 

7.2         In the event that the Standard Guidelines or a client’s Custom Guidelines require a “case-by-case” determination on a particular proxy vote and ISS has not made a recommendation as to how such proxy should be voted, ISS will so advise MacKay Shields. In that event, the Legal/Compliance Department will request that the appropriate portfolio manager make a voting recommendation and complete a Proxy Vote Override/Decision Form.

 

7.3         In the event that ISS determines that a conflict of interest exists as a result of which ISS is precluded from making a recommendation as to how a proxy should be voted on a specific proposal for an issuer, ISS will so advise MacKay Shields. In that event, the Legal/Compliance Department will request that the appropriate portfolio manager make a voting recommendation and complete a Proxy Vote Override/Decision Form.

 

8. Conflicts of Interest

 

8.1         The Firm’s portfolio managers may make proxy voting decisions in connection with (i) overriding the Standard Guidelines or an ISS voting recommendation pursuant to Section 6, or (ii) deciding on a vote pursuant to Section 7. In such event, the portfolio managers have an affirmative duty to disclose any potential conflict of interest known to them that exists between the Firm and the client on whose behalf the proxy is to be voted (“Conflict”).

 

8.2.        By way of example, Conflicts may exist in situations where the Firm is called to vote on a proxy involving an issuer or proponent of a proxy proposal regarding the issuer where MacKay Shields or an affiliated person of the Firm also:

 

Manages the issuer’s or proponent’s pension plan;
Administers the issuer’s or proponent’s employee benefit plan;
Provided brokerage, underwriting, insurance or banking services to the issuer or proponent; or
Manages money for an employee group.

 

Additional Conflicts may exist, among others, if an executive of the Firm or its control affiliates is a close relative of, or has a personal or business relationship with:

 

An executive of the issuer or proponent;
A director of the issuer or proponent;
A person who is a candidate to be a director of the issuer;
A participant in the proxy contest; or
A proponent of a proxy proposal.

 

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8.3         Whether a relationship creates a Conflict will depend on the facts and circumstances. Even if these parties do not attempt to influence the Firm with respect to voting, the value of the relationship to MacKay Shields or an affiliate can create a Conflict.

 

8.4         After a Proxy Vote Override/Decision Form is completed pursuant to Sections 6 or 7, such Form, which elicits information as to whether a potential Conflict exists, must be submitted to the Legal/Compliance Department for review. If the Firm’s General Counsel (“GC”) or Chief Compliance Officer (“CCO”) determines that there is no potential Conflict, the GC or CCO or their designee may instruct ISS to vote the proxy issue as set forth in the completed Form.

 

8.5         If the GC or CCO determines that there exists or may exist a Conflict, he or she will refer the issue to the Compliance Committee for consideration by convening (in person or via telephone) an emergency meeting of the Compliance Committee. For purposes of this Policy, a majority vote of those members present shall resolve any Conflict. The Compliance Committee will consider the facts and circumstances of the pending proxy vote and the potential or actual Conflict and make a determination as to how to vote the proxy – i.e., whether to permit or deny the recommendation of the portfolio manager, or whether to take other action, such as delegating the proxy vote to an independent third party or obtaining voting instructions from clients.

 

8.6         In considering the proxy vote and potential Conflict, the Compliance Committee may review the following factors, including but not limited to:

 

The percentage of outstanding securities of the issuer held on behalf of clients by the Firm.
The nature of the relationship of the issuer or proponent with the Firm, its affiliates or its executive officers.
Whether there has been any attempt to directly or indirectly influence the portfolio manager’s decision.
Whether the direction (for or against) of the proposed vote would appear to benefit the Firm or a related party.
Whether an objective decision to vote in a certain way will still create a strong appearance of a Conflict.

 

MacKay Shields may not abstain from voting any such proxy for the purpose of avoiding Conflict.

 

9. Securities Lending

 

If MacKay Shields portfolio managers or their designees become aware of an upcoming shareholder meeting where there is an important vote to be taken, or become aware of a request for consent of security holders on a material matter affecting the investment, MacKay Shields will consider whether to request that clients call back securities loans, if applicable. In determining whether to request that clients call back securities loans, the relevant portfolio manager(s) shall consider whether the benefit to the client in voting the matter or giving or withholding consent outweighs the benefit to the client in keeping the security on loan. There may be instances when MacKay Shields may not be aware of the upcoming shareholder meeting or request for consent with sufficient time in advance to make such a request, or when MacKay Shields’ request that a client call back a securities loan in sufficient time to vote or give or withhold consent may not be successful.

 

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10. Reporting

 

Upon request, MacKay Shields shall report annually (or more frequently if specifically requested) to its clients on proxy votes cast on their behalf. MacKay Shields will provide any client who makes a written or verbal request with a copy of a report disclosing how MacKay Shields voted securities held in that client’s portfolio. The report will generally contain the following information:

 

The name of the issuer of the security;
The security’s exchange ticker symbol;
The security’s CUSIP number;
The shareholder meeting date;
A brief identification of the matter voted on;
Whether the matter was proposed by the issuer or by a security holder;
Whether MacKay Shields cast its vote on the matter on behalf of the client;
How MacKay Shields voted on behalf of the client; and
Whether MacKay Shields voted for or against management on behalf of the client.

 

11. Record-Keeping

 

Either MacKay Shields or ISS as indicated below will maintain the following records:

 

A copy of the Policy and MacKay’s Standard Guidelines and Custom Guidelines;
A copy of each proxy statement received by MacKay Shields or forwarded to ISS by the client’s custodian regarding client securities;
A record of each vote cast by MacKay Shields on behalf of a client;
A copy of all documents created by MacKay Shields that were material to making a decision on the proxy voting (or abstaining from voting) of client securities or that memorialize the basis for that decision including the resolution of any Conflict, a copy of all guideline override requests and all supporting documents; and
A copy of each written request by a client for information on how MacKay Shields voted proxies on behalf of the client, as well as a copy of any written response by MacKay Shields to any request by a client for information on how MacKay Shields voted proxies on behalf of the client; records of oral requests for information or oral responses will not be kept.

 

Such records must be maintained for at least eight years, the first two years in an appropriate office of MacKay Shields.

 

12. Review of Voting and Guidelines

 

As part of its periodic reviews, MacKay Shields’ Legal/Compliance Department will conduct an annual review of the prior year’s proxy voting as well as the guidelines established for proxy voting. Documentation shall be maintained of this review and a report setting forth the results of the review will be presented annually to the Compliance Committee.

 

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13. How to Request Information On How the Firm Voted Proxies

 

Clients may, at anytime, request and receive information from MacKay Shields as to how the Firm voted proxies for securities held in their account. Any such proxy information request should be in writing and mailed or faxed [(212) 303-6397] to MacKay Shields Client Services Department at:

 

MacKay Shields LLC

1345 Avenue of the Americas New

York, NY 10105 ATTN: Client

Services

 

Exhibits:

 

Exhibit A - 2020 U.S. Summary Proxy Voting Guidelines (Standard Guidelines for non-union clients) – published November 18, 2019. Effective for Meetings on or after February 1, 2020

 

Exhibit B (Part I and II) - 2020 U.S. Taft-Hartley Proxy Voting Guidelines and 2020 International Taft-Hartley Proxy Voting Guidelines (Standard Guidelines for union clients (Taft-Hartley) (US and International)) – published December 31, 2019

 

Schedule C-         Proxy Vote Override/Decision Form

 

Access to the ISS Voting Guidelines mentioned above and other ISS Voting Guidelines are available at https://www.issgovernance.com/policy-gateway/voting-policies/

 

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 PART C - OTHER INFORMATION

 

Item 25: Financial Statements and Exhibits

 

1. Financial Statements:

 

Registrant has not conducted any business as of the date of this filing, other than in connection with its organization. A Financial Statement indicating that the Registrant has met the net worth requirements of Section 14(a) of the Investment Company Act of 1940 is being filed in this Pre-effective Amendment to the Registration Statement on Form N-2.

 

2. Exhibits:

 

a.1 Articles of Incorporation. (1)

 

a.2 Articles of Amendment and Restatement. (2)

 

b. By-Laws of Fund. (2)

 

c. None.

 

d. None.

 

e. Terms and Conditions of the Dividend Reinvestment Plan.

 

f. None.

 

g.1 Investment Management Agreement between Registrant and RiverNorth Capital Management, LLC.

 

g.2 Sub-Advisory Agreement between RiverNorth Capital Management, LLC and MacKay Shields LLC.

 

h.1 Form of Underwriting Agreement.

 

h.2 Form of Master Agreement Among Underwriters.

 

h.3 Form of Master Selected Dealers Agreement.

 

h.4 Closed-End Fund Distribution Services Agreement.

 

i. None.

 

j.1 Master Custodian Agreement.

 

j.2 Letter Amending Appendix A to the Master Custodian Agreement.

 

k.1 Agency Agreement with DST Systems, Inc.

 

 

 

k.2 Adoption Agreement to Agency Agreement.

 

k.3 Administration Bookkeeping and Pricing Services Agreement with ALPS Fund Services, Inc.

 

k.4 Form of Structuring Fee Agreement with UBS Securities LLC.

 

k.5 Form of Structuring Fee Agreement with Wells Fargo Securities, LLC.

 

k.6 Form of Structuring Fee Agreement with RBC Capital Markets, LLC.

 

k.7 Form of Structuring Fee Agreement with Stifel, Nicolaus & Company, Incorporated.

 

k.8 Form of Sales Incentive Agreement.

 

l.1 Opinion and consent of Fund counsel.

 

l.2 Opinion and consent of Maryland counsel.

 

m. None.

 

n. Consent of Independent Registered Public Accounting Firm.

 

o. None.

 

p. Subscription Agreement.

 

q. None.

 

r.1 Code of Ethics of Registrant.

 

r.2 Code of Ethics of RiverNorth Capital Management, LLC.

 

r.3 Code of Ethics of Mackay Shields LLC.

 

s. Powers of Attorney. (2)

 

 

(1) Filed on July 10, 2020 with Registrant’s Registration Statement on Form N-2 (File No. 333- 239784) and incorporated herein by reference.

 

(2) Filed on January 14, 2021 with Registrant's Registration Statement on Form N-2 (File No. 333-239784) and incorporated herein by reference.

 

* To be filed by amendment.

 

Item 26: Marketing Arrangements

 

See the Form of Underwriting Agreement, the Form of Master Agreement Among Underwriters, the Form of Master Selected Dealers Agreement, the Form of Closed-End Fund Distribution Services Agreement, the Form of Structuring Fee Agreement with UBS Securities LLC, the Form of Structuring Fee Agreement with Wells Fargo Securities, LLC, the Form of Structuring Fee Agreement with RBC Capital Markets, LLC, the Form of Structuring Fee Agreement with Stifel, Nicolaus & Company, Incorporated and the Form of Sales Incentive Fee Agreement filed as Exhibit (h)(1), Exhibit (h)(2), Exhibit (h)(3), Exhibit (h)(4), Exhibit (k)(4), Exhibit (k)(5), Exhibit (k)(6), Exhibit (k)(7), and Exhibit (k)(8), respectively, to the Registrant's Registration Statement.

 

 

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Item 27: Other Expenses of Issuance and Distribution*

 

Securities and Exchange Commission Fees $54,550
Financial Industry Regulatory Authority, Inc. Fees $75,500
Printing and Engraving Expenses $126,000
Legal Fees $255,000
Listing Fees $40,000
Accounting Expenses $5,000
Blue Sky Filing Fees and Expenses $0
Miscellaneous Expenses $86,500
Total $642,550

 

* These items are paid by RiverNorth Capital Management, LLC, not the Registrant.

 

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

 

Not applicable.

 

Item 29: Number of Holders of Securities

 

At February 22, 2021

 

Title of Class Number of Record Holders
Common Shares, $0.0001 par value 1

 

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Item 30: Indemnification

 

Section 7.2 of the Articles of Amendment and Restatement of the Registrant provides as follows:

 

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.

 

Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 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 of 1933 and will be governed by the final adjudication of such issue.

 

Item 31: Business and Other Connections of Investment Advisers

 

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 RiverNorth Capital Management, LLC (the “Adviser”) are their services as directors and officers of the Adviser. The address of the Adviser is 325 North LaSalle Street, Suite 645, Chicago, Illinois 60654.

 

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:

 

-4

 

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 Trustee, RiverNorth Funds; 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 Funds; 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 Funds Investments
Stephen A. O’Neill Portfolio Manager Portfolio Manager, RiverNorth Funds Investments

 

* The address for each of the named is 325 North LaSalle Street, Suite 645, Chicago, Illinois 60654.

 

Mackay Shields LLC

 

The Registrant’s sub-adviser, Mackay Shields LLC (the “Subadviser”), is a Delaware limited liability company. The list required by this Item 31 of officers and trustees of the Subadviser, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by the Subadviser and such officers and trustees during the past two years, is incorporated by reference to Form ADV (SEC File No. 801-5594) filed by the Subadviser pursuant to the Investment Advisers Act of 1940, as amended.

 

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 required records.

 

Item 33: Management Services

 

Not applicable.

 

Item 34: Undertakings

 

1. Registrant undertakes to suspend the offering of its shares until it amends its prospectus if (1) subsequent to the effective date of its Registration Statement, the net asset value declines more than 10 percent from its net asset value as of the effective date of the Registration Statement, or (2) the net asset value increases to an amount greater than its net proceeds as stated in the prospectus.

 

2. Not applicable.

 

3. Not applicable.

 

4. The Registrant undertakes that:

 

-5

 

a. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 424(b)(1) under the Securities Act of 1933 shall be deemed to be part of the Registration Statement as of the time it was declared effective; and

 

b. For the purpose of determining any liability under the Securities Act of 1933, 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. Not applicable.

 

6. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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 Act and will be governed by the final adjudication of such issue.

 

7. The Registrant 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.

 

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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 Chicago, and State of Illinois, on the 22nd day of February, 2021.

 

  RiverNorth Flexible Municipal Income Fund II, Inc.  
       
  By: /s/ Patrick 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)   February 22, 2021
   Patrick W. Galley      
By: /s/ Jonathan M Mohrhardt Chief Financial Officer and Treasurer (Principal Financial Officer/Principal Accounting Officer)   February 22, 2021
   Jonathan M Mohrhardt      
By: /s/ Patrick W. Galley Chairman of the Board and Director   February 22, 2021
   Patrick W. Galley      
  John K. Carter(1) Director ) By: /s/ Patrick W. Galley
  John S. Oakes(1) Director )   Patrick W. Galley
  J. Wayne Hutchens(1) Director )   Attorney-In-Fact
  David M. Swanson(1) Director )   February 22, 2021
  Jerry Raio(1) Director )    

 

(1) Original powers of attorney authorizing Joshua B. Deringer, Diana E. McCarthy 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 January 14, 2021 as Exhibit s. to the Registrant’s Registration Statement on Form N-2 (File No. 333-237863).

 

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INDEX TO EXHIBITS

 

e. Terms and Conditions of the Dividend Reinvestment Plan.

 

g.1 Investment Management Agreement between Registrant and RiverNorth Capital Management, LLC.

 

g.2 Sub-Advisory Agreement between RiverNorth Capital Management, LLC and MacKay Shields LLC.

 

h.1 Form of Underwriting Agreement.

 

h.2 Form of Master Agreement Among Underwriters.

 

h.3 Form of Master Selected Dealers Agreement.

 

h.4 Closed-End Fund Distribution Services Agreement.

 

j.1 Master Custodian Agreement.

 

j.2 Letter Amending Appendix A to the Master Custodian Agreement.

 

k.1 Agency Agreement with DST Systems, Inc.

 

k.2 Adoption Agreement to Agency Agreement.

 

k.3 Administration Bookkeeping and Pricing Services Agreement with ALPS Fund Services, Inc.

 

k.4 Form of Structuring Fee Agreement with UBS Securities LLC.

 

k.5 Form of Structuring Fee Agreement with Wells Fargo Securities, LLC.

 

k.6 Form of Structuring Fee Agreement with RBC Capital Markets, LLC.

 

k.7 Form of Structuring Fee Agreement with Stifel, Nicolaus & Company, Incorporated.

 

k.8 Form of Sales Incentive Agreement.

 

l.1 Opinion and consent of Fund counsel.

 

l.2 Opinion and consent of Maryland counsel.

 

n. Consent of Independent Registered Public Accounting Firm.

 

p. Subscription Agreement.

 

r.1 Code of Ethics of Registrant.

 

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r.2 Code of Ethics of RiverNorth Capital Management, LLC.

 

r.3 Code of Ethics of Mackay Shields LLC.

 

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DIVIDEND REINVESTMENT PLAN

 

RiverNorth Flexible Municipal Income Fund II, Inc. (has an automatic dividend reinvestment plan commonly referred to as an “opt-out” plan. Unless the registered owner of the Fund’s common stock (the “Common Shares”) elects to receive cash by contacting DST Systems, Inc. (the “Plan Administrator”), all dividends declared on Common Shares will be automatically reinvested by the Plan Administrator for shareholders in the Fund’s Automatic Dividend Reinvestment Plan (the “Plan”), in additional Common Shares. Common Shareholders who elect not to participate in the Plan will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of record (or, if the Common Shares are held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend disbursing agent. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Such notice will be effective with respect to a particular dividend or other distribution (together, a “Dividend”). Some brokers may automatically elect to receive cash on behalf of Common Shareholders and may re-invest that cash in additional Common Shares. Reinvested Dividends will increase the Fund’s Managed Assets on which the management fee is payable to the Adviser (and by the Adviser to the Subadviser).

 

Whenever the Fund declares a Dividend payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Administrator for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common Shares from the Fund (“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“Open-Market Purchases”) on the New York Stock Exchange (“NYSE”) or elsewhere. If, on the payment date for any Dividend, the closing market price plus estimated brokerage commissions per Common Share is equal to or greater than the NAV per Common Share, the Plan Administrator will invest the Dividend amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the Fund’s net asset value (“NAV”) per Common Share on the payment date. If, on the payment date for any Dividend, the NAV per Common Share is greater than the closing market value plus estimated brokerage commissions (i.e., the Fund’s Common Shares are trading at a discount), the Plan Administrator will invest the Dividend amount in Common Shares acquired on behalf of the participants in Open-Market Purchases.

 

In the event of a market discount on the payment date for any Dividend, the Plan Administrator will have until the last business day before the next date on which the Common Shares trade on an “ex-dividend” basis or 30 days after the payment date for such Dividend, whichever is sooner (the “Last Purchase Date”), to invest the Dividend amount in Common Shares acquired in Open-Market Purchases. It is contemplated that the Fund will pay monthly income Dividends. If, before the Plan Administrator has completed its Open-Market Purchases, the market price per Common Share exceeds the NAV per Common Share, the average per Common Share purchase price paid by the Plan Administrator may exceed the NAV of the Common Shares, resulting in the acquisition of fewer Common Shares than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Administrator may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at the NAV per Common Share at the close of business on the Last Purchase Date.

 

 

 

The Plan Administrator maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants.

 

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 the Plan. In the case of Common Shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners who participate in the Plan.

 

There will be no brokerage charges with respect to Common Shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such Dividends, even though such participants have not received any cash with which to pay the resulting tax. Participants that request a sale of Common Shares through the Plan Administrator are subject to brokerage commissions.

 

The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.

 

All correspondence or questions concerning the Plan should be directed to the Plan Administrator at (844) 569-4750 or if by regular mail at PO Box 219184, Kansas City, MO 64121-9184, or if by overnight mail at 430 West 7th Street, Suite 219184, Kansas City, MO 64105.

MANAGEMENT AGREEMENT

 

TO: RiverNorth Capital Management, LLC

325 N. LaSalle Street, Suite 645

Chicago, IL 60654

 

Dear Sirs:

 

RiverNorth Flexible Municipal Income Fund II, Inc. (the “Company”) herewith confirms our agreement with you.

 

The Company has been organized to engage in the business of a closed-end management investment company.

 

You have been selected to act as the sole investment manager of the series of the Company set forth on the Exhibit to this Agreement (the “Fund”) and to provide certain other services, as more fully set forth below, and you are willing to act as such investment manager and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Company agrees with you as follows effective upon the date of the execution of this Agreement.

 

1. ADVISORY SERVICES

 

Subject to the supervision of the Board of Directors of the Company, you will provide or arrange to be provided to the Fund such investment advice as you in your discretion deem advisable and will furnish or arrange to be furnished a continuous investment program for the Fund consistent with the Fund’s investment objective and policies. You will determine or arrange for others to determine the securities to be purchased for the Fund, the portfolio securities to be held or sold by the Fund and the portion of the Fund’s assets to be held uninvested, subject always to the Fund’s investment objective, policies and restrictions, as each of the same shall be from time to time in effect, and subject further to such policies and instructions as the Board may from time to time establish. You will furnish such reports, evaluations, information or analyses to the Company as the Board of Directors of the Company may request from time to time or as you may deem to be desirable. You also will advise and assist the officers of the Company in taking such steps as are necessary or appropriate to carry out the decisions of the Board and the appropriate committees of the Board regarding the conduct of the business of the Company.

 

2. USE OF SUB-ADVISERS

 

You may delegate any or all of the responsibilities, rights or duties described above to one or more sub-advisers who shall enter into agreements with you, provided the agreements are approved and ratified (i) by the Board including a majority of the Directors who are not interested persons of you or of the Company, cast in person at a meeting called for the purpose of voting on such approval, and (ii) if required under interpretations of the Investment Company Act of 1940, as amended (the “Act”) by the Securities and Exchange Commission or its staff, by vote of the holders of a majority of the outstanding voting securities of the applicable Fund (unless the Company has obtained an exemption from the provisions of Section 15(a) of the Act). Any such delegation shall not relieve you from any liability hereunder.

 

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3. ALLOCATION OF CHARGES AND EXPENSES

 

As part of the unified management fee payable hereunder, you will provide or cause to be furnished all supervisory and administrative and other services reasonably necessary for the operation of the Fund, except (unless otherwise described in the Fund’s Prospectus or otherwise agreed to in writing), the Fund will pay, in addition to the unified management fee, taxes and governmental fees, if any, levied against the Fund; brokerage fees and commissions and other portfolio transaction expenses incurred by or for the Fund; costs, including interest expenses, of borrowing money or engaging in other types of leverage financing including, without limit, through the use by the Fund of tender option bond transactions; costs, including dividend and/or interest expenses and other costs (including, without limit, offering and related legal costs, fees to brokers, fees to auction agents, fees to transfer agents, fees to ratings agencies and fees to auditors associated with satisfying ratings agency requirements for preferred shares or other securities issued by the Fund and other related requirements in the Fund’s organizational documents) associated with the Fund’s issuance, offering, redemption and maintenance of preferred shares or other instruments (such as the use of tender option bond transactions) for the purpose of incurring leverage; fees and expenses of any Underlying Funds in which the Fund invests; dividend and interest expenses on short positions taken by the Fund; fees and expenses (including travel expenses) of legal counsel retained for the benefit of the Fund or directors of the Fund who are not officers, employees, partners, shareholders or members of the Adviser or its affiliates; fees and expenses associated with and incident to shareholder meetings and proxy solicitations involving contested elections of directors, shareholder proposals or other non-routine matters that are not initiated or proposed by the Adviser; legal, marketing, printing, accounting and other expenses associated with any future share offerings, such as rights offerings and shelf offerings, following the Fund’s initial offering; expenses associated with tender offers (other than any Eligible Tender Offer) and other share repurchases and redemptions; and other extraordinary expenses, including extraordinary legal expenses, as may arise, including, without limit, expenses incurred in connection with litigation, proceedings, other claims and the legal obligations of the Fund to indemnify its directors, officers, employees, shareholders, distributors and agents with respect thereto.

 

You will also pay the compensation of any sub-adviser retained pursuant to paragraph 2 above and the compensation and expenses of any persons rendering portfolio management services to the Company who are directors, officers, employees, members or stockholders of your corporation or limited liability company. You will make available to the Board of Directors, without expense to the Fund, such of your employees as the Board may request to participate in Board meetings and provide such reports and other assistance as the Directors may reasonably request.

 

4. COMPENSATION OF THE MANAGER

 

For all of the services to be rendered as provided in this Agreement, as of the last business day of each month, the Fund will pay you a fee based on the average value of the daily managed assets of the Fund and paid at an annual rate as set forth on the Exhibit executed with respect to the Fund and attached hereto.

 

The average value of the daily managed assets of a Fund shall be determined pursuant to the applicable provisions of the Articles of Incorporation or a resolution of the Board of Directors, if required. If, pursuant to such provisions, the determination of net asset value of a Fund is suspended for any particular business day, then for the purposes of this paragraph, the value of the managed assets of the Fund as last determined shall be deemed to be the value of the net assets as of the close of the business day, or as of such other time as the value of the Fund’s net assets may lawfully be determined, on that day. If the determination of the net asset value of a Fund has been suspended for a period including such month, your compensation payable at the end of such month shall be computed on the basis of the value of the net assets of the Fund as last determined (whether during or prior to such month).

 

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5. EXECUTION OF PURCHASE AND SALE ORDERS

 

In connection with purchases or sales of portfolio securities for the account of a Fund, it is understood that you (or the applicable sub-adviser retained pursuant to paragraph 2 above) will arrange for the placing of all orders for the purchase and sale of portfolio securities for the account with brokers or dealers selected by you (or the sub-adviser), subject to review of this selection by the Board of Directors from time to time. You (or the sub-adviser) will be responsible for the negotiation and the allocation of principal business and portfolio brokerage. In the selection of such brokers or dealers and the placing of such orders, you (or the sub-adviser) are directed at all times to seek for the Fund the best qualitative execution, 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.

 

You (or the sub-adviser) should generally seek favorable prices and commission rates that are reasonable in relation to the benefits received. In seeking best qualitative execution, you (or the sub-adviser) are authorized to select brokers or dealers who also provide brokerage and research services to the Fund and/or the other accounts over which you exercise investment discretion. You (or the sub-adviser) are authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a Fund portfolio transaction which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if you (or the sub-adviser) determine in good faith that the amount of the commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker or dealer. The determination may be viewed in terms of either a particular transaction or your (or the sub-adviser’s) overall responsibilities with respect to the Fund and to accounts over which you (or the sub-adviser) exercise investment discretion. The Fund and you (and the sub-adviser) understand and acknowledge that, although the information may be useful to the Fund and you (and the sub-adviser), it is not possible to place a dollar value on such information. The Board of Directors shall periodically review the commissions paid by the Fund to determine if the commissions paid over representative periods of time were reasonable in relation to the benefits to the Fund.

 

A broker’s or dealer's sale or promotion of Fund shares shall not be a factor considered by your personnel responsible for selecting brokers to effect securities transactions on behalf of the Fund. You and your personnel shall not enter into any written or oral agreement or arrangement to compensate a broker or dealer for any promotion or sale of Fund shares by directing to such broker or dealer (i) the Fund's portfolio securities transactions or (ii) any remuneration, including but not limited to, any commission, mark-up, mark down or other fee received or to be received from the Fund's portfolio transactions through such broker or dealer. However, you may place Fund portfolio transactions with brokers or dealers that sell or promote shares of the Fund provided the Board of Directors has adopted policies and procedures under Rule 12b-1(h) under the Act and such transactions are conducted in compliance with those policies and procedures.

 

Subject to the provisions of the Act, and other applicable law, you (or the sub-adviser), any of your (and the sub-adviser’s) affiliates or any affiliates of your (or the sub-adviser’s) affiliates may retain compensation in connection with effecting a Fund’s portfolio transactions, including transactions effected through others. If any occasion should arise in which you (or the sub-adviser) give any advice to your clients (or clients of the sub-adviser) concerning the shares of a Fund, you (or the sub-adviser) will act solely as investment counsel for such client and not in any way on behalf of the Fund.

 

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6. PROXY VOTING

 

You will vote, or make arrangements to have voted, all proxies solicited by or with respect to the issuers of securities in which assets of the Fund may be invested from time to time. Such proxies will be voted in a manner that you deem, in good faith, to be in the best interest of the Fund and in accordance with your proxy voting policy. You agree to provide a copy of your proxy voting policy, and any amendments thereto, to the Company prior to the execution of this Agreement

 

7. CODE OF ETHICS

 

You have adopted a written code of ethics complying with the requirements of Rule 17j-1 under the Act and will provide the Company with a copy of the code and evidence of its adoption. Within 45 days of the last calendar quarter of each year while this Agreement is in effect, you will provide to the Board of Directors of the Company a written report that describes any issues arising under the code of ethics since the last report to the Board of Directors, including, but not limited to, information about material violations of the code and sanctions imposed in response to the material violations; and which certifies that you have adopted procedures reasonably necessary to prevent access persons (as that term is defined in Rule 17j-1) from violating the code.

 

8. SERVICES NOT EXCLUSIVE/USE OF NAME

 

Your services to the Fund pursuant to this Agreement are not to be deemed to be exclusive, and it is understood that you may render investment advice, management and other services to others, including other registered investment companies, provided, however, that such other services and activities do not, during the term of this Agreement, interfere in a material manner, with your ability to meet all of your obligations with respect to rendering services to the Fund.

 

The Company and you acknowledge that all rights to the name “RiverNorth” or any variation thereof belong to you, and that the Company is being granted a limited license to use such words in its Fund name or in any class name. In the event you cease to be the adviser to the Fund, the Company’s right to the use of the name “RiverNorth” shall automatically cease on the ninetieth day following the termination of this Agreement. The right to the name may also be withdrawn by you during the term of this Agreement upon ninety (90) days’ written notice by you to the Company. Nothing contained herein shall impair or diminish in any respect, your right to use the name “RiverNorth” in the name of, or in connection with, any other business enterprises with which you are or may become associated. There is no charge to the Company for the right to use this name.

 

9. LIMITATION OF LIABILITY OF MANAGER

 

You may rely on information reasonably believed by you to be accurate and reliable. Except as may otherwise be required by the Act or the rules thereunder, neither you nor your directors, officers, employees, shareholders, members, agents, control persons or affiliates of any thereof shall be subject to any liability for, or any damages, expenses or losses incurred by the Company in connection with, any error of judgment, mistake of law, any act or omission connected with or arising out of any services rendered under, or payments made pursuant to, this Agreement or any other matter to which this Agreement relates, except by reason of willful misfeasance, bad faith or gross negligence on the part of any such persons in the performance of your duties under this Agreement, or by reason of reckless disregard by any of such persons of your obligations and duties under this Agreement.

 

Any person, even though also a director, officer, employee, shareholder, member or agent of you, who may be or become a Director, officer, employee or agent of the Company, shall be deemed, when rendering services to the Company or acting on any business of the Company (other than services or business in connection with your duties hereunder), to be rendering such services to or acting solely for the Company and not as a director, officer, employee, shareholder, member, or agent of you, or one under your control or direction, even though paid by you.

 

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10. DURATION AND TERMINATION OF THIS AGREEMENT

 

The term of this Agreement shall begin on the date of this Agreement for the Fund that has executed an Exhibit hereto as of the date of this Agreement and shall continue in effect with respect to the Fund (and any subsequent Fund added pursuant to an Exhibit executed during the initial two-year term of this Agreement) for a period of two years. This Agreement shall continue in effect from year to year thereafter, subject to termination as hereinafter provided, if such continuance is approved at least annually by (a) a majority of the outstanding voting securities of the Fund or by vote of the Company’s Board of Directors, cast in person at a meeting called for the purpose of voting on such approval, and (b) by vote of a majority of the Directors of the Company who are not parties to this Agreement or “interested persons” of any party to this Agreement, cast in person at a meeting called for the purpose of voting on such approval. If a Fund is added pursuant to an Exhibit executed after the date of this Agreement as described above, this Agreement shall become effective with respect to that Fund upon execution of the applicable Exhibit and shall continue in effect for a period of two years from the date thereof and from year to year thereafter, subject to approval as described above.

 

This Agreement may, on sixty (60) days written notice, be terminated with respect to the Fund, at any time without the payment of any penalty, by the Board of Directors, by a vote of a majority of the outstanding voting securities of the Fund, or by you. This Agreement shall automatically terminate in the event of its assignment.

 

11. AMENDMENT OF THIS AGREEMENT

 

No provision of this Agreement may be changed, waived, discharged or terminated orally, and no amendment of this Agreement shall be effective until approved by the Board of Directors, including a majority of the Directors who are not interested persons of you or of the Company, cast in person at a meeting called for the purpose of voting on such approval, and (if required under interpretations of the Act by the Securities and Exchange Commission or its staff) by vote of the holders of a majority of the outstanding voting securities of the Fund to which the amendment relates.

 

12. LIMITATION OF LIABILITY TO COMPANY PROPERTY

 

The term “RiverNorth Funds” means and refers to the Directors from time to time serving under the Company’s Articles of Incorporation as the same may subsequently thereto have been, or subsequently hereto be, amended. It is expressly agreed that the obligations of the Company hereunder shall not be binding upon any of Directors, officers, employees, agents or nominees of the Company, or any shareholders of any series of the Company, personally, but bind only the property of the Company (and only the property of the applicable Fund), as provided in the Articles of Incorporation. The execution and delivery of this Agreement have been authorized by the Directors and shareholders of the applicable Fund and signed by officers of the Company, acting as such, and neither such authorization by such Directors and shareholders nor such execution and delivery by such officers shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the property of the Company (and only the property of applicable Fund) as provided in its Articles of Incorporation. A copy of the Articles of Incorporation is on file with the Secretary of State of Maryland.

 

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13. SEVERABILITY

 

In the event any provision of this Agreement is determined to be void or unenforceable, such determination shall not affect the remainder of this Agreement, which shall continue to be in force.

 

14. BOOKS AND RECORDS

 

In compliance with the requirements of Rule 31a-3 under the Act, you agree that all record which you maintain for the Company are the property of the Company and you agree to surrender promptly to the Company such records upon the Company’s request. You further agree to preserve for the periods prescribed by Rule 31a-2 under the Act all records which you maintain for the Company that are required to be maintained by Rule 31a-1 under the Act.

 

15. QUESTIONS OF INTERPRETATION

 

(a)       This Agreement shall be governed by the laws of the State of Maryland.

 

(b)       For the purpose of this Agreement, the terms “assignment,” “majority of the outstanding voting securities,” “control” and “interested person” shall have their respective meanings as defined in the Act and rules and regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the Act; and the term “brokerage and research services” shall have the meaning given in the Securities Exchange Act of 1934.

 

(c)       Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such term or provision of the Act and to interpretation thereof, if any, by the United States courts or in the absence of any controlling decision of any such court, by the Securities and Exchange Commission or its staff. In addition, where the effect of a requirement of the Act, reflected in any provision of this Agreement, is revised by rule, regulation, order or interpretation of the Securities and Exchange Commission or its staff, such provision shall be deemed to incorporate the effect of such rule, regulation, order or interpretation.

 

16. NOTICES

 

Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to the other party at such address as such other party may designate for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Company is 325 N. LaSalle Street, Suite 645 Chicago, IL 60610.

 

17. CONFIDENTIALITY

 

You agree to treat all records and other information relating to the Company and the securities holdings of the Fund as confidential and shall not disclose any such records or information to any other person unless (i) the Board of Directors of the Company has approved the disclosure or (ii) such disclosure is compelled by law. In addition, you, and your officers, directors and employees are prohibited from receiving compensation or other consideration, for themselves or on behalf of the Fund, as a result of disclosing the Fund’s portfolio holdings. You agree that, consistent with your Code of Ethics, neither your nor your officers, directors or employees may engage in personal securities transactions based on nonpublic information about the Fund's portfolio holdings.

 

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18. COUNTERPARTS

 

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

19. BINDING EFFECT

 

Each of the undersigned expressly warrants and represents that he has the full power and authority to sign this Agreement on behalf of the party indicated, and that his signature will operate to bind the party indicated to the foregoing terms.

 

20. CAPTIONS

 

The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

 

If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Company, whereupon this letter shall become a binding contract upon the date thereof.

 

Yours very truly,  
     
  RiverNorth Flexible Municipal Income Fund II, Inc.  
     
Dated: as of February 25, 2021 By: /s/ Patrick Galley  
  Print Name: Patrick Galley  
  Title: Chairman & President  

 

ACCEPTANCE:

 

The foregoing Agreement is hereby accepted.

 

  RiverNorth Capital Management, LLC  
     
Dated: as of February 25, 2021 By: /s/ Jonathan M. Mohrhardt  
  Print Name: Johnathan M. Mohrhardt  
  Title: President & Chief Operating Officer  

 

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Exhibit 1

 

Fund Percentage of Average
Daily Managed Assets
RiverNorth Flexible Municipal Income Fund II, Inc. 1.40%

 

-8

 

SUBADVISORY AGREEMENT

 

THIS SUBADVISORY AGREEMENT (this “Agreement”) is made and entered into as of this 25th day of February, 2021 by and between RiverNorth Capital Management, LLC (the “Adviser”), a Delaware limited liability company registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) located at 325 North LaSalle Street, Suite 645, Chicago, Illinois 60654, and MacKay Shields LLC (the “Subadviser”), a Delaware limited liability company registered under the Advisers Act, located at 1345 Avenue of the Americas, 43rd Floor, New York, New York 10105, with respect to the RiverNorth Flexible Municipal Income Fund II, Inc., a Maryland corporation (the “Fund” or “Company”). The effective date of this Agreement (the “Effective Date”) shall be the first date of trading of the Fund’s shares on the New York Stock Exchange.

 

W I T N E S S E T H:

 

WHEREAS, the Company is registered with the U.S. Securities and Exchange Commission (the “SEC”) as an closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”);

 

WHEREAS, the Adviser has, pursuant to a Management Agreement with the Company dated as of the 25th day of February, 2021, (the “Management Agreement”), been retained to act as investment adviser for the Fund;

 

WHEREAS, the Adviser represents that the Management Agreement permits the Adviser to delegate certain of its duties under the Management Agreement to other investment advisers, subject to the requirements of the 1940 Act; and

 

WHEREAS, the Adviser desires to retain the Subadviser to assist it in the provision of a continuous investment program for that discrete portion of the Fund’s assets that the Adviser will assign to the Subadviser, and Subadviser is willing to render such services subject to the terms and conditions set forth in this Agreement,

 

NOW, THEREFORE, the parties do mutually agree and promise as follows with respect to the Fund:

 

1.       Appointment as Subadviser. The Adviser hereby appoints the Subadviser to act as investment subadviser for and to manage a discrete portion of the assets of the Fund designated by the Adviser (the “Subadviser Assets”) subject to the supervision of the Adviser and the Board of Directors of the Company and subject to the terms of this Agreement; and the Subadviser hereby accepts such appointment. In such capacity, the Subadviser shall be responsible for the investment management of the Subadviser Assets, including, subject to the other provisions of this Agreement, the authority (i) to make all investment decisions with respect to the Subadviser Assets, including without limitation the discretion to acquire (by purchase, exchange, subscription or otherwise), hold and dispose of (by sale, exchange or otherwise) investments, (ii) to enter into such agreements and make such representations (including representations regarding the opening of brokerage accounts and purchase of securities for investment) as may be necessary or proper in connection with the performance by the Subadviser of its duties hereunder, and (iii) to grant on behalf of the Fund any consents or waivers relating to the Subadviser Assets. It is recognized that the Subadviser and certain of its affiliates may act as investment adviser to one or more other investment companies and other managed accounts, including investment companies and managed accounts with similar or overlapping investment programs to those of the Subadviser Assets, and that the Adviser and the Company do not object to such activities.

 

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For purposes of complying with Rule l0f-3, Rule 12d3-1, Rule 17a-10 and Rule 17e-l under the 1940 Act, the Subadviser hereby agrees that it will not consult with any other subadviser of an investment company or a series of an investment company that is advised by the Adviser (the "RiverNorth Fund complex") concerning transactions in securities or other fund assets for the Fund or any fund in the RiverNorth Fund complex, except that such consultations are permitted for purposes of complying with Rule 12d3-l under the 1940 Act and between the current and any successor sub-adviser (if any) of the Fund in order to effect an orderly transition of subadvisory duties as long as such consultations are not concerning transactions that would be prohibited by Section 17(a) of the 1940 Act but for the existence of an exemptive rule or order or an SEC staff no-action letter to similar effect. The Adviser or the Fund will provide to the Subadviser a list of the other current sub-advisers to the RiverNorth Fund complex and will promptly provide in writing to the Subadviser any changes to that list. In determining its compliance with this paragraph, the Subadviser is entitled to rely on that list.

 

2. Duties of Subadviser.

 

(a)       Investments. The Subadviser is hereby authorized and directed and hereby agrees, subject to the stated investment policies and restrictions of the Fund as set forth in the Fund’s prospectus (“Prospectus”) and statement of additional information (“SAI”) as currently in effect and, as soon as practical after the Fund or the Adviser notifies the Subadviser thereof, as supplemented or amended from time to time and subject to the directions of the Adviser and the Company’s Board of Directors, to monitor on a continuous basis the performance of the Subadviser Assets and to conduct a continuous program of investment, evaluation and, if deemed appropriate in the Subadviser’s judgment, sale and reinvestment of the Subadviser Assets. The Adviser agrees to provide the Subadviser with such assistance as may be reasonably requested by the Subadviser in connection with the Subadviser’s activities under this Agreement, including, without limitation, providing information concerning the Fund, its cash flow and cash available for investment and generally as to the conditions of the Fund’s affairs. The Subadviser will also be responsible, in cooperation with the Adviser, for the management of any form of leverage associated with the Subadviser Assets, including activities associated with the issuance of tender option bonds (TOBs) or similar instruments.

 

(b)       Compliance with Applicable Laws and Governing Documents. In the performance of its services under this Agreement, the Subadviser shall act in conformity with the Prospectus, SAI and the Company’s Agreement and Articles of Incorporation and By-Laws as currently in effect and, as soon as practicable after the Fund or the Adviser notifies the Subadviser thereof, as supplemented, amended and/or restated from time to time (referred to hereinafter as the “Articles of Incorporation” and “By-Laws,” respectively) and with the instructions and directions received in writing from the Adviser or the Directors of the Company and will conform to, and comply with, the requirements of the 1940 Act, Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) (subject to the obligations of the Adviser set forth below), and all other applicable federal and state laws and regulations. Without limiting the preceding sentence, the Adviser promptly shall notify the Subadviser as to any act or omission of the Subadviser hereunder that the Adviser reasonably deems to constitute or to be the basis of any noncompliance or nonconformance with any of the Company’s Articles of Incorporation and By-Laws, the Prospectus and the SAI, the instructions and directions received in writing from the Adviser or the Directors of the Company, the 1940 Act, the Code, or any other applicable federal and state laws and regulations. Notwithstanding the foregoing, the Adviser shall remain responsible for ensuring the Fund’s overall compliance with the 1940 Act, the Code and all other applicable federal and state laws and regulations, and the Subadviser is only obligated to comply with this subsection (b) with respect to the Subadviser Assets. The Adviser timely will provide the Subadviser with a copy of the minutes of the meetings of the Board of Directors of the Company to the extent they may affect the Fund or the services of the Subadviser, copies of any financial statements or reports made by the Fund to its shareholders, copies of the Prospectus, SAI and the Company’s Agreement and Articles of Incorporation and By-Laws and any further materials or information which the Subadviser may reasonably request to enable it to perform its functions under this Agreement.

 

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The Adviser shall perform quarterly and annual tax compliance tests to ensure that the Fund is in compliance with Subchapter M of the Code. In this regard, the Adviser acknowledges that the Subadviser shall rely completely upon the Adviser’s determination of whether and to what extent the Fund is in compliance with Subchapter M of the Code and that the Subadviser has no separate and independent responsibility to test the Fund (or the Subadviser Assets) for such compliance. In connection with such compliance tests, the Adviser shall inform the Subadviser at least ten (10) business days prior to a calendar quarter end if the Subadviser Assets are out of compliance with the diversification requirements under Subchapter M. If the Adviser notifies the Subadviser that the Subadviser Assets are not in compliance with such requirements noted above; the Subadviser will use commercially reasonable efforts to bring the Subadviser Assets back into compliance within the time permitted under the Code.

 

The Adviser shall perform quarterly compliance tests to ensure that the Fund is in compliance with the diversification provisions of Section 817 of the Code and the regulations thereunder. In this regard, the Adviser acknowledges that the Subadviser shall rely completely upon the Adviser’s determination of whether and to what extent the Fund is in compliance with the diversification provisions of Section 817 and the regulations thereunder and that the Subadviser has no separate and independent responsibility to test the Fund (or the Subadviser Assets) for such compliance. In connection with such compliance tests, the Adviser shall inform the Subadviser no more than five (5) business days after the end of a calendar quarter if the Subadviser Assets are out of compliance with these diversification requirements. If the Adviser notifies the Subadviser that the Subadviser Assets are not in compliance with such requirements noted above, the Subadviser will use commercially reasonable efforts to bring the Subadviser Assets back into compliance within the time permitted under the Code.

 

The Adviser will provide the Subadviser with reasonable advance notice of any change in the Fund’s investment objective, policies and restrictions as stated in the Prospectus and SAI, and the Subadviser shall, in the performance of its duties and obligations under this Agreement, manage the Subadviser Assets consistent with such changes, provided that the Subadviser has received prompt notice of the effectiveness of such changes from the Company or the Adviser. In addition to such notice, the Adviser shall provide to the Subadviser a copy of any modified Prospectus and SAI reflecting such changes. The Adviser acknowledges and will ensure that the Prospectus and SAI will at all times be in compliance with all disclosure requirements under all applicable federal and state laws and regulations relating to the Fund, including, without limitation, the 1940 Act, and the rules and regulations thereunder, and that the Subadviser shall have no liability in connection therewith, except as to the accuracy of material information furnished in writing by the Subadviser to the Company or to the Adviser specifically for inclusion in the Prospectus and SAI. The Subadviser hereby agrees to provide to the Adviser in a timely manner following a request from the Adviser such information relating to the Subadviser and its relationship to, and actions for, the Company as may be required to be contained in the Prospectus, SAI or in the Company’s Registration Statement on Form N-2 and any amendments thereto.

 

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(c)       Voting of Proxies and Class Actions. The Adviser hereby delegates to the Subadviser the Adviser’s discretionary authority to exercise voting rights with respect to the securities and other investments in the Subadviser Assets and authorizes the Subadviser to delegate further such discretionary authority to a designee identified in a notice given to the Company and the Adviser. The Subadviser, including without limitation its designee, shall have the power to vote, either in person or by proxy, all securities and other investments in which the Subadviser Assets may be invested from time to time, and shall not be required to seek or take instructions from, the Adviser or the Company or take any action with respect thereto. Such authorization shall include the ability to exercise authority with regard to corporate actions affecting investments in the Subadviser Assets.

 

The Subadviser has established a written procedure for proxy voting in compliance with current applicable rules and regulations, including but not limited to Rule 30b1-4 under the 1940 Act. The Subadviser will provide the Adviser, or its designee, a copy of such procedure and establish a process for the timely distribution of the Subadviser’s voting record with respect to the Fund’s securities and other information necessary for the Fund to complete information required by Form N-2 under the 1940 Act and the Securities Act of 1933, as amended (the “Securities Act”), Form N-PX under the 1940 Act, and Form N-CSR under the Sarbanes-Oxley Act of 2002, as amended, respectively.

 

The Subadviser will not take any action or render any advice with respect to any assets held by the Fund that are named in or subject to any class action. The Adviser will instruct the custodian bank and all other applicable parties not to forward to the Subadviser any information concerning such actions.

 

(d)       Power of Attorney. The Subadviser is hereby appointed the Adviser’s and the Company’s agent and attorney-in-fact with full power and authority for the Adviser and the Company and on their respective behalf to buy, sell and otherwise deal in securities, investment instruments and contracts relating to the same with respect to the Subadviser Assets. The Adviser and the Company further grant to the Subadviser as their agent and attorney-in-fact the power and authority to do and perform every act necessary and proper to be done in the exercise of the foregoing powers as fully as the Adviser or the Company might or could do if personally present. This power of attorney is coupled with an interest and shall terminate only on termination of this Agreement. The Subadviser agrees to provide the Adviser and the Company, upon request, with copies of any such agreements executed on behalf of the Adviser or the Company.

 

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(e)       Brokerage. The Subadviser is authorized, subject to the supervision of the Adviser and the plenary authority of the Company’s Board of Directors, to establish and maintain accounts on behalf of the Fund with, and place orders for the investment and reinvestment, including without limitation purchase and sale, of the Subadviser Assets with or through such persons, brokers (including, to the extent permitted by applicable law, any broker affiliated with the Subadviser) or dealers (collectively “Brokers”) as the Subadviser may elect and negotiate commissions to be paid on such transactions. The Subadviser, however, is not required to obtain the consent of the Adviser or the Company’s Board of Directors prior to establishing any such brokerage account. The Subadviser shall place all orders for the purchase and sale of portfolio investments for the Fund’s account with Brokers selected by the Subadviser. In the selection of such Brokers and the placing of such orders, the Subadviser shall seek to obtain for the Fund the most favorable price and execution available under the circumstances, except to the extent it may be permitted to pay higher brokerage commissions for brokerage and research services, as provided below. It is expressly acknowledged that the Subadviser will not be obligated to solicit competitive bids for each transaction or to seek the lowest available commission cost. In using its reasonable efforts to obtain for the Fund the most favorable price and execution available under the circumstances, the Subadviser, bearing in mind the best interests of the Fund at all times, shall consider all factors it deems relevant, including but not limited to price, the size of the transaction, the breadth and nature of the market for the security, the difficulty of the execution, the amount of the commission, if any, the timing of the transaction, market prices and trends, the reputation, experience and financial stability of the Broker involved, and the quality of service rendered by the Broker in other transactions. The Subadviser shall not consider a Broker’s sale of Fund shares when selecting the Broker to execute trades. Neither the Company nor the Adviser shall instruct the Subadviser to place orders with any particular Broker(s) with respect to the Subadviser Assets. Subject to such policies as the Directors may determine, or as may be mutually agreed to by the Adviser and the Subadviser, the Subadviser is authorized but not obligated to cause, and shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused, the Fund to pay a Broker that provides brokerage and research services (within the meaning of Section 28(e) of the Securities Exchange Act of 1934) to the Subadviser an amount of commission for effecting a Subadviser Assets investment transaction that is in excess of the amount of commission that another Broker would have charged for effecting that transaction if, but only if, the Subadviser determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such Broker viewed in terms of either that particular transaction or the overall responsibility of the Subadviser with respect to the accounts as to which it exercises investment discretion. It is recognized that the services provided by such Brokers may be useful to the Subadviser in connection with the Subadviser’s services to other clients.

 

On occasions when the Subadviser determines to purchase or sell a security or other investment for the Fund with respect to the Subadviser Assets as well as other clients of the Subadviser, the Subadviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities or other investments to be sold or purchased if in the Subadviser’s reasonable judgment such aggregation would result in an overall economic benefit to the Subadviser Assets, taking into consideration the advantageous selling or purchase price, brokerage commissions and other expenses. The Adviser acknowledges that the determination of such economic benefit to the Fund by the Subadviser represents the Subadviser’s evaluation that the Fund is benefited by relatively better purchase or sales prices, lower commission expenses and beneficial timing of transactions or a combination of these and other factors. In any single transaction in which purchases and or sales of securities of any issuer for the account of the Fund are aggregated with other accounts managed by the Subadviser, determinations will be made in accordance with the Subadviser’s then-current procedures governing trade allocations. In such event, allocation of securities so sold or purchased, as well as the expenses incurred in the transaction, will be made by the Subadviser in the manner the Subadviser considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to such other clients. It is recognized that in some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtainable for, or disposed of by, the Fund with respect to the Subadviser Assets.

 

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(f)       Securities Transactions. The Subadviser and any affiliated person of the Subadviser may purchase securities or other instruments from or sell securities or other instruments to the Fund only if such transaction is permissible under applicable laws and regulations, including, without limitation, the 1940 Act and the Advisers Act and the rules and regulations promulgated thereunder.

 

The Subadviser, on its own behalf and with respect to its Access Persons (as defined in subsection (e) of Rule 17j-1 under the 1940 Act), agrees to observe and comply with Rule 17j-1 and its Code of Ethics (which shall comply in all material respects with Rule 17j-1), as the same may be amended from time to time. On at least an annual basis, the Subadviser will comply with the reporting requirements of Rule 17j-1, which include (i) certifying to the Adviser and the Company that the Subadviser and its Access Persons have complied with the Subadviser’s Code of Ethics with respect to the Subadviser Assets and (ii) identifying any violations which have occurred with respect to the Subadviser Assets. The Subadviser will have also submitted its Code of Ethics for its initial approval by the Company’s Board of Directors no later than the date of execution of this Agreement and subsequently within six months of any material change thereto.

 

(g)       Books and Records. The Subadviser shall maintain such separate detailed records as are required by applicable laws and regulations of all matters hereunder pertaining to the Subadviser Assets (the “Fund’s Records”), including, without limitation, brokerage and other records of all securities transactions. The Subadviser acknowledges that the Fund’s Records are property of the Company, except to the extent that the Subadviser is required to maintain the Fund’s Records under the Advisers Act or other applicable law and except that the Subadviser, at its own expense, is entitled to make and keep a copy of the Fund’s Records for its internal files. The Fund’s Records shall be available to the Adviser or the Company at any time upon reasonable request during normal business hours and shall be available for telecopying promptly to the Adviser during any day that the Fund is open for business as set forth in the Prospectus.

 

(h)       Information Concerning Subadviser Assets and Subadviser. From time to time as the Adviser or the Company reasonably may request in good faith, the Subadviser will furnish the Adviser or the Company with reports on portfolio transactions and reports on the Subadviser Assets, all in such reasonable detail as the parties may reasonably agree in good faith. The Subadviser will also inform the Adviser in a timely manner of material changes in portfolio managers responsible for Subadviser Assets or any material changes in the control or management of the Subadviser. Upon the Company’s or the Adviser’s reasonable request, the Subadviser will make available its officers and employees to meet with the Company’s Board of Directors to review the Subadviser Assets via telephone on a quarterly basis and on a less frequent basis in person as agreed upon by the parties. The Subadviser will upon reasonable request provide the Adviser with information regarding the pricing of particular securities or obligations identified by the Adviser that are included among the Subadviser Assets (based on the Subadviser’s own pricing policies), it being understood and agreed that (i) the responsibility for pricing any such securities or obligations to calculate the Fund’s net asset value or for any other purpose remains the sole responsibility of the Adviser and (ii) the Subadviser will have no liability to the Adviser or the Fund or any of the Fund’s shareholders for any assistance provided in connection with the pricing of securities or obligations. Subject to the other provisions of this Agreement, the Subadviser will also provide such information or perform such additional acts as may reasonably be requested by the Adviser with respect to the Subadviser Assets for the Company or the Adviser to comply with their respective obligations under applicable laws, including without limitation, the Code, the 1940 Act, the Advisers Act, and the Securities Act, and any rule or regulation thereunder.

 

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(i)       Custody Arrangements. The Company or the Adviser shall notify the Subadviser of the identities of the Company’s custodian banks and the custody arrangements therewith with respect to the Subadviser Assets and shall give the Subadviser sixty (60) days’ advance written notice of any changes in such custodian banks or custody arrangements. The Subadviser shall, on each business day, provide the Adviser and the Company’s custodian such information as the Adviser and the Company’s custodian may reasonably request in good faith relating to all transactions on such business day concerning the Subadviser Assets. The Company shall instruct its custodian banks to (i) carry out all investment instructions as may be directed by the Subadviser with respect to the Subadviser Assets (which instructions may be orally given if confirmed in writing); and (ii) provide the Subadviser with all operational information necessary for the Subadviser to purchase, sell, trade or otherwise act with respect to the Subadviser Assets on behalf of the Fund. The Subadviser shall have no liability for the acts or omissions of the authorized custodian(s), unless such act or omission is required by and taken in reliance upon instructions given to the authorized custodian(s) by a representative of the Subadviser properly authorized (pursuant to written instruction by the Adviser) to give such instructions.

 

3.         Independent Contractor. In the performance of its services hereunder, the Subadviser is and shall be an independent contractor and unless otherwise expressly provided herein or otherwise authorized in writing, shall have no authority to act for or represent the Fund or the Adviser in any way or otherwise be deemed an agent of the Fund or the Adviser.

 

4.         Expenses. During the term of this Agreement, the Subadviser will provide, at its own expense, the office space, furnishings and equipment and personnel required by it to perform the services on the terms and for the compensation provided herein, but shall not bear any expenses in connection with its activities under this Agreement that are not customarily regarded as overhead costs for an investment manager. The Subadviser shall not be responsible for the Fund’s or Adviser’s expenses, which shall include, but not be limited to, the cost of securities, commodities and other investments (including brokerage commissions and other transaction charges, if any) purchased for the Fund and any losses incurred in connection therewith, expenses of holding or carrying Subadviser Assets, including, without limitation, expenses of dividends on stock borrowed to cover a short sale and interest, fees or other charges incurred in connection with leverage and related borrowings with respect to the Subadviser Assets, organizational and offering expenses (which include, but are not limited to, out-of-pocket expenses, but not overhead or employee costs of the Subadviser); expenses for legal, accounting and auditing services (which include, but are not limited to, services provided in connection with the workout of securities or obligations held by the Fund); taxes and governmental fees; dues and expenses incurred in connection with membership in investment company organizations; costs of printing and distributing shareholder reports, proxy materials, prospectuses, stock certificates and distribution of dividends; charges of the Fund’s custodians and sub-custodians, administrators and sub-administrators, registrars, transfer agents, dividend disbursing agents and dividend reinvestment plan agents; payment for portfolio pricing services to a pricing agent, if any; registration and filing fees of the SEC; expenses of registering or qualifying securities of the Fund for sale in the various states; freight and other charges in connection with the shipment or movement of the Fund’s portfolio securities; fees and expenses of Directors; salaries of shareholder relations personnel; costs of shareholders meetings; insurance; interest; brokerage costs; and litigation and indemnification expenses and other extraordinary or non- recurring expenses. The Company or the Adviser, as the case may be, shall reimburse the Subadviser for any expenses of the Fund or the Adviser as may be reasonably incurred by such Subadviser on behalf of the Fund or the Adviser. The Subadviser shall keep and supply to the Company and the Adviser reasonable records of all such expenses.

 

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5.         Investment Analysis and Commentary. The Subadviser will provide quarterly performance analysis and market commentary (the “Investment Report”) during the term of this Agreement. The Investment Reports are due within fifteen (15) business days after the end of each quarter. In addition, interim Investment Reports may be issued at such times as may be mutually agreed upon by the Adviser and Subadviser. The subject of each Investment Report shall be mutually agreed upon, which agreement shall not prohibit the Adviser from publicly distributing the same or similar information as is contained within the Investment Report. Each Investment Report will remain the property of the Subadviser and shall not be distributed or reproduced without the Subadviser’s prior written consent. For the avoidance of doubt, no Investment Report shall be deemed a “work for hire” and no rights in any such report shall attach to the Adviser or the Company.

 

6.         Compensation. For the services provided pursuant to this Agreement, the Subadviser is entitled to an annual fee equal to the amounts described in Schedule A attached hereto. Such fee will be computed daily and paid no later than the tenth (10th) business day following the end of each month by the Adviser, calculated at an annual rate based on the average daily Managed Assets of the Fund (as defined in the Fund’s prospectus) and will provide the Subadviser with a schedule showing the manner in which the fee was computed. Managed Assets of the Fund shall be valued consistently with the valuation of such assets in determining net asset value as described in the Fund’s Prospectus and/or SAI. If this Agreement shall be effective for only a portion of a month with respect to the Fund, the aforesaid fee shall be prorated for the portion of such month during which this Agreement is in effect for the Fund. Expense caps or fee waivers for the Fund that may be agreed to by the Manager, but not agreed to in writing by the Subadvisor, shall not cause a reduction in the amount of the payment to the Subadvisor.

 

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7.         Representations and Warranties of Subadviser. The Subadviser represents and warrants to the Adviser and the Company as follows:

 

(a)       The Subadviser is registered as an investment adviser under the Advisers Act;

 

(b)       The Subadviser is a limited liability company duly organized and properly registered and operating under the laws of the State of Delaware with the power to own and possess its assets and carry on its business as it is now being conducted and as proposed to be conducted hereunder; and

 

(c)       The execution, delivery and performance by the Subadviser of this Agreement are within the Subadviser’s powers and have been duly authorized by all necessary actions of its partners, and no action by, or in respect of, or filing with, any governmental body, agency or official is required on the part of the Subadviser for execution, delivery and performance by the Subadviser of this Agreement, and the execution, delivery and performance by the Subadviser of this Agreement do not contravene or constitute a violation of, or a material default under, (i) any provision of applicable law, rule or regulation, (ii) the Subadviser’s governing instruments, or (iii) any agreement, judgment, injunction, order, decree or other instrument binding upon the Subadviser.

 

(d)       The Subadviser is not providing commodity interest trading advice with respect to the Fund.

 

8.         Representations and Warranties of Adviser. The Adviser represents and warrants to the Subadviser as follows:

 

(a)       The Adviser is registered as an investment adviser under the Advisers Act;

 

(b)       The Adviser is a limited liability company duly organized and validly existing under the laws of the State of Delaware with the power to own and possess its assets and carry on its business as it is now being conducted and as proposed to be conducted hereunder;

 

(c)       The execution, delivery and performance by the Adviser of this Agreement are within the Adviser’s powers and have been duly authorized by all necessary action on the part of its members or shareholders, and no action by, or in respect of, or filing with, any governmental body, agency or official is required on the part of the Adviser for the execution, delivery and performance by the Adviser of this Agreement, and the execution, delivery and performance by the Adviser of this Agreement do not contravene or constitute a violation of, or a material default under, (i) any provision of applicable law, rule or regulation, (ii) the Adviser’s governing instruments or (iii) any agreement, judgment, injunction, order, decree or other instrument binding upon the Adviser;

 

(d)       It received a copy of the Subadviser’s Form ADV Part 2A and the applicable Form ADV Part 2B prior to the execution of this Agreement;

 

(e)       The Adviser and the Company have duly entered into the Management Agreement pursuant to which the Company authorized the Adviser to delegate certain of its duties under the Management Agreement to other investment advisers, including without limitation, the appointment of a subadviser with respect to assets of the Fund and the Adviser’s entering into and performing this Agreement; and

 

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(f)       The Fund is a “qualified institutional buyer” as defined in Rule 144A under the Securities Act by virtue of being a member of a “family of funds” as defined in Rule 144A.

 

(g)       The Adviser has claimed the CPO exclusion in Commodity Futures Trading Commission (“CFTC”) Regulation 4.5 with respect to the Fund and will file the notice required under CFTC Regulation 4.5 with respect to the Fund and will annually reaffirm such notice filing on behalf of the Fund as required by CFTC Regulation 4.5. The Adviser further represents, warrants and covenants that the Fund is, and until this Agreement is terminated will remain, an “eligible contract participant” within the meaning of Section 1a(18) of the CEA.

 

9.         Survival of Representations and Warranties; Duty to Update Information. All representations and warranties made by the Subadviser and the Adviser pursuant to the recitals above and Sections 7 and 8, respectively, shall survive for the duration of this Agreement and the parties hereto shall promptly notify each other in writing upon becoming aware that any of the foregoing representations and warranties are no longer true or accurate in all material aspects.

 

10. Liability and Indemnification.

 

(a)       Liability. The Subadviser shall exercise that level of judgment required of others in a similar position in rendering its services in accordance with the terms of this Agreement, but otherwise, in the absence of willful misconduct, bad faith or gross negligence on the part of the Subadviser, each of its affiliates and all respective partners, officers, directors and employees (“Affiliates”) and each person, if any, who within the meaning of the Securities Act controls the Subadviser (“Controlling Persons”), if any, shall not be subject to any expenses or liability to the Adviser or the Fund or any of the Fund’s shareholders, in connection with the matters to which this Agreement relates, including without limitation for any losses that may be sustained in the purchase, holding or sale of Subadviser Assets. The Adviser shall exercise that level of judgment required of others in a similar position in rendering its obligations in accordance with the terms of this Agreement, but otherwise (except as set forth in Section 11(c) below), in the absence of willful misconduct, bad faith or gross negligence on the part of the Adviser, any of its Affiliates and each of the Adviser’s Controlling Persons, if any, shall not be subject to any liability to the Subadviser, for any act or omission in the case of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of Subadviser Assets. Notwithstanding the foregoing, nothing herein shall relieve the Adviser and the Subadviser from any of their obligations under applicable law, including, without limitation, the federal and state securities laws.

 

(b)       Indemnification. The Subadviser shall indemnify the Adviser and the Fund, and their respective Affiliates and Controlling Persons for any liability and expenses, including without limitation reasonable attorneys’ fees and expenses, which the Adviser and/or the Fund and their respective Affiliates and Controlling Persons sustain as a result of the Subadviser’s willful misconduct, bad faith, gross negligence, or violation of applicable law, including, without limitation, the federal and state securities laws. Unless otherwise obligated under applicable law, the Subadviser shall not be liable for indirect, punitive, special or consequential damages arising out of this Agreement.

 

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The Adviser shall indemnify the Subadviser, its Affiliates and its Controlling Persons, for any liability and expenses, including without limitation reasonable attorneys’ fees and expenses, sustained as a result of the Adviser’s willful misconduct, bad faith, gross negligence or violation of applicable law, including, without limitation, the federal and state securities laws.

 

The Company shall indemnify the Subadviser, its Affiliates and its Controlling Persons to the fullest extent permitted by law (taking into account any exemptive relief granted to the Company) against any liability and expenses, including without limitation reasonable attorneys’ fees and expenses, sustained as a result of any (i) willful misconduct, bad faith, gross negligence or violation of applicable law, including, without limitation, the federal and state securities laws, by the Company, (ii) untrue statement of a material fact in the Fund’s registration statement relating to shares of the Fund or any other sales materials relating to the Fund or (iii) omission of a material fact required to have been included in such registration statement or sales material, or necessary to make the statements therein not misleading, unless in the case of clause (ii) or (iii) the statement or omission was made in reliance upon and in conformity with written information provided by the Subadviser to the Adviser or the Fund for use in the registration statement or sales material.

 

(c)       Acts of the Adviser. The Subadviser shall not be liable to the Adviser, the Fund or their respective shareholders or Controlling Persons for acts of the Subadviser which result from acts of the Adviser, including, but not limited to, a failure of the Adviser to provide accurate and current information with respect to any records maintained by the Adviser, which records are not also maintained by or otherwise available to the Subadviser upon reasonable request. Without limiting the indemnity set forth in subsection (b) above, the Adviser shall indemnify the Subadviser, its Affiliates and its Controlling Persons, for any liability and expenses, including without limitation reasonable attorneys’ fees and expenses, sustained as a result of the Adviser’s failure to provide accurate and current information with respect to any records maintained by the Adviser, which records are not also maintained by or otherwise available to the Subadviser upon reasonable request.

 

11. Duration and Termination.

 

(a)       Duration. Unless sooner terminated, this Agreement shall continue for an initial period of no more than two years following the Effective Date of this Agreement, and thereafter shall continue automatically for successive annual periods with respect to the Fund, provided such continuance is specifically approved at least annually by the Company’s Board of Directors or vote of the lesser of (a) 67% of the shares of the Fund represented at a meeting if holders of more than 50% of the outstanding shares of the Fund are present in person or by proxy or (b) more than 50% of the outstanding shares of the Fund; provided that in either event its continuance also is approved by a majority of the Company’s Directors who are not “interested persons” (as defined in the 1940 Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval.

 

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(b)       Termination. Notwithstanding whatever may be provided herein to the contrary, this Agreement may be terminated at any time with respect to the Fund, without payment of any penalty:

 

(i)       By vote of a majority of the Company’s Board of Directors, or by “vote of a majority of the outstanding voting securities” of the Fund (as defined in the 1940 Act), or by the Adviser, in each case, upon not more than 60 days’ written notice to the Subadviser;

 

(ii)       By any party hereto upon written notice to the other party in the event of a material breach of any provision of this Agreement by the other party if the material breach is not cured within 15 days of notice of the material breach; or

 

(iii)       By the Subadviser upon not more than 60 days’ written notice to the Adviser and the Company.

 

This Agreement shall not be assigned (as such term is defined in the 1940 Act) and shall terminate automatically in the event of its assignment or upon the termination of the Management Agreement. Termination of this Agreement shall not affect the right of the Subadviser to receive payments on any unpaid balance of the compensation described in Section 6 earned prior to such termination and for any additional period during which the Subadviser serves as such for the Company, subject to applicable law.

 

12.       Duties of the Adviser. The Adviser shall continue to have responsibility for all services to be provided to the Fund pursuant to the Management Agreement and shall oversee and review the Subadviser’s performance of its duties under this Agreement. Nothing contained in this Agreement shall obligate the Adviser to provide any funding or other support for the purpose of directly or indirectly promoting investments in a Fund.

 

13. Reference to Adviser and Subadviser.

 

(a)       During the term of this Agreement only, the Subadviser grants, subject to the conditions below, the Adviser a limited, non-exclusive rights to use, display and promote trademarks of the Subadviser solely in conjunction with any activity associated with the Fund. In addition, the Adviser may promote the identity of and services provided by the Subadviser to the Adviser, which references shall not differ in substance from those included in the Prospectus, SAI and this Agreement, in any advertising or promotional materials. The Adviser shall protect the goodwill and reputation of the Subadviser in connection with marketing and promotion of the Fund. The Adviser shall submit to the Subadviser for its review and approval all such public informational or sales materials relating to the Fund (including, without limitation, prospectuses, proxy statements and reports to shareholders) that refer in any way to the Subadviser or refer to or contain any recognizable variant or any registered mark or logo or other proprietary designation of the Subadviser. Approval shall not be unreasonably withheld by the Subadviser and notice of approval or disapproval will be provided promptly.

 

(b)       Neither the Subadviser nor any Affiliate or agent of the Subadviser shall make reference to or use the name of the Adviser or any of its Affiliates, or any of their clients, except references concerning the identity of and services provided by the Subadviser to the Fund or to the Adviser, which references shall not differ in substance from those included in the Prospectus, SAI and this Agreement, in any advertising or promotional materials without the prior approval of Adviser, which approval shall not be unreasonably withheld or delayed and notice of approval or disapproval will be provided promptly. Subsequent advertising or promotional materials having very substantially the same form as previously approved by the Adviser may be used by the Subadviser without obtaining the Adviser’s consent unless such consent is withdrawn in writing by the Adviser. The Subadviser hereby agrees to make all reasonable efforts to cause any Affiliate of the Subadviser to satisfy the foregoing obligation. Notwithstanding the foregoing, the Adviser acknowledges and agrees that the Subadviser may identify the Adviser as a client of the Subadviser, which identification may include a statement describing the Subadviser’s role with respect to the Adviser and the Fund.

 

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14.       Amendment; Waiver. This Agreement may be amended by mutual written consent of the parties, provided that the terms of any material amendment shall be approved by: (a) to the extent required by the 1940 Act, the Company’s Board of Directors or by a vote of a majority of the outstanding voting securities of the Fund (as required by the 1940 Act), and (b) the vote of a majority of those Directors of the Company who are not “interested persons” of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval, if such approval is required by applicable law. No failure to exercise and no delay in exercising on the part of any party hereto, of any right, remedy, power or privilege hereunder shall operate as a waiver thereof.

 

15.       Confidentiality. Each party hereto shall keep confidential and shall not disclose any and all information obtained in connection with the services rendered hereunder and relating to the other party (and in the case of the Adviser, the Fund) without the consent of such party, except to the extent that such disclosure meets one of the following conditions:

 

(a)       Law or Regulation. The disclosure is necessary to comply with applicable law or regulation or the rules or regulations of any self-regulatory organization or governmental body having jurisdiction over the Subadviser, the Adviser or the Fund;

 

(b)       Court or Regulatory Authority. Disclosure of such information is expressly required or requested by a court or other tribunal of competent jurisdiction or applicable federal or state regulatory authorities;

 

(c)       Publicly Known Without Breach. Such information becomes known to the general public without a breach of this Agreement or a similar confidential disclosure agreement regarding such information;

 

(d)       Already Known. Such information already was known by the party prior to the date of this Agreement or becomes known to it from a source other than the other party (which source is not known to the recipient to be violating an obligation of confidentiality);

 

(e)       Received From Third Party. Such information was or is hereafter rightfully received by the party from a third party (expressly excluding the Fund’s custodian, prime broker and administrator) without restriction on its disclosure and without breach of this Agreement or of a similar confidential disclosure agreement regarding them;

 

-13

 

(f)       Independently Developed. The party independently developed such information; or

 

(g)       Disclosure to Representatives. The disclosure is made to the party’s attorneys, accountants, service providers, officers, employees, advisory personnel, directors, trustees, partners or affiliates (“Representatives”), provided that such Representatives shall protect the confidentiality of such information pursuant to this paragraph 15 and each party shall remain liable for any breaches by its Representatives who are provided with confidential information.

 

In addition, the Subadviser and its officers, directors and employees are prohibited from receiving compensation or other consideration, for themselves or on behalf of the Fund, in exchange for disclosing the Fund’s portfolio holdings.

 

16.       Non-Exclusive Services. The Subadviser is free to act for its own account and to provide to others services similar to those to be provided hereunder. The Adviser acknowledges that the Subadviser and its partners, principals, officers, employees and agents, and the Subadviser’s other clients, may at any time have, acquire, increase, decrease or dispose of positions in the same investments which are at the time being held, acquired for or disposed of under this Agreement for the Fund. The Adviser agrees that the Subadviser may give advice and take action in the performances of its duties with respect to any of its other clients which may differ from advice given or the timing or nature of action taken with respect to the Subadviser Assets.

 

17.       Miscellaneous. No person other than the Fund, the Adviser, and the Subadviser is a party to this Agreement or shall be entitled to any right or benefit arising under or in respect of this Agreement; there are no third-party beneficiaries of this Agreement. Without limiting the generality of the foregoing, nothing in this Agreement is intended to, or shall be read to, (i) create in any person other than the Fund (including without limitation any shareholder in the Fund) any direct, indirect, derivative, or other rights against the Adviser or Subadviser, or (ii) create or give rise to any duty or obligation on the part of the Adviser or Subadviser (including without limitation any fiduciary duty) to any person other than the Fund, all of which rights, benefits, duties, and obligations are hereby expressly excluded.

 

18.       Additional Information. Without limiting any other provision of this Agreement, the Adviser and the Fund shall furnish such other information with regard to their affairs as the Subadviser may reasonably request.

 

19.       Notice. Any notice that is required to be given by the parties to each other under the terms of this Agreement shall be in writing, delivered, or mailed postpaid to the other parties, to the parties at the following addresses, which may from time to time be changed by the parties by notice to the other party:

 

If to the Subadviser:

 

MacKay Shields LLC

1345 Avenue of the Americas

43rd Floor

New York, NY 10105

Attention: General Counsel

Phone: 212-758-5400

 

-14

 

If to the Adviser:

RiverNorth Capital Management, LLC 325 N. LaSalle Street, Suite 645

Chicago, Illinois 60654

Attention: General Counsel

Phone: 312-445-2251

 

20. Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

 

21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, all of which shall together constitute one and the same instrument.

 

22. Certain Definitions. For the purposes of this Agreement and except as otherwise provided herein, “interested person,” “affiliated person,” and “assignment” shall have their respective meanings as set forth in the 1940 Act, subject, however, to such exemptions as may be granted by the SEC.

 

23. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

 

24. Severability. If any provision of this Agreement shall be held or made invalid by a court decision or applicable law, the remainder of the Agreement shall not be affected adversely and shall remain in full force and effect.

 

25. Entire Agreement. This Agreement, together with all exhibits, attachments and appendices, contains the entire understanding and agreement of the parties with respect to the subject matter hereof.

 

[remainder of page intentionally left blank]

 

-15

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first written above.

 

ADVISER  
  RiverNorth Capital Management, LLC  
     
  By: /s/ Jonathan M. Mohrhardt  
  Name: Johnathan M. Mohrhardt  
  Title: President & Chief Operating Officer  
     
  SUBADVISER  
  Mackay Shields LLC  
     
  By: /s/ Robert DiMella  
  Name: Robert DiMella  
  Title: Executive Managing Director  
     
  FUND  
  RiverNorth Flexible Municipal Income Fund II, Inc.  
     
  By: /s/ Patrick Galley  
  Name: Patrick Galley  
  Title: Chairman & President  

 

-16

 

 

RiverNorth Flexible Municipal Income Fund II, Inc.

 

[●] Shares of Common Stock

 

Par Value $0.0001 Per Share

 

UNDERWRITING AGREEMENT

 

[●], 2021

 

 

 

UNDERWRITING AGREEMENT

 

[●], 2021

 

UBS Securities LLC

Wells Fargo Securities, LLC

RBC Capital Markets, LLC

Stifel, Nicolaus & Company, Incorporated

B. Riley Securities, Inc.

Bancroft Capital, LLC

Brookline Capital Markets, a Division of Arcadia Securities, LLC

D.A. Davidson & Co.

GMS Group, LLC

Hilltop Securities Inc.

Incapital LLC

Janney Montgomery Scott LLC

JonesTrading Institutional Services LLC

Ladenburg Thalmann & Co. Inc

Maxim Group LLC

National Securities Corporation

Newbridge Securities Corporation

Pershing LLC

Rockefeller Financial LLC

Wedbush Securities Inc.

 

c/o UBS Securities LLC
1285 Avenue of the Americas
New York, New York 10019

 

Ladies and Gentlemen:

 

RiverNorth Flexible Municipal Income Fund II, Inc., a corporation organized under the laws of the State of Maryland (the “Fund”), proposes to issue and sell to the underwriters named in Schedule A annexed hereto (the “Underwriters”) an aggregate of [●] shares of common stock (the “Firm Shares”), par value $0.0001 per share (the “Common Shares”), of the Fund. In addition, solely for the purpose of covering over-allotments, the Fund proposes to grant to the Underwriters the option to purchase from the Fund up to an additional [●] Common Shares (the “Additional Shares”). The Firm Shares and the Additional Shares are hereinafter collectively sometimes referred to as the “Shares.” The Shares are described in the Prospectus which is defined below. UBS Securities LLC, Wells Fargo Securities, LLC, RBC Capital Markets, LLC and Stifel, Nicolaus & Company, Incorporated (the “Managing Representatives”) will act as managing representatives for the Underwriters in connection with the issuance and sale of the Shares.

 

The Fund has filed, in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively called the “Securities Act”), and with the provisions of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder (collectively called the “Investment Company Act”), with the Securities and Exchange Commission (the “Commission”) a registration statement on Form N-2 (File Nos. 333-239784 and 811-23586), including a prospectus and a statement of additional information, relating to the Shares. In addition, the Fund has filed a Notification of Registration on Form N-8A (the “Notification”) pursuant to Section 8 of the Investment Company Act.

 

  

 

Except where the context otherwise requires, “Preliminary Prospectus,” as used herein, means each prospectus (including the statement of additional information incorporated therein by reference) included in such registration statement, or amendment thereof, before it became effective under the Securities Act and any prospectus (including the statement of additional information incorporated therein by reference) filed with the Commission by the Fund with the consent of the Managing Representatives on behalf of the Underwriters, pursuant to Rule 424(a) under the Securities Act.

 

Except where the context otherwise requires, “Registration Statement,” as used herein, means the registration statement, as amended at the time of such registration statement’s effectiveness for purposes of Section 11 of the Securities Act, as such section applies to the respective Underwriters (the “Effective Time”), including (i) all documents filed as a part thereof or incorporated by reference therein, (ii) any information contained in a prospectus subsequently filed with the Commission pursuant to Rule 424 under the Securities Act and deemed to be part of the registration statement at the Effective Time pursuant to Rule 430A under the Securities Act, and (iii) any registration statement filed to register the offer and sale of Shares pursuant to Rule 462(b) under the Securities Act.

 

Except where the context otherwise requires, “Prospectus,” as used herein, means the final prospectus (including the statement of additional information incorporated therein by reference) as filed by the Fund with the Commission (i) pursuant to Rule 424(b)(1) under the Securities Act on or before the second business day after the date hereof (or such earlier time as may be required under the Securities Act) or (ii) pursuant to Rule 424(b)(3) under the Securities Act on or before the fifth business day after the date hereof (or such earlier time as may be required under the Securities Act), or, if no such filing is required, the final prospectus (including the final statement of additional information) included in the Registration Statement at the Effective Time, in each case in the form furnished by the Fund to you for use by the Underwriters and by dealers in connection with the confirmation of sales in the offering of the Shares.

 

Disclosure Package” means any Issuer Free Writing Prospectus and the Pricing Prospectus taken together with the Pricing Information.

 

Issuer Free Writing Prospectus” means any “written communication” (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or solicitation of an offer to buy the Shares.

 

Pricing Prospectus” means the Preliminary Prospectus, dated [●], 2021, including the statement of additional information incorporated therein by reference.

 

Pricing Information” [means the information relating to (i) the number of Shares issued and (ii) the offering price of the Shares included on the cover page of the Prospectus.]

 

2 

 

Sales Materials” means those advertising materials, sales literature, press releases or other promotional materials or documents, if any, constituting an advertisement pursuant to Rule 482 under the Securities Act authorized or prepared by the Fund or authorized or prepared on behalf of the Fund by the Investment Adviser (as defined below), the Sub-Adviser (as defined below) or any representative thereof for use in connection with the public offering or sale of the Shares; provided, however, that Sales Materials do not include any slides, tapes or other materials or documents that constitute a “written communication” (as defined in Rule 405 under the Securities Act) used in connection with a “road show” or a “bona fide electronic road show” (each as defined in Rule 433 under the Securities Act) related to the offering of Shares contemplated hereby (collectively, “Road Show Materials”).

 

Applicable Time” means the time as of which this Underwriting Agreement was entered into, which shall be ________ p.m. (New York City time) on the date of this Underwriting Agreement (or such other time as is agreed to by the Fund and the Managing Representatives on behalf of the Underwriters).

 

The Fund has prepared and filed, in accordance with Section 12 of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (collectively, the “Exchange Act”), a registration statement (as amended, the “Exchange Act Registration Statement”) on Form 8-A (File No. 001-[●]) under the Exchange Act to register, under Section 12(b) of the Exchange Act, the class of securities consisting of the Common Shares.

 

RiverNorth Capital Management, LLC, a Delaware limited liability company (the “Investment Adviser”), will act as the Fund’s investment adviser pursuant to a Management Agreement by and between the Fund and the Investment Adviser, dated as of [●], 2021, (the “Investment Advisory Agreement”). MacKay Shields LLC, a Delaware limited liability company (the “Sub-Adviser,” and together with the Investment Adviser, the “Advisers”), will act as the Fund’s sub-adviser pursuant to a Subadvisory Agreement by and between the Investment Adviser and the Sub-Adviser, dated as of [●], 2021, (the “Subadvisory Agreement”). [●] will act as the custodian (the “Custodian”) of the Fund’s cash and portfolio assets pursuant to the Custodian Services Agreement, dated as of [●], 2021, (the “Custodian Agreement”). [●] will act as the Fund’s transfer agent, registrar, and dividend disbursing agent (the “Transfer Agent”) pursuant to the Transfer Agency Services Agreement, dated as of [●], 2021, (the “Transfer Agency Agreement”). [●] will act as the Fund’s administrator (the “Administrator”) pursuant to the Administration, Bookkeeping and Pricing Services Agreement dated [●], 2021, (the “Administration Agreement”). The Investment Adviser has entered into a Structuring Fee Agreement with UBS Securities LLC dated [●], 2021, (the “UBS Agreement”), Wells Fargo Securities, LLC dated [●], 2021, (the “Wells Fargo Agreement”), RBC Capital Markets, LLC dated [●], 2021, (the “RBC Agreement”) and Stifel, Nicolaus & Company, Incorporated dated [●], 2021, (the “Stifel Agreement”). The Investment Adviser has also entered into an Incentive Fee Agreement with B. Riley Securities, Inc., dated [●], 2021 (the “B. Riley Agreement”), Bancroft Capital, LLC, dated [●], 2021 (the “Bancroft Agreement”), Brookline Capital Markets, a division of Arcadia Securities, LLC dated [●], 2021 (the “Brookline Agreement”), D.A. Davidson & Co., dated [●], 2021 (the “D.A. Davidson Agreement”), GMS Group, LLC dated [●], 2021 (the “GMS Group Agreement”), Hilltop Securities Inc., dated [●], 2021 (the “Hilltop Agreement”), Incapital LLC, dated [●], 2021 (the “Incapital Agreement”), Janney Montgomery Scott LLC, dated [●], 2021 (the “Janney Agreement”), JonesTrading Institutional Services LLC, dated [●], 2021 (the “JonesTrading Agreement”), Ladenburg Thalmann & Co. Inc. dated [●], 2021 (the “Ladenburg Agreement”), Maxim Group LLC dated [●], 2021 (the “Maxim Group Agreement”), National Securities Corporation dated [●], 2021 (the “National Agreement”), Newbridge Securities Corporation dated [●], 2021 (the “Newbridge Agreement”), Pershing LLC dated [●], 2021 (the “Pershing Agreement”), Rockefeller Financial LLC dated [●], 2021 (the “Rockefeller Agreement”), Wedbush Securities Inc. dated [●], 2021 (the “Wedbush Agreement” and together with the UBS Agreement, the Wells Fargo Agreement, the RBC Agreement, the Stifel Agreement, the B. Riley Agreement, the Bancroft Agreement, the Brookline Agreement, the D.A. Davidson Agreement, the GMS Group Agreement, the Hilltop Agreement, the Incapital Agreement, the Janney Agreement, the JonesTrading Agreement, the Ladenburg Agreement, the Maxim Group Agreement, the National Agreement, the Newbridge Agreement, the Pershing Agreement, the Rockefeller Agreement, the “Fee Agreements”).

 

3 

 

The Fund and the Investment Adviser have entered into a Subscription Agreement dated as of [●], 2021 (the “Subscription Agreement”). In addition, the Fund has adopted a dividend reinvestment plan (the “Dividend Reinvestment Plan”) pursuant to which holders of Shares may have their dividends automatically reinvested in additional Common Shares of the Fund unless they elect to receive such dividends in cash.

 

As used in this Underwriting Agreement, “business day” shall mean a day on which the New York Stock Exchange (the “NYSE”) is open for trading. The terms “herein,” “hereof,” “hereto,” “hereinafter” and similar terms, as used in this Underwriting Agreement, shall in each case refer to this Underwriting Agreement as a whole and not to any particular section, paragraph, sentence or other subdivision of this Underwriting Agreement. The term “or,” as used herein, is not exclusive.

 

The Fund, the Investment Adviser, the Sub-Adviser and the Underwriters agree as follows:

 

1. Sale and Purchase. Upon the basis of the warranties and representations and subject to the terms and conditions herein set forth, the Fund agrees to sell to the respective Underwriters and each of the Underwriters, severally and not jointly, agrees to purchase from the Fund the aggregate number of Firm Shares set forth opposite the name of such Underwriter in Schedule A attached hereto in each case at a purchase price of $20.00 per Share (the “Purchase Price”). The Fund is advised that the Underwriters intend (i) to make a public offering of their respective portions of the Firm Shares as soon after the Effective Time as is advisable and (ii) initially to offer the Firm Shares upon the terms set forth in the Prospectus. The Underwriters may from time to time increase or decrease the public offering price after the initial public offering to such extent as they may determine.

 

In addition, the Fund hereby grants to the several Underwriters the option to purchase, and upon the basis of the warranties and representations and subject to the terms and conditions set forth herein, the Underwriters shall have the right to purchase, severally and not jointly, from the Fund, ratably in accordance with the number of Firm Shares to be purchased by each of them, all or a portion of the Additional Shares as may be necessary to cover over-allotments made in connection with the offering of the Firm Shares, at the Purchase Price less an amount per Share equal to any dividends or distributions declared by the Fund paid and payable on the Firm Shares, but not payable on the Additional Shares. This option may be exercised by the Managing Representatives on behalf of the several Underwriters at any time and from time to time on or before the forty-fifth (45th) day following the date hereof, by written notice to the Fund. Such notice shall set forth the aggregate number of Additional Shares as to which the option is being exercised, and the date and time when the Additional Shares are to be paid for and delivered (such date and time being herein referred to as the (“Additional Shares Closing Time”); provided, however, that the Additional Shares Closing Time shall not be earlier than the Firm Shares Closing Time (as defined below) nor earlier than the second business day after the date on which the option shall have been exercised no later than the tenth business day after the date of such notice. The number of Additional Shares to be sold to each Underwriter shall be the number that bears the same proportion to the aggregate number of Additional Shares being purchased as the number of Firm Shares set forth opposite the name of such Underwriter on Schedule A hereto bears to the total number of Firm Shares (subject, in each case, to such adjustment to eliminate fractional shares as the Managing Representatives may determine).

 

4 

 

2. Payment and Delivery. Payment of the aggregate Purchase Price for the Firm Shares shall be made by the Underwriters to the Fund by Federal Funds wire transfer, against delivery of the Firm Shares to the Representatives through the facilities of the Depository Trust Company for the respective accounts of the Underwriters. Such payment and delivery shall be made at a time mutually agreed upon by the parties on the third business day following the date of this Underwriting Agreement (unless another date shall be agreed to by the Fund and the Managing Representatives on behalf of the Underwriters). The time at which such payment and delivery are actually made is hereinafter sometimes called the “Firm Shares Closing Time.” Certificates, if any, for the Firm Shares shall be delivered to the Representatives in definitive form in such names and in such denominations as the Representatives shall specify on the second business day preceding the Firm Shares Closing Time. If the Firm Shares are to be certificated, for the purpose of expediting the checking of the certificates, if any, for the Firm Shares by the Representatives, the Fund agrees to make such certificates, if any, available to the Representatives for such purpose at least one full business day preceding the Firm Shares Closing Time.

 

Payment of the purchase price for the Additional Shares shall be made at the Additional Shares Closing Time in the same manner and at the same office as the payment for the Firm Shares. Certificates, if any, for the Additional Shares shall be delivered to the Representatives in definitive form in such names and in such denominations as the Representatives shall specify no later than the second business day preceding the Additional Shares Closing Time. If the Additional Shares, if any, are to be certificated, for the purpose of expediting the checking of the certificates, if any, for the Additional Shares by the Representatives, the Fund agrees to make such certificates, if any, available to the Representatives for such purpose at least one full business day preceding the Additional Shares Closing Time. The Firm Shares Closing Time and the Additional Shares Closing Time are sometimes referred to herein as the “Closing Times.”

 

5 

 

3. Representations and Warranties of the Fund and the Advisers. Each of the Fund, the Investment Adviser and the Sub-Adviser jointly and severally represents and warrants to each Underwriter as of the date of this Underwriting Agreement, as of the Applicable Time, as of the Firm Shares Closing Time and as of each Additional Shares Closing Time, if any, as follows:

 

(a) (i)(A) The Registration Statement has heretofore become effective under the Securities Act or, with respect to any registration statement to be filed to register the offer and sale of Shares pursuant to Rule 462(b) under the Securities Act, will be filed with the Commission and become effective under the Securities Act no later than 10:00 p.m., New York City time, on the date of determination of the public offering price for the Shares; (B) no stop order of the Commission preventing or suspending the use of any Preliminary Prospectus, Issuer Free Writing Prospectus or Sales Materials or of the Prospectus or the effectiveness of the Registration Statement has been issued, no revocation of registration has been issued and no proceedings for such purpose have been instituted or, to the Fund’s or such Adviser’s knowledge, are contemplated by the Commission; and (C) the Exchange Act Registration Statement has become effective as provided in Section 12 of the Exchange Act;

 

(ii)(A) The Registration Statement complied at the Effective Time, complies as of the date hereof and will comply, as amended or supplemented, at the Firm Shares Closing Time, at each Additional Shares Closing Time, if any, and at each and any time of a sale of Shares by an Underwriter during the period in which a prospectus is required by the Securities Act to be delivered in connection with any sale of Shares, in all material respects with the requirements of the Securities Act and the Investment Company Act; (B) each Pricing Prospectus, Issuer Free Writing Prospectus and the Prospectus complied or will comply, at the time it was or is filed with the Commission, and the Prospectus complies as of its date and will comply, as amended or supplemented, at the Firm Shares Closing Time, at each Additional Shares Closing Time, if any, and at each and any time of a sale of Shares by an Underwriter during the period in which a prospectus is required by the Securities Act to be delivered in connection with any sale of Shares, in all material respects with the requirements of the Securities Act (including, without limitation, Section 10(a) of the Securities Act) and the Investment Company Act; (C) each Preliminary Prospectus, Issuer Free Writing Prospectus and Prospectus delivered to the Underwriters for use in connection with the public offering of the Shares was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T; (D) each of the Sales Materials complied, at the time it was first used in connection with the public offering of the Shares, and complies as of the date hereof, in all material respects with the requirements of the Securities Act (including, without limitation, Rule 482 thereunder), the Investment Company Act and the applicable rules and interpretations of the Financial Industry Regulatory Authority, Inc. (“FINRA”); (E) each Issuer Free Writing Prospectus has been or will be (within the time period specified within the Securities Act) filed in accordance with the Securities Act (to the extent required thereby); and (F) no Issuer Free Writing Prospectus conflicts with or will conflict with the information contained in the Registration Statement, any Preliminary Prospectus or the Prospectus;

 

6 

 

(iii)(A)(1) The Registration Statement as of the Effective Time did not, (2) the Registration Statement (including any post-effective amendment thereto declared or deemed to be effective by the Commission) as of the date hereof does not, and (3) the Registration Statement (including any post-effective amendment thereto declared or deemed to be effective by the Commission), as of the Firm Shares Closing Time and each Additional Shares Closing Time, if any, will not, in each case, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (B) at no time during the period that begins as of the Applicable Time and ends at the Firm Shares Closing Time did or will the Disclosure Package, as then amended or supplemented, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; (C) at no time during the period that begins at the time each of the Sales Materials was first used in connection with the public offering of the Shares and ends at the Applicable Time did any of the Sales Materials (as materials deemed to be a prospectus under Section 10(b) of the Securities Act pursuant to Rule 482 under the Securities Act), as then amended or supplemented, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; and (D) at no time during the period that begins on the earlier of the date of the Prospectus and the date the Prospectus is filed with the Commission and ends at the latest of the Firm Shares Closing Time, the latest Additional Shares Closing Time, if any, and the end of the period during which a prospectus is required by the Securities Act to be delivered in connection with any sale of Shares did or will the Prospectus, as then amended or supplemented, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that each of the Fund, the Investment Adviser and the Sub-Adviser makes no representation or warranty with respect to any statement contained in the Registration Statement, the Disclosure Package, the Sales Materials or the Prospectus in reliance upon and in conformity with information concerning an Underwriter furnished in writing by or on behalf of such Underwriter through the Managing Representatives to the Fund expressly for use in the Registration Statement, the Disclosure Package, the Sales Materials or the Prospectus as described in Section 9(f) hereof; and provided, further that if any event occurs during any of the periods referred to in clauses (B), (C) or (D) of this Section 3(a)(iii) as a result of which it is necessary to amend or supplement the Prospectus, the Disclosure Package or the Sales Materials, as applicable, in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Disclosure Package, the Sales Materials or the Prospectus, as applicable, is amended or supplemented in connection therewith in accordance with Section 5(d) of this Underwriting Agreement, such amendment or supplement shall be deemed, for purposes of this Section 3(a)(iii), to have been made contemporaneously with the occurrence of such event.

 

7 

 

(b) The Fund (i) has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Maryland; (ii) has full power and authority to own, lease and operate its properties and assets, and conduct its business and other activities conducted by it as described in the Registration Statement, the Pricing Prospectus and the Prospectus; (iii) is duly licensed and qualified to do business and is in good standing in each jurisdiction where it owns or leases property or in which the conduct of its business or other activity requires such qualification, except where the failure to be so licensed or qualified or be in good standing would not have a material adverse effect on the Fund; (iv) owns, possesses or has obtained and currently maintains all governmental licenses, permits, consents, orders, approvals and other authorizations (collectively, the “Licenses and Permits”), whether foreign or domestic, necessary to carry on its business as contemplated in the Registration Statement, Pricing Prospectus and the Prospectus; (v) has no subsidiaries; and (vi) has made all necessary filings required under any applicable federal, state, local or foreign law, regulation or rule. With respect to the Sub-Adviser, clause (vii) of this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

(c) The capitalization of the Fund is as set forth in the Registration Statement, the Pricing Prospectus and the Prospectus. The Common Shares conform to the description of them in the Pricing Prospectus and the Prospectus. All the issued and outstanding Common Shares have been duly authorized and are validly issued, fully paid and nonassessable and conform to the description thereof in the Pricing Prospectus and the Prospectus. The Shares to be issued and delivered to and paid for by the Underwriters in accordance with this Underwriting Agreement against payment therefor as provided by this Underwriting Agreement have been duly authorized and when issued and delivered to the Underwriters will have been validly issued and will be fully paid and nonassessable. The issuance of the Shares has been done in compliance with all applicable federal and state securities laws and is not subject to any preemptive rights. No person is entitled to any preemptive or other similar rights with respect to the issuance of the Shares.

 

(d) The Fund is duly registered with the Commission under the Investment Company Act as a diversified, closed-end management investment company, no order of suspension or revocation of such registration has been issued or proceedings thereof initiated or, to the knowledge of the Fund or such Adviser, threatened by the Commission and, subject to the filing of any final amendment to the Registration Statement (a “Final Amendment”), if not already filed, all action under the Securities Act and the Investment Company Act, as the case may be, necessary to make the public offering and consummate the sale of the Shares as provided in this Underwriting Agreement has or will have been taken by the Fund; the provisions of the Fund’s Articles of Incorporation and By-Laws comply with the requirements of the Investment Company Act.

 

8 

 

(e) The Fund has full power and authority to enter into each of this Underwriting Agreement, the Investment Advisory Agreement, the Custodian Agreement, the Transfer Agency Agreement, the Subscription Agreement and the Dividend Reinvestment Plan (collectively, the “Fund Agreements”) and to perform all of the terms and provisions hereof and thereof to be carried out by it and (i) each Fund Agreement has been duly and validly authorized, executed and delivered by or on behalf of the Fund, (ii) each Fund Agreement complies in all material respects with all applicable provisions of the Investment Company Act and the Investment Advisers Act of 1940, as amended, and the rules and regulations thereunder (collectively called the “Advisers Act”), as the case may be, and (iii) assuming due authorization, execution and delivery by the other parties thereto, each Fund Agreement constitutes a legal, valid and binding obligation of the Fund enforceable in accordance with its terms, subject as to enforcement to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, whether statutory or decisional, and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity thereunder may be limited by federal or state securities laws.

 

(f) None of (i) the execution, delivery and performance by the Fund of the Fund Agreements, (ii) the issuance and sale by the Fund of the Shares as contemplated by this Underwriting Agreement and (iii) the performance by the Fund of its obligations under any of the Fund Agreements or consummation by the Fund of the other transactions contemplated by the Fund Agreements (A) conflicts with or will conflict with, results in or will result in a breach or violation of, constitutes or will constitute a default or an event of default under, or results in or will result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Fund under, the Articles of Incorporation, By-laws or similar organizational documents of the Fund, or the terms and provisions of any agreement, indenture, mortgage, loan agreement, note, insurance or surety agreement, lease or other instrument to which the Fund is a party or by which it may be bound or to which any of the property or assets of the Fund is subject or (B) results in or will result in any violation of any order, law, rule or regulation of any court, governmental instrumentality, securities exchange or association or arbitrator, whether foreign or domestic, applicable to the Fund or having jurisdiction over the Fund’s properties, other than state securities or “blue sky” laws applicable in connection with the purchase and distribution of the Shares by the Underwriters pursuant to this Underwriting Agreement; which conflicts, breaches, violations or defaults under (A) and (B), either individually or in the aggregate, would have a material adverse effect on the Fund.

 

(g) The Fund is not currently in material breach of, or in material default under, any written agreement or instrument to which it is a party or by which it or its property is bound or affected. With respect to the Sub-Adviser, this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

9 

 

(h) There are no restrictions, limitations or regulations with respect to the ability of the Fund to invest its assets as described in the Registration Statement, the Pricing Prospectus and the Prospectus, other than as described therein.

 

(i) No person has any right to the registration of any securities of the Fund because of the filing of the registration statement with the Commission. No person has tag along rights or other similar rights to have any securities included in the offering contemplated by this Underwriting Agreement.

 

(j) No consent, approval, authorization, notification or order of, or filing with, or the issuance of any license or permit by, any federal, state, local or foreign court or governmental or regulatory agency, commission, board, authority or body or with any self-regulatory organization, other non-governmental regulatory authority, securities exchange or association, whether foreign or domestic, is required by the Fund for the consummation by the Fund of the transactions to be performed by the Fund or the performance by the Fund of all the material terms and provisions to be performed by or on behalf of it in each case as contemplated in the Fund Agreements, the Registration Statement, the Pricing Prospectus or the Prospectus, except such as have been obtained and such as may be required (and shall be obtained prior to commencement of the transactions contemplated by this Underwriting Agreement) under the Securities Act, the Exchange Act, the Investment Company Act or the Advisers Act, and may be required by the NYSE, FINRA or under state securities or “blue sky” laws, in connection with the purchase and distribution of the Shares by the Underwriters pursuant to this Underwriting Agreement.

 

(k) No transaction has occurred between or among the Fund and any of its officers or directors, stockholders or affiliates or any affiliate or affiliates of any such officer or director or stockholder or affiliate that is required to be described in and is not described in the Registration Statement, the Pricing Prospectus and the Prospectus. With respect to the Sub-Adviser, this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

(l) Neither the Fund nor any employee or agent of the Fund has made any payment of funds of the Fund or received or retained any funds, which payment, receipt or retention of funds is of a character required to be disclosed in the Registration Statement, the Pricing Prospectus or the Prospectus, except as so disclosed. With respect to the Sub-Adviser, this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

(m) The Shares are duly authorized for listing, subject to official notice of issuance, on the NYSE and the Notification has become effective.

 

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(n) Cohen & Company, Ltd. (“Cohen”) was engaged by the Fund to act as its independent registered public accounting firm in accordance with the Investment Company Act. Cohen, whose report appears in the Prospectus, is an independent registered public accounting firm with respect to the Fund as required by the Investment Company Act, the Securities Act and the rules of the Public Company Accounting Oversight Board.

 

(o) The statement of assets and liabilities, together with any related notes or schedules thereto, included or incorporated by reference in the Registration Statement, the Pricing Prospectus and the Prospectus presents fairly in all material respects, in accordance with generally accepted accounting principles in the United States applied on a consistent basis, the financial position of the Fund as of the dates or for the periods indicated and complies with all applicable accounting requirements under the Securities Act and the Investment Company Act.

 

(p) Since the date as of which information is given in the Registration Statement, the Pricing Prospectus and the Prospectus, except as otherwise stated therein, (i) there has been no material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), business, prospects, management, properties, net assets or results of operations of the Fund, whether or not arising in the ordinary course of business; (ii) the Fund has not incurred any liabilities or obligations, direct or contingent, or entered into any transactions, other than in the ordinary course of business or incident to its organization; (iii) there has been no dividend or distribution of any kind declared, paid or made on any class of the Fund’s capital shares; and (iv) the Fund has not incurred any long-term debt.

 

(q) There is no action, suit, claim, inquiry, investigation or proceeding affecting the Fund or to which the Fund is a party before or by any court, commission, regulatory body, administrative agency or other governmental agency or body, whether foreign or domestic, now pending or, to the knowledge of the Fund or such Adviser, threatened against or affecting the Fund (except as set forth in the Registration Statement, the Pricing Prospectus or the Prospectus).

 

(r) There are no contracts, franchises or other documents that are of a character required to be described in, or that are required to be filed as exhibits to, the Registration Statement which are not described or filed as required.

 

11 

 

(s) Except for stabilization transactions conducted by the Underwriters, and except for tender offers, Share repurchases and the issuance or purchase of Shares pursuant to the Dividend Reinvestment Plan effected following the date on which the distribution of the Shares is completed in accordance with the policies of the Fund as set forth in the Pricing Prospectus or the Prospectus, the Fund has not taken and will not take, directly or indirectly, any action designed or which might reasonably be expected to cause or result in, or which will constitute, stabilization or manipulation of the price of the Shares in violation of applicable federal securities laws.

 

(t) The Fund intends to direct the investment of the proceeds of the offering of the Shares in such a manner as to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and will qualify as a regulated investment company under Subchapter M of the Code.

 

(u) The Fund intends to direct the proceeds of the offering of the Shares in such a manner as to comply with the asset coverage requirements of the Investment Company Act.

 

(v) The Fund has not distributed and, prior to the later to occur of the (i) date of the last Closing Time and (ii) completion of the distribution of the Shares, will not distribute any offering materials in connection with the public offering or sale of the Shares other than the Registration Statement, the Disclosure Package, the Sales Materials and the Prospectus. With respect to the Sub-Adviser, this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

(w) To the knowledge of the Fund or such Adviser after due inquiry, there are no Sales Materials other than the brochure and the conference call flyer, which were both filed with FINRA on January 8, 2021; and no Road Show Materials authorized or prepared by the Fund or authorized or prepared on behalf of the Fund by the Investment Adviser, the Sub-Adviser or any representative thereof for use in connection with the public offering or sale of the Shares contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

(x) No person is serving or acting as an officer, director or investment adviser of the Fund except in accordance with the provisions of the Investment Company Act. Except as disclosed in the Registration Statement, the Pricing Prospectus and the Prospectus (or any amendment or supplement to any of them), no director of the Fund is (i) an “interested person” (as defined in the Investment Company Act) of the Fund or (ii) an “affiliated person” (as defined in the Investment Company Act) of any Underwriter listed in Schedule A hereto.

 

(y) There are no transfer taxes or other similar fees or charges under federal law or the laws of any state, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Underwriting Agreement or the issuance by the Fund or sale by the Fund of the Shares.

 

(z) The Fund has (i) appointed a Chief Compliance Officer and (ii) adopted and implemented written policies and procedures reasonably designed to prevent violation of the Federal Securities Laws (as that term is defined in Rule 38a-1 under the Investment Company Act) by the Fund, including policies and procedures that provide oversight of compliance for each investment adviser, administrator and transfer agent of the Fund.

 

12 

 

(aa) Any statistical, demographic or market-related data included in the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus the Prospectus, the Sales Materials or the Road Show Materials are based on or derived from sources that the Fund and the Advisers believe to be reliable and accurate in all material respects, and all such data included in the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus, the Sales Materials or the Road Show Materials accurately reflects the materials upon which it is based or from which it was derived.

 

(bb) The Fund is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which it is engaged and which the Fund deems adequate; all policies of insurance insuring the Fund or its business, assets, employees, officers and directors, including the Fund’s directors and officers errors and omissions insurance policy and its fidelity bond required by Rule 17g-1 of the Investment Company Act, are in full force and effect; the Fund is in compliance with the terms of such policy and fidelity bond; and there are no claims by the Fund under any such policy or fidelity bond as to which any insurance company is denying liability or defending under a reservation of rights clause; the Fund has not been refused any insurance coverage sought or applied for; and the Fund has no reason to believe that it will not be able to renew its existing insurance coverage and fidelity bond as and when such coverage and fidelity bond expires or to obtain similar coverage and fidelity bond from similar insurers as may be necessary to continue its business.

 

(cc) The Fund owns or possesses, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems, or procedures), trademarks, service marks, trade names or other intellectual property (collectively, “Intellectual Property”) necessary to carry on the business operated by the Fund, and the Fund has not received any notice or is not otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Fund.

 

(dd) The Fund maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets through an asset reconciliation procedure or otherwise at reasonable intervals and appropriate action is taken with respect to any differences. With respect to the Sub-Adviser, this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

13 

 

(ee) The Fund has established and maintains disclosure controls and procedures; such disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act) are designed to ensure that material information relating to the Fund is made known to the Fund’s principal executive officer and its principal financial officer by others within the Fund, and such disclosure controls and procedures are effective to perform the functions for which they were established; the Fund is not aware of any material weakness in its internal controls over financial reporting. With respect to the Sub-Adviser, this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

(ff) The Fund and its officers and directors, in their capacities as such, are in compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder (the “Sarbanes-Oxley Act”).

 

(gg) The Fund’s Board of Directors has validly appointed an audit committee whose composition satisfies the requirements of Rules 303A.06 and 303A.07(a) of the NYSE Listed Company Manual and the Board of Directors and/or the audit committee has adopted a charter that satisfies the requirements of Rule 303A.07(c) of the NYSE Listed Company Manual.

 

(hh) The Fund or, to the Fund’s or the Adviser’s knowledge, any other person associated with or acting on behalf of the Fund including, without limitation, any director, officer, agent, employee or affiliate of the Fund, has not, directly or indirectly, while acting on behalf of the Fund (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended (“FCPA”); or (iv) made any other unlawful payment. With respect to the Sub-Adviser, this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

(ii) Neither the Fund nor its subsidiaries or affiliates, will use, directly or indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of the FCPA or any applicable anti-corruption laws. With respect to the Sub-Adviser, this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

(jj) The operations of the Fund are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Fund with respect to the Money Laundering Laws is pending or, to the best knowledge of the Fund or such Adviser, threatened. With respect to the Sub-Adviser, this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

14 

 

(kk) Neither the Fund nor, to the knowledge of the Fund or such Adviser, any director, officer, agent, employee or affiliate of the Fund is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Fund will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC. With respect to the Sub-Adviser, this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

(ll) All of the information provided to the Underwriters or to counsel for the Underwriters by the Fund, its officers and directors in connection with letters, filings or other supplemental information provided to FINRA pursuant to FINRA’s conduct rules is true, complete and correct. With respect to the Sub-Adviser, this representation is qualified and limited to the knowledge of the Sub-Adviser.

 

For the avoidance of doubt, to the extent a representation includes a statement regarding a party’s knowledge, belief, intention, awareness, or words of similar intent, such party is the only party making any representation regarding that statement. In addition, any certificate signed by any officer of the Fund or an Adviser and delivered to the Underwriters or counsel for the Underwriters in connection with the offering of the Shares shall be deemed to be a representation and warranty by the Fund or such Adviser, as applicable, as to matters covered thereby, to each Underwriter.

 

4. Representations and Warranties of the Investment Adviser and the Sub-Adviser. Each of the Investment Adviser and the Sub-Adviser represents, severally, as to itself only, to each Underwriter as of the date of this Underwriting Agreement, as of the Applicable Time, as of the Firm Shares Closing Time and as of each Additional Shares Closing Time, if any, as follows:

 

(a) Such Adviser (i) has been duly organized and is validly existing and in good standing as, in the case of the Investment Adviser, a limited liability company under the laws of the State of Delaware and, in the case of the Sub-Adviser, a limited liability company under the laws of the State of Delaware; (ii) has full power and authority to own, lease and operate its properties and assets, and conduct its business and other activities conducted by it as described in the Registration Statement, the Pricing Prospectus and the Prospectus; (iii) is duly licensed and qualified to do business and is in good standing in each jurisdiction where it owns or leases property or in which other activity requires such qualification; it is required to be so qualified, except to the extent that failure to be so qualified or be in good standing would not have a material adverse effect on such Adviser’s ability to provide services to the Fund as contemplated by the Investment Advisory Agreement or the Subadvisory Agreement, as applicable; and (iv) owns, possesses or has obtained and currently maintains all Licenses and Permits, whether foreign or domestic, necessary to carry on its business as contemplated in the Registration Statement, the Pricing Prospectus and the Prospectus except those the absence of which, either individually or in the aggregate, would not have a material adverse effect on such Adviser; and (v) has made all necessary filings in respect of its Licenses and Permits required under any applicable federal, state or local law, regulation or rule to maintain its business as an adviser.

 

15 

 

(b) Such Adviser is (i) duly registered with the Commission as an investment adviser under the Advisers Act and (ii) not prohibited by the Advisers Act or the Investment Company Act from acting as an investment adviser for the Fund as contemplated by the Investment Advisory Agreement or the Subadvisory Agreement, as applicable, to which it is a party, the Registration Statement, the Pricing Prospectus and the Prospectus and no order or suspension or revocation of such registration has been issued or proceedings thereof initiated or, to the knowledge of the Sub-Adviser, threatened by the Commission.

 

(c) Such Adviser has full power and authority to enter into each of this Underwriting Agreement, the Subadvisory Agreement and, in the case of Investment Adviser, the Investment Advisory Agreement, Subscription Agreement and the Fee Agreements, to which such Adviser is a party (collectively, the “Adviser Agreements”), and carry out all the terms and provisions hereof and thereof to be carried out by it; and (i) each respective Adviser Agreement to which such Adviser is a party has been or will be duly and validly authorized, executed and delivered by such Adviser, (ii) the Adviser Agreements to which such Adviser is a party do not violate in any material respect any of the applicable provisions of the Investment Company Act or the Advisers Act and (iii) assuming due authorization, execution and delivery by the other parties thereto, each of the Adviser Agreements to which such Adviser is a party constitutes a legal, valid and binding obligation of such Adviser enforceable in accordance with its terms, (A) subject as to enforcement to bankruptcy, insolvency and similar laws affecting creditors’ rights generally, whether statutory or decisional, and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law), and (B) except as rights to indemnity thereunder may be limited by federal or state securities laws.

 

(d) None of (i) the execution, delivery and performance by such Adviser of the Adviser Agreements to which it is a party, (ii) the issuance and sale by the Fund of the Shares as contemplated by this Underwriting Agreement, the Registration Statement, the Pricing Prospectus, the Prospectus or any of the Adviser Agreements and (iii) the performance by such Adviser of its obligations under any of the Adviser Agreements to which it is a party or the performance and consummation by such Adviser of the other transactions contemplated by such Adviser Agreements (A) conflicts with or will conflict with, results in or will result in a breach or violation of, constitutes or will constitute a default or an event of default under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of such Adviser under, the limited liability company operating agreement, bylaws or similar organizational documents of such Adviser, or the terms and provisions of any agreement, indenture, mortgage, loan agreement, note, insurance or surety agreement, lease or other instrument to which such Adviser is a party or by which it may be bound or to which any of the property or assets of such Adviser is subject or (B) results in or will result in any violation of any order, law, rule or regulation of any court, governmental instrumentality, securities exchange or association or arbitrator, whether foreign or domestic, applicable to such Adviser or having jurisdiction over such Adviser’s properties; which conflicts, breaches, violations or defaults under (A) and (B), either individually or in the aggregate, would have a material adverse effect on such Adviser.

 

16 

 

(e) The Investment Advisory Agreement, in the case of the Investment Adviser, and the Subadvisory Agreement are in full force and effect and neither the Fund nor such Adviser are in default thereunder, and no event has occurred which with the passage of time or the giving of notice or both would constitute a default under such agreements.

 

(f) No consent, approval, authorization, notification or order of, or filing with, or the issuance of any license or permit by, any federal, state, local or foreign court or governmental or regulatory agency, commission, board, authority or body or with any self-regulatory organization, other non-governmental regulatory organization, securities exchange or association, whether foreign or domestic, is required by such Adviser for the consummation by the Adviser of the transactions to be performed by it or the performance by the Adviser of all the terms and provisions to be performed by or on behalf of it in each case as contemplated in the Adviser Agreements to which it is a party, the Registration Statement, the Pricing Prospectus or the Prospectus, except such as (i) have been obtained and such as may be required (and shall be obtained prior to commencement of the transaction contemplated by this Underwriting Agreement) under the Securities Act, the Exchange Act, the Investment Company Act or the Advisers Act, and (ii) may be required by the NYSE, FINRA or under state securities or “blue sky” laws, in connection with the purchase and distribution of the Shares by the Underwriters pursuant to this Underwriting Agreement.

 

(g) The description of such Adviser and its business and the statements attributed to such Adviser in the Registration Statement, the Pricing Prospectus and the Prospectus comply with the requirements of the Securities Act and the Investment Company Act and do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein (in the case of the Pricing Prospectus and the Prospectus in light of the circumstances under which they were made) not misleading.

 

17 

 

(h) There is no action, suit, claim, inquiry, investigation or proceeding affecting such Adviser or to which such Adviser is a party before or by any court, commission, regulatory body, administrative agency or other governmental agency or body, whether foreign or domestic, now pending or, to the knowledge of such Adviser, threatened against the Adviser which (i) if determined adversely against such Adviser would result in any adverse change in the condition (financial or otherwise), business, prospects, management, properties, net assets or results of operations of such Adviser (except as set forth in the Registration Statement, the Pricing Prospectus or the Prospectus), or (ii) is of a character required to be described in the Registration Statement, the Pricing Prospectus or the Prospectus and is not so described as required.

 

(i) Except for stabilization transactions conducted by the Underwriters, and except for tender offers, Share repurchases and the issuance or purchase of Shares pursuant to the Dividend Reinvestment Plan effected following the date on which the distribution of the Shares is completed in accordance with the policies of the Fund as set forth in the Pricing Prospectus or the Prospectus, such Adviser (i) has not taken and will not take, directly or indirectly, any action designed or which could reasonably be expected to cause or result in, or which will constitute, stabilization or manipulation of the price of the Shares in violation of applicable federal securities laws, (ii) has not since the filing of the Registration Statement sold, bid for or purchased, or paid anyone any compensation for soliciting purchases of, Shares of the Fund (except as described in the Registration Statement) and (iii) will not, until the completion of the distribution (within the meaning of the anti-manipulation rules under the Exchange Act) of the Shares, sell, bid for or purchase, pay or agree to pay any person any compensation for soliciting another to purchase any other securities of the Fund (except pursuant to this Agreement); provided that any action in connection with the Fund’s Dividend Reinvestment Plan will not be deemed to be within the terms of this Section.

 

(j) In the event that the Fund or such Adviser has made available any Road Show Materials or promotional materials (other than the Sales Materials) by means of an Internet web site or similar electronic means such as to constitute a bona fide electronic road show, such Adviser has installed and maintained pre-qualification and password-protection or similar procedures which are designed and reasonably expected to effectively prohibit access to such Road Show Materials or promotional materials by persons other than qualified broker-dealers and registered representatives thereof.

 

(k) Each Adviser intends to direct the proceeds of the offering of the Shares in such a manner as to cause the Fund to comply with the requirements of Subchapter M of the Code.

 

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(l) Such Adviser has adopted and implemented written policies and procedures under Rule 206(4)-7 of the Advisers Act reasonably designed to prevent violation of the Advisers Act by the Adviser and its supervised persons.

 

(m) Each Adviser owns or possesses, or can acquire on reasonable terms, the Intellectual Property necessary to carry on the business operated by each Adviser, and the Advisers have not received any notice or are not otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Investment Advisers.

 

(n) Such Adviser maintains a system of internal controls sufficient to provide reasonable assurance that (i) transactions effectuated by it under the Investment Advisory Agreement and the Subadvisory Agreement, as applicable, are executed in accordance with its management’s general or specific authorization; and (ii) access to the Fund’s assets is permitted only in accordance with its management’s general or specific authorization.

 

(o) The Investment Adviser has filed with the National Futures Association a notice of eligibility for relief from inclusion within the definition of a commodity pool operator pursuant to Section 4.5 of the general regulations under the Commodity Exchange Act, as amended, with respect to the Fund.

 

(p) Such Adviser or, to such Adviser’s knowledge, any other person associated with or acting on behalf of such Adviser including, without limitation, any director, officer, agent, employee or affiliate of such Adviser, has not, directly or indirectly, while acting on behalf of the Adviser (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; (iii) violated any provision of the FCPA; or (iv) made any other unlawful payment.

 

(q) The operations of such Adviser and its subsidiaries are and have been conducted at all times in compliance with applicable Money Laundering Laws and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving such Adviser with respect to the Money Laundering Laws is pending or, to the best knowledge of such Adviser, threatened.

 

(r) Neither such Adviser nor, to the knowledge of such Adviser, any member, director, trustee, officer, agent, employee or affiliate of such Adviser is currently subject to any U.S. sanctions administered by OFAC; and such Adviser will not directly or indirectly direct the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.

 

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In addition, any certificate signed by any officer of the Investment Adviser or the Sub-Adviser and delivered to the Underwriters or counsel for the Underwriters in connection with the offering of the Shares shall be deemed to be a representation and warranty by the Investment Adviser or the Sub-Adviser, as applicable, as to matters covered thereby, to each Underwriter.

 

5. Agreements of the Parties.

 

(a) If the registration statement relating to the Shares has not yet become effective, the Fund will promptly file a Final Amendment, if not previously filed, with the Commission, and will use its commercially reasonable best efforts to cause such registration statement to become effective and, as soon as the Fund is advised, will advise the Managing Representatives when the Registration Statement or any amendment thereto has become effective. If it is necessary for a post-effective amendment to the Registration Statement, or a Registration Statement under Rule 462(b) under the Securities Act, to be filed with the Commission and become effective before the Shares may be sold, the Fund will use its best efforts to cause such post-effective amendment or such Registration Statement to be filed and become effective as soon as possible, and the Fund will advise the Managing Representatives promptly and, if requested by the Managing Representatives, will confirm such advice in writing, when such post-effective amendment or such Registration Statement has become effective. If the Registration Statement has become effective and the Prospectus contained therein omits certain information at the time of effectiveness pursuant to Rule 430A under the Securities Act, the Fund will file a 430A Prospectus pursuant to Rule 424(b) under the Securities Act as promptly as practicable, but no later than the second business day following the earlier of the date of the determination of the offering price of the Shares or the date the Prospectus is first used after the Effective Time. If the Registration Statement has become effective and the Prospectus contained therein does not so omit such information, the Fund will file a Prospectus pursuant to Rule 424(b) under the Securities Act as promptly as practicable, but no later than the fifth business day following the date of the later of the Effective Time or the commencement of the public offering of the Shares after the Effective Time. In either case, the Fund will provide the Managing Representatives satisfactory evidence of the filing. The Fund will not file with the Commission any Prospectus or any other amendment (except any post-effective amendment which is filed with the Commission after the later of (i) one year from the date of this Underwriting Agreement or (ii) the date on which distribution of the Shares is completed) or supplement to the Registration Statement or the Prospectus unless a copy has first been submitted to the Managing Representatives a reasonable time before its filing and the Managing Representatives have not objected to it in writing within a reasonable time after receiving the copy.

 

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(b) For the period of three years from the date hereof, the Fund will advise the Managing Representatives promptly (i) of the issuance by the Commission of any order in respect of the Fund, or in respect of the Investment Adviser or the Sub-Adviser, which relates to the Fund and would materially affect the ability of the Investment Adviser or Sub-Adviser, as applicable, to perform its respective obligations to the Fund, (ii) of the initiation or threatening in writing of any proceedings for, or receipt by the Fund of any written notice with respect to, any suspension of the qualification of the Shares for sale in any jurisdiction or the issuance of any order by the Commission suspending the effectiveness of the Registration Statement, (iii) of receipt by the Fund, or any representative or attorney of the Fund, of any other communication from the Commission relating in any material way to the Fund (other than communications with respect to an offering of preferred stock), the Registration Statement, the Notification, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Sales Materials, the Prospectus or to the transactions contemplated by this Underwriting Agreement and (iv) the issuance by any federal, state, local, or foreign court, or governmental or regulatory agency, commission, board, authority or body or with any self-regulatory organization, administrative agency, other non-governmental regulatory authority, whether foreign or domestic, of any order, ruling or decree, or the threat in writing to initiate any proceedings with respect thereto, regarding the Fund, which relates in any material way to the Fund or any material arrangements or proposed material arrangements involving the Fund. The Fund will make every reasonable effort to prevent the issuance of any order suspending the effectiveness of the Registration Statement and, if any such order is issued, to obtain its lifting as soon as practicable.

 

(c) If not delivered prior to the date of this Underwriting Agreement, the Fund will deliver to the Managing Representatives, without charge, a signed copy of the Registration Statement, the Exchange Act Registration Statement, the Notification and of any amendments (except any post-effective amendment which is filed with the Commission after the later of (i) one year from the date of this Underwriting Agreement or (ii) the date on which the distribution of the Shares is completed) to either the Registration Statement, the Exchange Act Registration Statement or the Notification (including all exhibits filed with any such document) and as many conformed copies of the Registration Statement and any amendments thereto (except any post-effective amendment which is filed with the Commission after the later of (i) one year from the date of this Underwriting Agreement or (ii) the date on which the distribution of the Shares is completed) (excluding exhibits) as the Managing Representatives may reasonably request.

 

(d) During such period as a prospectus is required by law to be delivered by an underwriter or a dealer, the Fund will deliver, without charge, to the Managing Representatives, the Underwriters and any dealers, at such office or offices as the Managing Representatives may designate, as many copies of the Prospectus and each Issuer Free Writing Prospectus as the Managing Representatives may reasonably request, and, if any event occurs during such period as a result of which it is necessary to amend or supplement the Prospectus or an Issuer Free Writing Prospectus, in order to make the statements therein, in light of the circumstances under which they were made, not misleading in any material respect, or if during such period it is necessary to amend or supplement the Prospectus or an Issuer Free Writing Prospectus to comply with the Securities Act or the Investment Company Act, the Fund promptly will prepare, submit to the Managing Representatives, file with the Commission and deliver, without charge, to the Underwriters and to dealers (whose names and addresses the Managing Representatives will furnish to the Fund) to whom Shares may have been sold by the Underwriters, and to other dealers on request, amendments or supplements to the Prospectus or an Issuer Free Writing Prospectus so that the statements in such Prospectus or such Issuer Free Writing Prospectus, as so amended or supplemented, will not, in light of the circumstances under which they were made, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statement therein not be misleading in any material respect and will comply with the Securities Act and the Investment Company Act. Delivery by the Underwriters of any such amendments or supplements to the Prospectus or an Issuer Free Writing Prospectus will not constitute a waiver of any of the conditions in Section 6 hereof.

 

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(e) The Fund will make generally available to holders of the Fund’s securities, as soon as practicable but in no event later than the last day of the 18th full calendar month following the calendar quarter in which the date of the Effective Time falls, an earnings statement, if applicable, satisfying the provisions of the last paragraph of Section 11(a) of the Securities Act and, at the option of the Fund, Rule 158 under the Securities Act.

 

(f) If the transactions contemplated by this Underwriting Agreement are consummated, the Investment Adviser or its affiliate shall pay all costs and expenses incident to the performance of the obligations of the Fund under this Underwriting Agreement, including but not limited to costs and expenses of or relating to (i) the preparation, printing and filing of the Registration Statement and exhibits to it, each Preliminary Prospectus, any Issuer Free Writing Prospectus and the Prospectus and all amendments and supplements thereto, (ii) the issuance of the Shares and the preparation and delivery of certificates for the Shares, (iii) the fees and disbursements of the Fund’s counsel, accountants and other advisers, (iv) the registration or qualification, if any, of the Shares for offer and sale under the securities or “blue sky” laws of any applicable jurisdictions, including the reasonable fees and disbursements, if any, of counsel for the Underwriters in that connection, and the preparation and printing of any preliminary and supplemental “blue sky” memoranda, (v) the furnishing (including costs of design, production, shipping and mailing) to the Underwriters and dealers of copies of each Preliminary Prospectus relating to the Shares, any Issuer Free Writing Prospectus, the Sales Materials, the Prospectus, and all amendments or supplements to the Prospectus, and of the other documents required by this Section to be so furnished, (vi) all transfer taxes, if any, with respect to the sale and delivery of the Shares by the Fund to the Underwriters, (vii) the listing of the Shares on the NYSE and (viii) the transfer agent for the Shares; provided that (A) the Fund, the Investment Adviser, the Sub-Adviser and each Underwriter shall pay its own costs and expenses relating to the attendance at any road show or other informational meeting relating to the Fund, (B) each Underwriter shall pay the costs and expenses of any internal promotional or informational materials relating to the Fund, other than the Sales Materials, prepared by such Underwriter in connection with the offering of the Shares, (C) the Underwriters shall pay the costs and expenses of any “tombstone” announcements relating to the offering of the Shares and (D) except as expressly provided in this Section 5(f), the Underwriters shall pay their own costs and expenses, including fees and disbursements of their counsel. In addition, the Investment Adviser agrees to pay an amount equal to $[●] per Share sold under this Agreement to UBS Securities LLC, on behalf of the Underwriters, on behalf of the Underwriters at the Closing Time. The Fund and the Advisers may otherwise agree among themselves as to the payment of the foregoing expenses, whether or not the transactions contemplated by this Underwriting Agreement are consummated, provided, however, that in no event shall the Underwriters be obligated to pay any expenses intended to be borne by the Fund or an Adviser as provided above.

 

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(g) If the transactions contemplated by this Underwriting Agreement are not consummated, except as otherwise provided herein, no party will be under any liability to any other party, except that (i) if this Underwriting Agreement is terminated by (A) the Fund or an Adviser pursuant to any of the provisions hereof (otherwise than pursuant to Section 7 hereof) or (B) the Managing Representatives or the Underwriters because of any inability, failure or refusal on the part of the Fund or an Adviser to comply with any terms of this Underwriting Agreement or because any of the conditions in Section 6 are not satisfied, the Advisers or the Advisers’ affiliates and the Fund, jointly and severally, will reimburse the Underwriters for all out-of-pocket expenses (including the reasonable fees, disbursements and other charges of their counsel) reasonably incurred by them in connection with the proposed purchase and sale of the Shares (provided, however, that the Fund and the Advisers shall not be liable for any loss of anticipated profits or speculative or consequential or similar damages for such termination) and (ii) no Underwriter who has failed or refused to purchase the Shares agreed to be purchased by it under this Underwriting Agreement, in breach of its obligations pursuant to this Underwriting Agreement, will be relieved of liability to the Fund, the Advisers and the other Underwriters for damages occasioned by its default.

 

(h) Without the prior written consent of the Managing Representatives, the Fund will not offer, sell or register with the Commission, or announce an offering of, any equity securities of the Fund, within 180 days after the date of the Effective Time, except for the Shares as described in the Prospectus and any issuance of Common Shares pursuant to the Dividend Reinvestment Plan.

 

(i) The Fund will cause the Shares to be listed on the NYSE prior to the date the Shares are issued, subject only to official notice of the issuance thereof, and comply with the rules and regulations of such exchange.

 

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(j) The Fund will direct the investment of the net proceeds of the offering of the Shares in such a manner as to comply with the investment objective and policies of the Fund as described in the Prospectus.

 

6. Conditions of the Underwriters’ Obligations. The obligations of the Underwriters to purchase the Shares are subject to the accuracy on the date of this Underwriting Agreement, as of the Applicable Time and as of each of the Closing Times, of the representations of the Fund and the Advisers in this Underwriting Agreement, to the accuracy and completeness of all statements made by the Fund or the Advisers or any of their respective officers in any certificate delivered to the Managing Representatives or their counsel pursuant to this Underwriting Agreement, to performance by the Fund and the Advisers of their respective obligations under this Underwriting Agreement and to the satisfaction (or waiver in writing by the Managing Representatives on behalf of the Underwriters) of each of the following additional conditions:

 

(a) The Registration Statement must have become effective by 5:30 p.m., New York City time, on the date of this Underwriting Agreement or such later date and time as the Managing Representatives consent to in writing. The Prospectus must have been filed in accordance with Rule 424(b) under the Securities Act.

 

(b) No order suspending the effectiveness of the Registration Statement may be in effect and no proceedings for such purpose may be pending before or, to the knowledge of the Fund, the Advisers or counsel to the Underwriters, threatened by the Commission, and any requests for additional information on the part of the Commission (to be included in the Registration Statement or the Prospectus or otherwise) must be complied with or waived to the reasonable satisfaction of the Managing Representatives.

 

(c) Since the dates as of which information is given in the Registration Statement, the Pricing Prospectus and the Prospectus, as of the date of this Underwriting Agreement, (i) there must not have been any change in the Common Shares or any adverse change in the liabilities of the Fund except as set forth in or contemplated by the Pricing Prospectus or the Prospectus; (ii) there must not have been any adverse change in the condition (financial or otherwise), earnings, business affairs, business prospects, management, properties, net assets or results of operations, whether or not arising from transactions in the ordinary course of business, of the Fund or the Advisers as set forth in or contemplated by the Pricing Prospectus or the Prospectus; (iii) the Fund must not have sustained any loss or interference with its business from any court or from any legislative or other governmental action, order or decree, whether foreign or domestic, or from any other occurrence not described in the Registration Statement, the Pricing Prospectus and the Prospectus; and (iv) there must not have occurred any event that makes untrue or incorrect in any respect any statement or information contained in the Registration Statement, the Pricing Prospectus or the Prospectus or any statement or information omitted in the Registration Statement, the Pricing Prospectus or the Prospectus that should be reflected therein in order to make the statements or information therein (in the case of the Pricing Prospectus and the Prospectus, in light of the circumstances under which they were made), not misleading in any material respect; if, in the judgment of the Managing Representatives, any such development referred to in clause (i), (ii), (iii), or (iv) of this paragraph (c) is material and adverse so as to make it impracticable or inadvisable to consummate the sale and delivery of the Shares to the public on the terms and in the manner contemplated by the Pricing Prospectus.

 

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(d) The Managing Representatives must have received as of each Closing Time a certificate, dated such date, of the Chief Executive Officer, President, Managing Director or a Vice-President and the Controller, Treasurer, Assistant Treasurer, Chief Financial Officer or Chief Accounting Officer of each of the Fund, the Investment Adviser and the Sub-Adviser certifying (in their capacity as such officers) that (i) the signers have carefully examined the Registration Statement, the Pricing Prospectus, the Prospectus and this Underwriting Agreement, (ii) the representations of the Fund (with respect to the certificates from such Fund officers), the representations of the Investment Adviser (with respect to the certificates from such officers of the Investment Adviser) and the representations of the Sub-Adviser (with respect to the certificates from such officers of the Sub-Adviser) in this Underwriting Agreement are accurate on and as of the date of the certificate, (iii) there has not been any material adverse change in the condition, or any development involving a prospective material adverse change (financial or otherwise), earnings, business affairs, business prospects, management, property, net assets or results of operations of the Fund (with respect to the certificates from such Fund officers), the Investment Adviser (with respect to the certificates from such officers of the Investment Adviser) or the Sub-Adviser (with respect to the certificates from such officers of the Sub-Adviser), which change would materially and adversely affect the ability of the Fund, the Investment Adviser or the Sub-Adviser, as the case may be, to fulfill its obligations under this Underwriting Agreement, the Investment Advisory Agreement (with respect to the certificates from such officers of the Investment Adviser) or the Subadvisory Agreement (with respect to the certificates from such officers of the Sub-Adviser), whether or not arising from transactions in the ordinary course of business, (iv) with respect to the certificates from such officers of the Fund only, no order suspending the effectiveness of the Registration Statement, prohibiting the sale of any of the Shares or otherwise having an adverse effect on the Fund has been issued and no proceedings for any such purpose are pending before or, to the knowledge of such officers after reasonable investigation, threatened by the Commission or any other regulatory body, whether foreign or domestic, (v) with respect to the certificates from such officers of the Investment Adviser only, no order having an adverse effect on the ability of the Investment Adviser to fulfill its obligations under this Underwriting Agreement, the Fee Agreements, the Investment Advisory Agreement or the Subadvisory Agreement, as the case may be, has been issued and no proceedings for any such purpose are pending before or, to the knowledge of such officers of the Investment Adviser after reasonable investigation, threatened by the Commission or any other regulatory body, whether foreign or domestic, (vi) with respect to the certificates from such officers of the Sub-Adviser only, no order having a material adverse effect on the ability of the Sub-Adviser to fulfill its obligations under this Underwriting Agreement or the Subadvisory Agreement, as the case may be, has been issued and no proceedings for any such purpose are pending before or, to the knowledge of such officers of the Sub-Adviser after reasonable investigation, threatened by the Commission or any other regulatory body, whether foreign or domestic and (vii) each of the Fund (with respect to the certificates from such Fund officers), the Investment Adviser (with respect to the certificates from such officers of the Investment Adviser) and the Sub-Adviser (with respect to the certificates from such officers of the Sub-Adviser) has performed all of its respective agreements that this Underwriting Agreement requires it to perform by such Closing Time (to the extent not waived in writing by the Managing Representatives).

 

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(e) The Managing Representatives must have received as of each Closing Time the opinions dated as of the date thereof substantially in the form of Schedules B and C to this Underwriting Agreement from the counsel identified in each such Schedules. With respect to the opinions identified in such Schedule B, to the extent that the matters addressed in such opinions relate to matters of Maryland law, such opinions may be rendered by Shapiro Sher Guinot & Sandler, P.A. addressed to the Managing Representatives.

 

(f) The Managing Representatives must have received as of each Closing Time from Dechert LLP an opinion dated as of the date thereof with respect to the Fund, the Shares, the Registration Statement and the Prospectus and this Underwriting Agreement in a form reasonably satisfactory in all respects to the Managing Representatives. The Fund and the Advisers must have furnished to such counsel such documents as counsel may reasonably request for the purpose of enabling them to render such opinion.

 

(g) The Managing Representatives must have received on the date this Underwriting Agreement is signed and delivered by you a signed report from Cohen, dated such date, and in form and substance satisfactory to the Managing Representatives containing statements and information of the type ordinarily included in accountants’ reports with respect to the financial information of the Fund contained in the Registration Statement, the Preliminary Prospectus or the Prospectus. The Managing Representatives also must have received from Cohen a report, as of each Closing Time, dated as of the date thereof, in form and substance satisfactory to the Managing Representatives, to the effect that they reaffirm the statements made in the earlier report, except that the specified date referred to shall be a date not more than three business days prior to such Closing Time.

 

(h) The Fund and the Advisers shall furnish to the Underwriters such further information, certificates and documents as the Underwriters may reasonably request.

 

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All opinions, letters, reports, evidence and certificates mentioned above or elsewhere in this Underwriting Agreement will comply only if they are in form and scope reasonably satisfactory to counsel for the Underwriters, provided that any such documents, forms of which are annexed hereto, shall be deemed satisfactory to such counsel if substantially in such form.

 

7. Termination. This Underwriting Agreement may be terminated by the Managing Representatives by notifying the Fund at any time:

 

(a) before the later of the Effective Time and the time when any of the Shares are first generally offered pursuant to this Underwriting Agreement by the Managing Representatives to dealers by electronic delivery, letter or telegram;

 

(b) as of or before any Closing Time if, in the sole judgment of the Managing Representatives, payment for and delivery of any Shares is rendered impracticable or inadvisable because (i) trading in the equity securities of the Fund is suspended by the Commission or by the principal exchange that lists the Shares, (ii) trading in securities generally on the NYSE, NYSE American or the NASDAQ Stock Market shall have been suspended or limited or minimum or maximum prices shall have been generally established on such exchange or over-the-counter market, (iii) additional material governmental restrictions, not in force on the date of this Underwriting Agreement, have been imposed upon trading in securities or trading has been suspended on any U.S. securities exchange, (iv) a general banking moratorium has been established by U.S. federal or New York authorities or (v) there shall have occurred a material adverse change in the financial or securities markets in the United States or the international financial markets, a material adverse change in the political, financial or economic conditions in the United States, or an outbreak or material escalation of hostilities, other calamity, terrorist activity, crises or any change or development involving a prospective change in national or international political, financial or economic conditions or declaration by the United States of a national emergency or war or other calamity, the effect of any of which is such as to make it, in the sole judgment of the Managing Representatives, impracticable or inadvisable to market the Shares on the terms and in the manner contemplated by the Prospectus; or

 

(c) as of or before any Closing Time, if any of the conditions specified in Section 6 with respect to such Closing Time have not been fulfilled when and as required by this Underwriting Agreement, and the Managing Representatives shall have given the Fund and the Advisers notice thereof and a reasonable opportunity to fulfill such condition.

 

8. Substitution of Underwriters. If one or more of the Underwriters fails (other than for a reason sufficient to justify the termination of this Underwriting Agreement) to purchase as of any Closing Time the Shares agreed to be purchased as of such Closing Time by such Underwriter or Underwriters, the Managing Representatives may find one or more substitute underwriters to purchase such Shares or make such other arrangements as the Managing Representatives deem advisable, or one or more of the remaining Underwriters may agree to purchase such Shares in such proportions as may be approved by the Managing Representatives, in each case upon the terms set forth in this Underwriting Agreement. If no such arrangements have been made within 36 hours after the date of such Closing Time, and

 

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(a) the number of Shares to be purchased by the defaulting Underwriters as of such Closing Time does not exceed 10% of the Shares that the Underwriters are obligated to purchase as of such Closing Time, each of the nondefaulting Underwriters will be obligated to purchase such Shares on the terms set forth in this Underwriting Agreement in proportion to their respective obligations under this Underwriting Agreement, or

 

(b) the number of Shares to be purchased by the defaulting Underwriters as of such Closing Time exceeds 10% of the Shares to be purchased by all the Underwriters as of such Closing Time, the Fund will be entitled to an additional period of 24 hours within which to find one or more substitute underwriters reasonably satisfactory to the Managing Representatives to purchase such Shares on the terms set forth in this Underwriting Agreement.

 

Upon the occurrence of the circumstances described in the foregoing paragraph (b), either the Managing Representatives or the Fund will have the right to postpone the date of the applicable Closing Time for not more than five business days in order that necessary changes and arrangements (including any necessary amendments or supplements to the Registration Statement, the Pricing Prospectus or the Prospectus) may be effected by the Managing Representatives and the Fund. If the number of Shares to be purchased as of such Closing Time by such defaulting Underwriter or Underwriters exceeds 10% of the Shares that the Underwriters are obligated to purchase as of such Closing Time, and none of the nondefaulting Underwriters or the Fund makes arrangements pursuant to this Section 8 within the period stated for the purchase of the Shares that the defaulting Underwriters agreed to purchase, this Underwriting Agreement will terminate without liability on the part of any nondefaulting Underwriter, the Fund or the Advisers except as provided in Sections 5(g) and 9 hereof. Any action taken under this Section will not affect the liability of any defaulting Underwriter to the Fund or the Advisers or to any nondefaulting Underwriters arising out of such default. A substitute underwriter will become an Underwriter for all purposes of this Underwriting Agreement.

 

9. Indemnity and Contribution.

 

(a) Each of the Fund, the Investment Adviser and the Sub-Adviser, jointly and severally, agrees to indemnify, defend and hold harmless each Underwriter, its partners, the directors, members, managers, officers, employees, agents and affiliates and any person who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and the successors and assigns of all of the foregoing persons from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, any such Underwriter or any such person may incur under the Securities Act, the Exchange Act, the Investment Company Act, the Advisers Act, the common law or otherwise, insofar as such loss, damage, expense, liability or claim (i) arises out of or is based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Fund) or arises out of or is based upon an omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) arises out of or is based upon an untrue statement or alleged untrue statement of a material fact included in any Preliminary Prospectus, any Road Show Material, the Disclosure Package, any Sales Material or the Prospectus (as it may be amended or supplemented) or arises out of or is based upon an omission or alleged omission to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; except with respect to either of the foregoing clause (i) and (ii) insofar as any such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information concerning such Underwriters furnished in writing by or on behalf of any Underwriter through the Managing Representatives to the Fund expressly for use with reference to any Underwriter in such Registration Statement or in such Disclosure Package or Prospectus (as amended or supplemented) as set forth in Section 9(f) hereof or arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated in such Registration Statement or in the Disclosure Package or the Prospectus or necessary to make such information (with respect to such Disclosure Package and the Prospectus, in light of the circumstances under which they were made), not misleading.

 

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If any action, suit or proceeding (together, a “Proceeding”) is brought against an Underwriter or any such person in respect of which indemnity may be sought against the Fund or an Adviser pursuant to the foregoing paragraph, such Underwriter or such person shall promptly notify the Fund or such Adviser, as the case may be, in writing of the institution of such Proceeding and the Fund or such Adviser shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses; provided, however, that the omission to so notify the Fund or such Adviser shall not relieve the Fund or such Adviser from any liability which the Fund or such Adviser may have to any Underwriter or any such person or otherwise. Such Underwriter or such person shall have the right to employ additional counsel in any such case, but the reasonable fees and expenses of such counsel shall be at the expense of such Underwriter or of such person unless the employment of such counsel shall have been authorized in writing by the Fund or such Adviser, as the case may be, in connection with the defense of such Proceeding or the Fund or such Adviser shall not have, within a reasonable period of time in light of the circumstances, employed counsel to have charge of the defense of such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them, which are different from, additional to or in conflict with those available to the Fund or such Adviser (in which case the Fund or such Adviser shall not have the right to direct the defense of such Proceeding on behalf of the indemnified party or parties), in any of which events such reasonable fees and expenses shall be borne by the Fund or such Adviser and paid as incurred (it being understood, however, that the Fund, the Investment Adviser or the Sub-Adviser shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding). Neither the Fund nor an Adviser shall be liable for any settlement of any Proceeding effected without its written consent but if settled with the written consent of the Fund or such Adviser, the Fund or such Adviser, as the case may be, agrees to indemnify and hold harmless any Underwriter and any such person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for reasonable fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 days’ prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault, culpability or a failure to act, by or on behalf of such indemnified party.

 

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(b) Each Underwriter severally agrees to indemnify, defend and hold harmless the Fund, the Investment Adviser and the Sub-Adviser, and each of their respective shareholders, partners, managers, members, trustees, directors and officers, and any person who controls the Fund, the Investment Adviser or the Sub-Adviser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and the successors and assigns of all of the foregoing persons from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation), which, jointly or severally, the Fund, the Investment Adviser, the Sub-Adviser or any such person may incur under the Securities Act, the Exchange Act, the Investment Company Act, the Advisers Act, the common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon an untrue statement or alleged untrue statement of a material fact contained in and in conformity with information concerning such Underwriters furnished in writing by or on behalf of any Underwriter to the Fund, the Investment Adviser or the Sub-Adviser expressly for use in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Fund) or in the Disclosure Package or the Prospectus as set forth in Section 9(f) hereof, or arises out of or is based upon an omission or alleged omission to state a material fact in connection with such information required to be stated in such Registration Statement or the Disclosure Package or the Prospectus or necessary to make such information (with respect to the Disclosure Package and the Prospectus, in light of the circumstances under which they were made), not misleading.

 

30 

 

If any Proceeding is brought against the Fund, an Adviser or any such person in respect of which indemnity may be sought against any Underwriter pursuant to the foregoing paragraph, the Fund, such Adviser or such person shall promptly notify such Underwriter in writing of the institution of such Proceeding and such Underwriter shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses; provided, however, that the omission to so notify such Underwriter shall not relieve such Underwriter from any liability which such Underwriter may have to the Fund, such Adviser or any such person or otherwise. The Fund, such Adviser or such person shall have the right to employ additional counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Fund, such Adviser or such person, as the case may be, unless the employment of such counsel shall have been authorized in writing by such Underwriter in connection with the defense of such Proceeding or such Underwriter shall not have, within a reasonable period of time in light of the circumstances, employed counsel to have charge of the defense of such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them, which are different from or additional to or in conflict with those available to such Underwriter (in which case such Underwriter shall not have the right to direct the defense of such Proceeding on behalf of the indemnified party or parties, but such Underwriter may employ counsel in connection with the defense thereof but the fees and expenses of such counsel shall be at the expense of such Underwriter), in any of which events such fees and expenses shall be borne by such Underwriter and paid as incurred (it being understood, however, that such Underwriter shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding). No Underwriter shall be liable for any settlement of any such Proceeding effected without the written consent of such Underwriter but if settled with the written consent of such Underwriter, such Underwriter agrees to indemnify and hold harmless the Fund, the Investment Adviser, the Sub-Adviser and any such person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for reasonable fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 days’ prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault, culpability or a failure to act, by or on behalf of such indemnified party.

 

31 

 

(c) If the indemnification provided for in this Section 9 is unavailable to an indemnified party under subsections (a) and (b) of this Section 9 in respect of any losses, damages, expenses, liabilities or claims referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, damages, expenses, liabilities or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Fund, the Investment Adviser and the Sub-Adviser on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Fund, the Investment Adviser and the Sub-Adviser on the one hand and of the Underwriters on the other in connection with the statements or omissions, which resulted in such losses, damages, expenses, liabilities or claims, as well as any other relevant equitable considerations. The relative benefits received by the Fund, the Investment Adviser and the Sub-Adviser on the one hand and the Underwriters on the other shall be deemed to be in the same respective proportions as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Fund and the total underwriting discounts and commissions received by the Underwriters, bear to the aggregate public offering price of the Shares. The relative fault of the Fund, the Investment Adviser and the Sub-Adviser on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Fund, the Investment Adviser or the Sub-Adviser or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, damages, expenses, liabilities and claims referred to in this subsection shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating, preparing to defend or defending any Proceeding.

 

32 

 

(d) The Fund, the Advisers and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in subsection (c) above. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the fees and commissions received by such Underwriter. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations to contribute pursuant to this Section 9 are several in proportion to their respective underwriting commitments and not joint.

 

(e) The indemnity and contribution agreements contained in this Section 9 and the covenants, warranties and representations of the Fund contained in this Underwriting Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of any Underwriter, its partners, the directors, members, managers, officers, employees, agents and affiliates or any person (including each partner, officer or director of such person) who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, or by or on behalf of the Fund, the Investment Adviser or the Sub-Adviser, its shareholders, partners, advisers, members, trustees, directors or officers or any person who controls the Fund, the Investment Adviser or the Sub-Adviser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and shall survive any termination of this Underwriting Agreement or the issuance and delivery of the Shares. The Fund, the Investment Adviser, the Sub-Adviser and each Underwriter agree promptly to notify each other of the commencement of any Proceeding against it and, in the case of the Fund, the Investment Adviser or the Sub-Adviser, against any of the Fund’s directors or officers, or any of the Investment Adviser’s or the Sub-Adviser’s shareholders, partners, managers, members, trustees, directors or officers in connection with the issuance and sale of the Shares, or in connection with the Registration Statement or Prospectus.

 

(f) The Fund and the Advisers each acknowledge that the statements in the Prospectus with respect to the names of the Underwriters and number of Common Shares allocated for purchase by such Underwriters, the selling concessions and reallowances of selling concessions, the statements regarding stabilization, penalty bids and syndicate short selling, and the statements regarding electronic delivery of prospectuses, all as described under the caption “Underwriters” in the Prospectus, constitute the only information furnished in writing by or on behalf of any Underwriter through the Managing Representatives to the Fund expressly for use with reference to such Underwriter in the Registration Statement or in the Disclosure Package or the Prospectus (as amended or supplemented). The Underwriters severally confirm that these statements are correct in all material respects and were so furnished by or on behalf of each of the Underwriters severally for use in the Prospectus.

 

33 

 

(g) Notwithstanding any other provisions in this Section 9, no party shall be entitled to indemnification or contribution under this Underwriting Agreement against any loss, claim, liability, expense or damage arising by reason of such person’s willful misfeasance, bad faith, gross negligence or reckless disregard of its duties in the performance of its duties hereunder. The parties hereto acknowledge that the foregoing provision shall be applicable solely as to matters arising under Section 17(i) of the Investment Company Act, and shall not be construed to impose any duties or obligations upon any such parties under this Underwriting Agreement other than as specifically set forth herein (it being understood that the Underwriters have no duty hereunder to the Fund to perform any due diligence investigation).

 

10. No Fiduciary Relationship. The Fund and the Advisers hereby acknowledge and agree that the Underwriters are acting solely as underwriters in connection with the purchase and sale of the Fund’s securities contemplated hereby. The Fund and the Advisers further acknowledge and agree that the Underwriters are acting pursuant to a contractual relationship created solely by this Underwriting Agreement entered into on an arm’s length basis, and in no event do the parties intend that the Underwriters act or be responsible as a fiduciary to the Fund, its management, shareholders or creditors or any other person in connection with any activity that the Underwriters may undertake or have undertaken in furtherance of such purchase and sale of the Fund’s securities, either before or after the date hereof. The Underwriters hereby expressly disclaim any fiduciary or similar obligations to the Fund or the Advisers, either in connection with the transactions contemplated by this Underwriting Agreement or any matters leading up to such transactions, and the Fund and the Advisers hereby confirm their understanding and agreement to that effect. The Fund, the Advisers and the Underwriters agree that they are each responsible for making their own independent judgments with respect to any such transactions and that any opinions or views expressed by the Underwriters to the Fund or the Advisers regarding such transactions, including, but not limited to, any opinions or views with respect to the price or market for the Fund’s securities, do not constitute advice or recommendations to the Fund or the Advisers. The Fund, the Advisers and the Underwriters agree that each Underwriter is acting solely as principal and is not the agent or fiduciary of the Fund or the Advisers and no Underwriter has assumed, and no Underwriter will assume, any advisory or fiduciary responsibility in favor of the Fund or the Advisers with respect to the transactions contemplated hereby or the process leading thereto (irrespective of whether any Underwriter has advised or is currently advising the Fund or the Advisers on other matters); provided, that an Underwriter, in its capacity as an independent contractor, may provide advice to an Adviser as to the structure and organization of the Fund pursuant to a Fee Agreement. The Fund and the Advisers acknowledge and agree that the Underwriters have not provided any legal, accounting, regulatory or tax advice with respect to the transactions contemplated hereby and each of the Fund and the Advisers have consulted its own respective legal, accounting, regulatory, and tax advisors to the extent it deemed appropriate. The Fund and the Advisers hereby waive and release, to the fullest extent permitted by law, any claims that the Fund or the Advisers may have against the Underwriters with respect to any breach or alleged breach of any fiduciary, advisory or similar duty to the Fund or the Advisers in connection with the transactions contemplated by this Underwriting Agreement or any matters leading up to such transactions.

 

34 

 

11. Notices. Except as otherwise herein provided, all statements, requests, notices and agreements shall be in writing or by telegram and, if to the Underwriters, shall be sufficient in all respects if delivered or sent to UBS Securities LLC, 1285 Avenue of the Americas, New York, New York 10019, Attention: Syndicate / Saawan Pathange; and if to the Fund or the Advisers shall be sufficient in all respects if delivered or sent to the Fund or the Advisers, as the case may be, at the offices of the Fund at RiverNorth Flexible Municipal Income Fund II, Inc., 325 N. LaSalle Street, Suite 645, Chicago, Illinois 60654, Attention: Marc L. Collins or the Adviser at RiverNorth Capital Management, LLC, Attention: General Counsel, 325 N. LaSalle St, Suite 645 Chicago, IL 60654 or the Sub-Adviser at MacKay Shields LLC 155 Village Boulevard, Suite 305, Princeton, NJ 08540, Attention: Brian Stewart and MacKay Shields LLC, 1345 Avenue of the Americas, New York, NY 10105, Attention: Young Lee.

 

12. Governing Law; Construction. This Underwriting Agreement and any claim, counterclaim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Underwriting Agreement (“Claim”), directly or indirectly, shall be governed by, and construed in accordance with, the laws of the State of New York. The Section headings in this Underwriting Agreement have been inserted as a matter of convenience of reference and are not a part of this Underwriting Agreement.

 

13. Submission to Jurisdiction. Except as set forth below, no Claim may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have jurisdiction over the adjudication of such matters, and the Fund and the Underwriters each consent to the jurisdiction of such courts and personal service with respect thereto. Each of the Underwriters, the Fund (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates), the Investment Adviser (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and the Sub-Adviser (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) waives all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) in any way arising out of or relating to this Underwriting Agreement. Each of the Fund, the Investment Adviser and the Sub-Adviser agrees that a final judgment in any such action, proceeding or counterclaim brought in any such court shall be conclusive and binding upon the Fund, the Investment Adviser and the Sub-Adviser, as the case may be, and may be enforced in any other courts in the jurisdiction of which the Fund, the Investment Adviser or the Sub-Adviser, as the case may be, is or may be subject, by suit upon such judgment.

 

14. Parties at Interest. The Agreement herein set forth has been and is made solely for the benefit of the Underwriters, the Fund, the Investment Adviser and the Sub-Adviser and to the extent provided in Section 9 hereof the controlling persons, shareholders, partners, members, trustees, managers, directors, officers, employees, agents and affiliates referred to in such section, and their respective successors, assigns, heirs, personal representatives and executors and administrators. No other person, partnership, association or corporation (including a purchaser, as such purchaser, from any of the Underwriters) shall acquire or have any right under or by virtue of this Underwriting Agreement.

 

35 

 

15. Counterparts. This Underwriting Agreement may be signed by the parties in one or more counterparts which together shall constitute one and the same agreement among the parties.

 

16. Successors and Assigns. This Underwriting Agreement shall be binding upon the Underwriters, the Fund, the Investment Adviser and the Sub-Adviser and any successor or assign of any substantial portion of the Fund’s, the Investment Adviser’s, the Sub-Adviser’s or any of the Underwriters’ respective businesses and/or assets, as the case may be.

 

17. Recognition of the U.S. Special Resolution Regimes.

 

(a) In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Underwriter of this Underwriting Agreement, and any interest and obligation in or under this Underwriting Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Underwriting Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.

 

(b) In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Underwriter are permitted to be exercised to no greater extent than such 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.

 

BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k).

 

Covered Entity” means any of the following:

 

(i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);

 

(ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or

 

(iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).

 

36 

 

Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.

 

U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.

 

37 

 

If the foregoing correctly sets forth the understanding among the Fund, the Advisers and the Underwriters, please so indicate in the space provided below, whereupon this letter and your acceptance shall constitute a binding agreement among the Fund, the Advisers and the Underwriters, severally.

 

  Very truly yours,  
     
  RiverNorth Flexible Municipal Income Fund II, Inc.  
     
     
  By:  
  Title:  
     
  RiverNorth Capital Management, LLC  
     
     
  By:  
  Title:  
     
  MacKay Shields LLC  
     
     
  By:  
  Title:  

 

Exhibit D-1 

 

Accepted and agreed to as of the date first above written, on behalf of themselves and the other several Underwriters named in Schedule A  
   
UBS SECURITIES LLC  
   
   
By:  
Title:  
   
   
By:  
Title:  

 

 

 

SCHEDULE A

 

Underwriters Number of Shares
UBS Securities LLC [●]
Wells Fargo Securities, LLC [●]
RBC Capital Markets, LLC [●]
Stifel, Nicolaus & Company, Incorporated [●]
B. Riley Securities, Inc. [●]
Bancroft Capital, LLC [●]
Brookline Capital Markets, a Division of Arcadia Securities, LLC [●]
D.A. Davidson & Co. [●]
GMS Group, LLC [●]
Hilltop Securities Inc. [●]
Incapital LLC [●]
Janney Montgomery Scott LLC [●]
JonesTrading Institutional Services LLC [●]
Ladenburg Thalmann & Co. Inc [●]
Maxim Group LLC [●]
National Securities Corporation [●]
Newbridge Securities Corporation [●]
Pershing LLC [●]
Rockefeller Financial LLC [●]
Wedbush Securities Inc. [●]
   
Total [●]

 

 

 

 

Schedule C-1 

 

UBS SECURITIES LLC

 

MASTER AGREEMENT AMONG UNDERWRITERS

 

REGISTERED SEC OFFERINGS

 

(INCLUDING MULTIPLE SYNDICATE OFFERINGS )

 

AND

 

EXEMPT OFFERINGS

 

(OTHER THAN OFFERINGS OF MUNICIPAL SECURITIES)

 

December 2, 2020

 

 

2 

 

This Master Agreement Among Underwriters (this “Master AAU”), dated as of December 2, 2020, is by and between UBS Securities LLC (“we”) and the party named on the signature page hereto (an “Underwriter,” as defined in Section 1.1 hereof, or “you”). From time to time we or one or more of our affiliates may invite you (and others) to participate on the terms set forth herein as an underwriter or an initial purchaser, or in a similar capacity, in connection with certain offerings of securities that are managed solely by us or with one or more other co-managers. If we invite you to participate in a specific offering and sale of securities (an “Offering”) to which this Master AAU will apply, we will send the information set forth in Section 1.1 hereof to you by one or more wires, telexes, telecopy or electronic data transmissions, or other written communications (each, a “Wire,” and collectively, an “AAU”), unless you are otherwise deemed to have accepted an AAU with respect to such Offering pursuant to Section 1.2 hereof. Each Wire will indicate that it is a Wire pursuant to this Master AAU. The Wire inviting you to participate in an Offering is referred to herein as an “Invitation Wire.” You and we hereby agree that by the terms hereof the provisions of this Master AAU automatically will be incorporated by reference in each AAU, except that any such AAU may also exclude or revise such provisions of this Master AAU in respect of the Offering to which such AAU relates, and may contain such additional provisions as may be specified in any Wire relating to such AAU. You and we further agree as follows:

 

 

I. GENERAL

 

1.1.       Terms of AAU; Certain Definitions; Construction. Each AAU will relate to an Offering, and will identify: (i) the securities to be offered in the Offering (the “Securities”), their principal terms, the issuer or issuers (each, an “Issuer”) and any guarantor (each, a “Guarantor”) thereof, and, if different from the Issuer, the seller or sellers (each, a “Seller”) of the Securities, (ii) the underwriting agreement, purchase agreement, standby underwriting agreement, distribution agreement, or similar agreement (as identified in such AAU and as amended or supplemented, including a terms agreement or pricing agreement pursuant to any of the foregoing, collectively, the “Underwriting Agreement”) providing for the purchase, on a several and not joint basis, of the Securities by the several underwriters, initial purchasers, or others acting in a similar capacity (the “Underwriters”) on whose behalf the Manager (as defined below) executes the Underwriting Agreement, and whether such agreement provides for: (x) an option to purchase Additional Securities (as defined below) to cover over- allotments, or (y) an offering in multiple jurisdictions or markets involving two or more syndicates (an “International Offering”), each of which will offer and sell Securities subject to such restrictions as may be specified in any Intersyndicate Agreement (as defined below) referred to in such AAU, (iii) the price at which the Securities are to be purchased by the several Underwriters from any Issuer or Seller thereof (the “Purchase Price”), (iv) the offering terms, including, if applicable, the price or prices at which the Securities initially will be offered by the Underwriters (the “Offering Price”), any selling concession to dealers (the “Selling Concession”), reallowance (the “Reallowance”), management fee, global coordinators’ fee, praecipium, or other similar fees, discounts, or commissions (collectively, the “Fees and Commissions”) with respect to the Securities, and (v) other principal terms of the Offering, which may include, without limitation: (A) the proposed or actual pricing date (“Pricing Date”) and settlement date (the “Settlement Date”), (B) any contractual restrictions on the offer and sale of the Securities pursuant to the Underwriting Agreement, Intersyndicate Agreement, or otherwise, (C) any co-managers for such Offering (the “Co- Managers”), (D) your proposed participation in the Offering, and (E) any trustee, fiscal agent, or similar agent (the “Trustee”) for the indenture, trust agreement, fiscal agency agreement, or similar agreement (the “Indenture”) under which such Securities will be issued.  

3 

 

Manager” means UBS Securities LLC, except as set forth in Section 9.9 hereof. “Representative” means the Manager and any Co-Manager that signs the applicable Underwriting Agreement on behalf of the Underwriters or is identified as a Representative in the applicable Underwriting Agreement. “Underwriters” includes the Representative(s), the Manager, and the Co-Managers. “Firm Securities” means the number or amount of Securities that the several Underwriters are initially committed to purchase under the Underwriting Agreement (which may be expressed as a percentage of an aggregate number or amount of Securities to be purchased by the Underwriters, as in the case of a standby Underwriting Agreement). “Additional Securities” means the Securities, if any, that the several Underwriters have an option to purchase under the Underwriting Agreement to cover over-allotments. The number, amount, or percentage of Firm Securities set forth opposite each Underwriter’s name in the Underwriting Agreement plus any additional Firm Securities which such Underwriter has made a commitment to purchase, irrespective of whether such Underwriter actually purchases or sells such number, amount, or percentage of Securities under the Underwriting Agreement or Article XI hereof, is hereinafter referred to as the “Original Underwriting Obligation” of such Underwriter, and the ratio which such Original Underwriting Obligation bears to the total of all Firm Securities set forth in the Underwriting Agreement (or, in the case of a standby Underwriting Agreement, to 100%) is hereinafter referred to as the “Underwriting Percentage” of such Underwriter. For the avoidance of doubt, each Underwriter acknowledges and agrees that, for all purposes under this Agreement and otherwise (including, to the extent applicable, for purposes of Section 11(e) under the U.S. Securities Act of 1933 (the “1933 Act”)), each Underwriter’s Underwriting Percentage of the total number, amount, or percentage of Securities offered and sold in the Offering (including any Additional Securities), and only such number, amount, or percentage, constitutes the securities underwritten by such Underwriter and distributed to investors.1 

 

References herein to laws, statutory and regulatory sections, rules, regulations, forms, and interpretive materials will be deemed to include any successor provisions.

  

1.2.        Acceptance of AAU. You will have accepted an AAU for an Offering if: (a) we receive your acceptance, prior to the time specified in the Invitation Wire for such Offering, by wire, telex, telecopy or electronic data transmission, or other written communication (any such communication being deemed “In Writing”) or orally (if promptly confirmed In Writing), in the manner specified in the Invitation Wire, of our invitation to participate in the Offering, or (b) notwithstanding that we did not send you an Invitation Wire or you have not otherwise responded In Writing to any such Wire, you: (i) agree (orally or by a Wire) to be named as an Underwriter in the relevant Underwriting Agreement executed by us as Manager, or (ii) receive and retain an economic benefit for participating in the Offering as an Underwriter. Your acceptance of the invitation to participate will cause such AAU to constitute a valid and binding contract between us. Your acceptance of the AAU as provided above or an Invitation Wire will also constitute acceptance by you of the terms of subsequent Wires to you relating to the Offering unless we receive In Writing, within the time and in the manner specified in such subsequent Wire, a notice from you to the effect that you do not accept the terms of such subsequent Wire, in which case you will be deemed to have elected not to participate in the Offering.

 

 

 

1  Meant to clarify mechanics of underwriting for purposes of Section 11(e), and rebut footnote 8 of the WorldCom decision (See In re: Worldcom, Inc. Securities Litigation, U.S. Dist. Ct. (SDNY), slip-op 02 Civ 3288, March 14, 2005 (unpublished)).

  

 

4 

 

1.3.        Underwriters’ Questionnaire. Your acceptance of the Invitation Wire for an Offering or your participation in an Offering as an Underwriter will confirm that you have no exceptions to the Underwriters’ Questionnaire attached as Exhibit A hereto (or to any other questions addressed to you in any Wires relating to the Offering previously sent to you), other than exceptions noted by you In Writing in connection with the Offering and received from you by us before the time specified in the Invitation Wire or any subsequent Wire.

 

II. OFFERING MATERIALS; OFFERING AGREEMENTS

 

2.1.        Registered Offerings. In the case of an Offering that will be registered in whole or in part (a “Registered Offering”) under the 1933 Act, you acknowledge that the Issuer has filed with the Securities and Exchange Commission (the “Commission”) a registration statement, including a prospectus relating to the Securities. “Registration Statement” means such registration statement as amended to the effective date of the Underwriting Agreement and, in the event that the Issuer files an abbreviated registration statement to register additional Securities pursuant to Rule 462(b) or 462(e) under the 1933 Act, such abbreviated registration statement. “Prospectus” means the prospectus, together with the final prospectus supplement, if any, containing the final terms of the Securities and, in the case of a Registered Offering that is an International Offering, “Prospectus” means, collectively, each prospectus or offering circular, together with each final prospectus supplement or final offering circular supplement, if any, relating to the Offering, in the respective forms containing the final terms of the Securities. “Preliminary Prospectus” means any preliminary prospectus relating to the Offering or any preliminary prospectus supplement together with a prospectus relating to the Offering and, in the case of a Registered Offering that is an International Offering, “Preliminary Prospectus” means, collectively, each preliminary prospectus or preliminary offering circular relating to the Offering or each preliminary prospectus supplement or preliminary offering circular supplement, together with a prospectus or offering circular, respectively, relating to the Offering. “Free Writing Prospectus” means, in the case of a Registered Offering, a “free writing prospectus” as defined in Rule 405 under the 1933 Act. As used herein the terms “Registration Statement,” “Prospectus,” “Preliminary Prospectus,” and “Free Writing Prospectus” will include in each case the material, if any, incorporated by reference therein, and as used herein, the term “Registration Statement” includes information deemed to be part thereof pursuant to, and as of the date and time specified in, Rules 430A, 430B, or 430C under the 1933 Act, while the terms “Prospectus” and “Preliminary Prospectus” include information deemed to be a part thereof pursuant to the rules and regulations under the 1933 Act, but only as of the actual time that information is first used or filed with the Commission pursuant to Rule 424(b) under the 1933 Act. The Manager will furnish, make available to you, or make arrangements for you to obtain copies (which may, to the extent permitted by law, be in electronic form) of each Prospectus and Preliminary Prospectus (as amended or supplemented, if applicable, but excluding, for this purpose, unless otherwise required pursuant to rules or regulations under the 1933 Act, documents incorporated therein by reference) as soon as practicable after sufficient quantities thereof have been made available by the Issuer. 

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As used herein, in the case of an Offering that is an offering of asset-backed securities, the term “ABS Underwriter Derived Information” means any analytical or computational materials as described in clause (5) of footnote 271 of Commission Release No. 33-8591, issued July 19, 2005 (Securities Offering Reform) (the “Securities Offering Reform Release”).

 

2.2.        Non-Registered Offerings. In the case of an Offering other than a Registered Offering, you acknowledge that no registration statement has been filed with the Commission. “Offering Circular” means the final offering circular or memorandum, if any, or any other final written materials authorized by the Issuer to be used in connection with an Offering that is not a Registered Offering. “Preliminary Offering Circular” means any preliminary offering circular or memorandum, if any, or any other written preliminary materials authorized by the Issuer to be used in connection with such an Offering. As used herein, the terms “Offering Circular” and “Preliminary Offering Circular” include the material, if any, incorporated by reference therein. We will either, as soon as practicable after the later of the date of the Invitation Wire or the date made available to us by the Issuer, furnish to you (or make available for your review) a copy of any Preliminary Offering Circular or any proof or draft of the Offering Circular. In any event, in any Offering involving an Offering Circular, the Manager will furnish, make available to you, or make arrangements for you to obtain, as soon as practicable after sufficient quantities thereof are made available by the Issuer, copies (which may, to the extent permitted by law, be in electronic form) of the Preliminary Offering Circular and Offering Circular, as amended or supplemented, if applicable (but excluding, for this purpose, documents incorporated therein by reference).

 

2.3.        Authority to Execute Underwriting and Intersyndicate Agreements. You authorize the Manager, on your behalf: (a) to determine the form of the Underwriting Agreement and to execute and deliver to the Issuer, Guarantor, or Seller the Underwriting Agreement to purchase: (i) up to the number, amount, or percentage of Firm Securities set forth in the applicable AAU, and (ii) if the Manager elects on behalf of the several Underwriters to exercise any option to purchase Additional Securities, up to the number, amount, or percentage of Additional Securities set forth in the applicable AAU, subject, in each case, to reduction pursuant to Article IV; and (b) to determine the form of any agreement or agreements, including, but not limited to, underwriting agreements, between or among the syndicates participating in the Offering or International Offering, respectively (each, an “Intersyndicate Agreement”), and to execute and deliver any such Intersyndicate Agreement.  

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III. MANAGER’S AUTHORITY

 

3.1.        Terms of Offering. You authorize the Manager to act as manager of the Offering of the Securities by the Underwriters (the “Underwriters’ Securities”) or by the Issuer or Seller pursuant to delayed delivery contracts (the “Contract Securities”), if any, contemplated by the Underwriting Agreement. You authorize the Manager: (i) to purchase any or all of the Additional Securities for the accounts of the several Underwriters pursuant to the Underwriting Agreement, (ii) to agree, on your behalf and on behalf of the Co- Managers, to any addition to, change in, or waiver of any provision of, or the termination of, the Underwriting Agreement or any Intersyndicate Agreement (other than an increase in the Purchase Price or in your Original Underwriting Obligation to purchase Securities, in either case from that contemplated by the applicable AAU), (iii) to add prospective or remove existing Underwriters from the syndicate, (iv) to exercise, in the Manager’s discretion, all of the authority vested in the Manager in the Underwriting Agreement, and (v) except as described below in this Section 3.1, to take any other action as may seem advisable to the Manager in respect of the Offering (including, in the case of an Offering of asset-backed securities, the preparation and delivery of ABS Underwriter Derived Information), including actions and communications with the Commission, the Financial Industry Regulatory Authority (“FINRA”), state blue sky or securities commissions, stock exchanges, and other regulatory bodies or organizations. Furthermore, the Manager will have exclusive authority, on your behalf and on behalf of the Co-Managers, to exercise powers and pursue enforcement of the terms and conditions of the Underwriting Agreement and any Intersyndicate Agreement, whether or not actually exercised, except as otherwise specified herein or therein. If, in accordance with the terms of the applicable AAU, the Offering of the Securities is at varying prices based on prevailing market prices, or prices related to prevailing market prices, or at negotiated prices, you authorize the Manager to determine, on your behalf in the Manager’s discretion, any Offering Price and the Fees and Commissions applicable to the Offering from time to time. You authorize the Manager on your behalf to arrange for any currency transactions (including forward and hedging currency transactions) as the Manager may deem necessary to facilitate settlement of the purchase of the Securities, but you do not authorize the Manager on your behalf to engage in any other forward or hedging transactions (including interest rate hedging transactions) in connection with the Offering unless such transactions are specified in an applicable AAU or are otherwise consented to by you. You further authorize the Manager, subject to the provisions of Section 1.2 hereof: (i) to vary the offering terms of the Securities in effect at any time, including, if applicable, the Offering Price, Fees, and Commissions set forth in the applicable AAU, (ii) to determine, on your behalf, the Purchase Price, and (iii) to increase or decrease the number, amount, or percentage of Securities being offered. Notwithstanding the foregoing provisions of this Section 3.1, the Manager will notify the Underwriters, prior to the signing of the Underwriting Agreement, of any provision in the Underwriting Agreement that could result in an increase in the number, amount, or percentage of Firm Securities set forth opposite each Underwriter’s name in the Underwriting Agreement by more than 25% (or such other percentage as will have been specified in the applicable Invitation Wire or otherwise consented to by you) as a result of the failure or refusal of another Underwriter or Underwriters to perform its or their obligations thereunder. The Manager may, at its discretion, delegate to any Underwriter any and all authority vested in the applicable AAU, including, but not limited to, the powers set forth in Sections 5.1 and 5.2 hereof.  

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3.2.      Offering Date. The Offering is to be made on or about the time the Underwriting Agreement is entered into by the Issuer, Guarantor, or Seller and the Manager as in the Manager’s judgment is advisable, on the terms and conditions set forth in the Prospectus or the Offering Circular, as the case may be, and the applicable AAU. You will not sell any Securities prior to the time the Manager releases such Securities for sale to purchasers. The date on which such Securities are released for sale is referred to herein as the “Offering Date.”

 

3.3.      Communications. Any public announcement or advertisement of the Offering will be made by the Manager on behalf of the Underwriters on such date as the Manager may determine. You will not announce or advertise the Offering prior to the date of the Manager’s announcement or advertisement thereof without the Manager’s consent. You will abide by any restrictions in the Underwriting Agreement relating to any general solicitation, announcement, advertising, or publicity in addition to the restrictions in this Section 3.3. Further, if the Offering is made in whole or in part in reliance on any applicable exemption from registration under the 1933 Act, you will not engage in any general solicitation, announcement, or advertising in connection with the Offering that would be inconsistent with such exemption. Any announcement or advertisement you may make of the Offering after such date will be your own responsibility, and at your own expense and risk. In addition to your compliance with restrictions on the Offering pursuant to Sections 10.10, 10.11, and 10.12 hereof, you represent that you have not, and you agree that you will not, in connection with the offering and sale of the Securities in the Offering, give, send, or otherwise convey to any prospective purchaser or any purchaser of the Securities or other person not in your employ any written communication (as defined in Rule 405 under the 1933 Act) other than:

 

(i)         any Preliminary Prospectus, Prospectus, Preliminary Offering Circular, or Offering Circular,

 

(ii)        (A) written confirmations and notices of allocation delivered to your customers in accordance with Rules 172 or 173 under the 1933 Act, and written communications based on the exemption provided by Rule 134 under the 1933 Act, and (B) in the case of Offerings not registered under the 1933 Act, such written communications (1) as would be permitted by Section 3.3(v)(D)(1) below were such Offering registered under the 1933 Act, or (2) that the Manager or Underwriting Agreement may permit; provided, however, that such written communication under this clause (B) would not have otherwise constituted “Issuer Information” as defined below, or would have qualified for the exemption provided by Rule 134 under the 1933 Act, in each case, if such communication had been furnished in the context of a Registered Offering (“Supplemental Materials”),

  

 

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(iii)       any “issuer free writing prospectus” (as defined in Rule 433(h) under the 1933 Act, an “Issuer Free Writing Prospectus”), the issuance or use of which has been permitted or consented to by the Issuer and the Manager,

 

(iv)       information contained in any computational materials, or in the case of an Offering of asset backed securities, the ABS Underwriter Derived Information, or any other offering materials not constituting a Free Writing Prospectus concerning the Offering, the Issuer, the Guarantor, or the Seller, in each case, prepared by or with the permission of the Manager for use by the Underwriters in connection with the Offering, and, in the case of a Registered Offering, filed (if required) with the Commission or FINRA, as applicable,

 

(v)        a Free Writing Prospectus prepared by or on behalf of, or used or referred to by, an Underwriter in connection with the Offering, so long as: (A) such Free Writing Prospectus is not required to be filed with the Commission, (B) the proposed use of such Free Writing Prospectus is permitted by the Underwriting Agreement, (C) such Free Writing Prospectus complies with the legending condition of Rule 433 under the 1933 Act, and you comply with the record-keeping condition of Rule 433, and (D) (1) such Free Writing Prospectus contains only information describing the preliminary terms of the Securities and other pricing data2 that is not “Issuer Information” (as defined in Rule 433(h) under the 1933 Act, including footnote 271 of the Securities Offering Reform Release), or (2) the Issuer has agreed in the Underwriting Agreement to file a final term sheet under Rule 433 within the time period necessary to avoid a requirement for any Underwriter to file the Free Writing Prospectus to be used by such Underwriter, and the Free Writing Prospectus used by such Underwriter contains only information describing the terms of the Securities or their offering that is included in such final term sheet of the Issuer and other pricing data that is not Issuer Information (a Free Writing Prospectus meeting the requirements of (A) through (D) above is referred to herein as an “Underwriter Free Writing Prospectus”). Without limiting the foregoing, any Underwriter Free Writing Prospectus that you use or refer to will not be distributed by you or on your behalf in a manner reasonably designed to lead to its broad unrestricted dissemination. You will comply in all material respects with the applicable requirements of the 1933 Act and the rules and regulations thereunder in connection with your use of any Underwriter Free Writing Prospectus,

 

(vi)        any written communication prepared by or on behalf of, or used or referred to by, the Issuer, the conveyance of which by you in reliance on either Section 5(d) of, or Rule 163B under, the 1933 Act has been permitted or consented to by the Issuer and the Manager (a “Written Testing-the-Waters Communication”), so long as (A) you convey any such Written Testing-the-Waters Communication solely to entities that are3 qualified institutional buyers within the meaning of Rule 144A under the 1933 Act (“QIBs”) or institutions that are accredited investors within the meaning of Rule 501(a)(1), (a)(2), (a)(3), (a)(7), (a)(8), (a)(9), (a)(12) or (a)(13) under the 1933 Act (“IAIs”), and you otherwise comply with the requirements of Section 5(d) of the 1933 Act, or (B) you convey any such Written Testing-the-Waters Communication solely to entities that you reasonably believe are QIBs or IAIs, and you otherwise comply with the requirements of Rule 163B under the 1933 Act, and

 

 

 

2 Meant to permit disclosure of non-Issuer related information, such as benchmark Treasury rate, in preliminary term sheets or price talk.

 

 

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(vii)        any written communication not otherwise permitted under clauses (i) through (vi) above, the conveyance of which by you has been permitted or consented to by the Manager (a “Manager-Approved Communication”).

 

3.4.        Institutional and Retail Sales. You authorize the Manager to sell to institutions and retail purchasers such Securities purchased by you pursuant to the Underwriting Agreement as the Manager will determine. The Selling Concession on any such sales will be credited to the accounts of the Underwriters as the Manager will determine.

 

3.5.        Sales to Dealers. You authorize the Manager to sell to Dealers (as defined below) such Securities purchased by you pursuant to the Underwriting Agreement as the Manager will determine. A “Dealer” will be a person who is: (a) a broker or dealer (as defined by FINRA) actually engaged in the investment banking or securities business, and (i) a member in good standing of FINRA, or (ii) a non-U.S. bank, broker, dealer, or other institution not eligible for membership in FINRA that, in the case of either clause (a)(i) or (a)(ii), makes the representations and agreements applicable to such institutions contained in Section 10.5 hereof, or (b) in the case of Offerings of Securities that are exempt securities under Section 3(a)(12) of the Securities Exchange Act of 1934 (the “1934 Act”), and such other Securities as from time to time may be sold by a “bank” (as defined in Section 3(a)(6) of the 1934 Act (a “Bank”)), a Bank that is not a member of FINRA and that makes the representations and agreements applicable to such institutions contained in Section 10.5 hereof. If the price for any such sales by the Manager to Dealers exceeds an amount equal to the Offering Price less the Selling Concession set forth in the applicable AAU, the amount of such excess, if any, will be credited to the accounts of the Underwriters as the Manager will determine.

 

3.6.        Direct Sales. The Manager will advise you promptly, on the Offering Date, as to the Securities purchased by you pursuant to the Underwriting Agreement that you will retain for direct sale. At any time prior to the termination of the applicable AAU, any such Securities that are held by the Manager for sale but not sold may, on your request and at the Manager’s discretion, be released to you for direct sale, and Securities so released to you will no longer be deemed held for sale by the Manager. You may allow, and Dealers may reallow, a discount on sales to Dealers in an amount not in excess of the Reallowance set forth in the applicable AAU. You may not purchase Securities from, or sell Securities to, any other Underwriter or Dealer at any discount or concession other than the Reallowance, except with the prior consent of the Manager.

 

 

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3.7.        Release of Unsold Securities. From time to time prior to the termination of the applicable AAU, at the request of the Manager, you will advise the Manager of the number or amount of Securities remaining unsold which were retained by or released to you for direct sale, and of the number or amount of Securities and Other Securities (as defined below) purchased for your account remaining unsold which were delivered to you pursuant to Article V hereof or pursuant to any Intersyndicate Agreement, and, on the request of the Manager, you will release to the Manager any such Securities and Other Securities remaining unsold: (a) for sale by the Manager to institutions, Dealers, or retail purchasers, (b) for sale by the Issuer or Seller pursuant to delayed delivery contracts, or (c) if, in the Manager’s opinion, such Securities or Other Securities are needed to make delivery against sales made pursuant to Article V hereof or any Intersyndicate Agreement.

 

3.8.        International Offerings. In the case of an International Offering, you authorize the Manager: (i) to make representations on your behalf as set forth in any Intersyndicate Agreement, and (ii) to purchase or sell for your account pursuant to the Intersyndicate Agreement: (a) Securities, (b) any other securities of the same class and series, or any securities into which the Securities may be converted or for which the Securities may be exchanged or exercised, and (c) any other securities designated in the applicable AAU or applicable Intersyndicate Agreement (the securities referred to in clauses (b) and (c) above being referred to collectively as the “Other Securities”).

 

IV. DELAYED DELIVERY CONTRACTS

 

4.1.        Arrangements for Sales. Arrangements for sales of Contract Securities will be made only through the Manager acting either directly or through Dealers (including Underwriters acting as Dealers), and you authorize the Manager to act on your behalf in making such arrangements. The aggregate number or amount of Securities to be purchased by the several Underwriters will be reduced by the respective number or amounts of Contract Securities attributed to such Underwriters as hereinafter provided. Subject to the provisions of Section 4.2 hereof, the aggregate number or amount of Contract Securities will be attributed to the Underwriters as nearly as practicable in proportion to their respective Underwriting Percentages, except that, as determined by the Manager in its discretion: (a) Contract Securities directed and allocated by a purchaser to specific Underwriters will be attributed to such Underwriters, and (b) Contract Securities for which arrangements have been made for sale through Dealers will be attributed to each Underwriter approximately in the proportion that Securities of such Underwriter held by the Manager for sales to Dealers bear to all Securities so held. The fee with respect to Contract Securities payable to the Manager for the accounts of the Underwriters pursuant to the Underwriting Agreement will be credited to the accounts of the respective Underwriters in proportion to the Contract Securities attributed to such Underwriters pursuant to the provisions of this Section 4.1, less, in the case of each Underwriter, the concession to Dealers on Contract Securities sold through Dealers and attributed to such Underwriter.

 

4.2.        Excess Sales. If the number or amount of Contract Securities attributable to an Underwriter pursuant to Section 4.1 hereof would exceed such Underwriter’s Original Underwriting Obligation reduced by the number or amount of Underwriters’ Securities sold by or on behalf of such Underwriter, such excess will not be attributed to such Underwriter, and such Underwriter will be regarded as having acted only as a Dealer with respect to, and will receive only the concession to Dealers on, such excess.

 

 

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V. PURCHASE AND SALE OF SECURITIES

 

5.1.        Facilitation of Distribution. In order to facilitate the distribution and sale of the Securities, you authorize the Manager to buy and sell Securities and any Other Securities, in addition to Securities sold pursuant to Article III hereof, in the open market or otherwise (including, without limitation, pursuant to any Intersyndicate Agreement), for long or short account, on such terms as it may deem advisable, and to over-allot in arranging sales. Such purchases and sales and over-allotments will be made for the accounts of the several Underwriters as nearly as practicable to their respective Underwriting Percentages or, in the case of an International Offering, such purchases and sales will be for such accounts as set forth in the applicable Intersyndicate Agreement. Any Securities or Other Securities which may have been purchased by the Manager for stabilizing purposes in connection with the Offering prior to the acceptance of the applicable AAU will be treated as having been purchased pursuant to this Section 5.1 for the accounts of the several Underwriters or, in the case of an International Offering, for such accounts as are set forth in the applicable Intersyndicate Agreement. Your net commitment pursuant to the foregoing authorization will not exceed at the close of business on any day an amount equal to 20 % of your Underwriting Percentage of the aggregate initial Offering Price of the Firm Securities, it being understood that, in calculating such net commitment, the initial Offering Price will be used with respect to the Securities so purchased or sold and, in the case of all Other Securities, will be the purchase price thereof. For purposes of determining your net commitment for short account (i.e., “naked short”), any short position that can be covered with: (a) Securities that may be purchased upon exercise of any over-allotment option then exercisable, (b) in the case of an International Offering, any Securities or Other Securities that the Manager has agreed to purchase for your account pursuant to any applicable Intersyndicate Agreement, and (c) Securities that may be purchased pursuant to a forward sale contract or similar arrangement with the Issuer or any selling security holder in the Offering, will be disregarded. On demand you will take up and pay for any Securities or Other Securities so purchased for your account and any Securities released to you pursuant to Section 3.7 hereof, and will deliver to the Manager against payment any Securities or Other Securities so sold or over-allotted for your account or released to you. The Manager will notify you if it engages in any stabilization transaction in accordance with Rule 17a-2 under the 1934 Act, and will notify you of the date of termination of stabilization. You will not stabilize or engage in any syndicate covering transaction (as defined in Rule 100 of Regulation M under the 1934 Act (“Regulation M”)) in connection with the Offering without the prior consent of the Manager. You will provide to the Manager any reports required of you pursuant to Rule 17a-2 under the 1934 Act not later than the date specified therein.

 

5.2.        Penalty with Respect to Securities Repurchased by the Manager. If pursuant to the provisions of Section 5.1 hereof and prior to the termination of the Manager’s authority to cover any short position incurred under the applicable AAU or such other date as the Manager may specify in a Wire, either: (a) the Manager purchases or contracts to purchase for the account of any Underwriter in the open market or otherwise any Securities which were retained by, or released to, you for direct sale or any Securities sold pursuant to Section 3.4 hereof for which you received a portion of the Selling Concession set forth in the applicable AAU, or any Securities which may have been issued on transfer or in exchange for such Securities, and which Securities were therefore not effectively placed for investment, or (b) if the Manager has advised you by Wire that trading in the Securities will be reported to the Manager pursuant to the “Initial Public Offering Tracking System” of The Depository Trust Company (“DTC”) and the Manager determines, based on notices from DTC, that your customers sold a number or amount of Securities during any day that exceeds the number or amount previously notified to you by Wire, then you authorize the Manager either to charge your account with an amount equal to such portion of the Selling Concession set forth in the applicable AAU received by you with respect to such Securities or, in the case of clause (b), such Securities as exceed the number or amount specified in such Wire, or to require you to repurchase such Securities or, in the case of clause (b), such Securities as exceed the number or amount specified in such Wire, at a price equal to the total cost of such purchase, including transfer taxes, accrued interest, dividends, and commissions, if any.

 

 

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5.3.        Compliance with Regulation M. You represent that, at all times since you were invited to participate in the Offering, you have complied with the provisions of Regulation M applicable to the Offering, in each case as interpreted by the Commission and after giving effect to any applicable exemptions. If you have been notified in a Wire that the Underwriters may conduct passive market making in compliance with Rule 103 of Regulation M in connection with the Offering, you represent that, at all times since your receipt of such Wire, you have complied with the provisions of such Rule applicable to such Offering, as interpreted by the Commission and after giving effect to any applicable exemptions. You will comply with any additional provisions of Regulation M if and to the extent set forth in the Invitation Wire or other Wire.

 

5.4.        Standby Underwritings. You authorize the Manager in its discretion, at any time on, or from time to time prior to, the expiration of the conversion right of convertible securities identified in the applicable AAU in the case of securities called for redemption, or the expiration of rights to acquire securities in the case of rights offerings, for which, in either case, standby underwriting arrangements have been made: (i) to purchase convertible securities or rights to acquire Securities for your account, in the open market or otherwise, on such terms as the Manager determines, and to convert convertible securities or exercise rights so purchased; and (ii) to offer and sell the underlying common stock or depositary shares for your account, in the open market or otherwise, for long or short account (for purposes of such commitment, such common stock or depositary shares being considered the equivalent of convertible securities or rights), on such terms consistent with the terms of the Offering set forth in the Prospectus or Offering Circular as the Manager determines. On demand, you will take up and pay for any securities so purchased for your account or you will deliver to the Manager against payment any securities so sold, as the case may be. During such period, you may offer and sell the underlying common stock or depositary shares, but only at prices set by the Manager from time to time, and any such sales will be subject to the Manager’s right to sell to you the underlying common stock or depositary shares as above provided and to the Manager’s right to reserve your securities purchased, received, or to be received upon conversion. You agree not to otherwise bid for, purchase, or attempt to induce others to purchase or sell, directly or indirectly, any convertible securities or rights or underlying common stock or depositary shares, provided, however, that no Underwriter will be prohibited from: (a) selling underlying common stock owned beneficially by such Underwriter on the day the convertible securities were first called for redemption, (b) converting convertible securities owned beneficially by such Underwriter on such date or selling underlying common stock issued upon conversion of convertible securities so owned, (c) exercising rights owned beneficially by such Underwriter on the record date for a rights offering, or selling the underlying common stock or depositary shares issued upon exercise of rights so owned, or (d) purchasing or selling convertible securities or rights or underlying common stock or depositary shares as a broker pursuant to unsolicited orders.

 

 

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VI. PAYMENT AND SETTLEMENT

 

You will deliver to the Manager on the date and at the place and time specified in the applicable AAU (or on such later date and at such place and time as may be specified by the Manager in a subsequent Wire) the funds specified in the applicable AAU, payable to the order of UBS Securities LLC, for: (a) an amount equal to the Offering Price plus (if not included in the Offering Price) accrued interest, amortization of original issue discount or dividends, if any, specified in the Prospectus or Offering Circular, less the applicable Selling Concession in respect of the Firm Securities to be purchased by you, (b) an amount equal to the Offering Price plus (if not included in the Offering Price) accrued interest, amortization of original issue discount or dividends, if any, specified in the Prospectus or Offering Circular, less the applicable Selling Concession in respect of such of the Firm Securities to be purchased by you as will have been retained by or released to you for direct sale as contemplated by Section 3.6 hereof, or (c) the amount set forth or indicated in the applicable AAU, as the Manager will advise. You will make similar payment as the Manager may direct for Additional Securities, if any, to be purchased by you on the date specified by the Manager for such payment. The Manager will make payment to the Issuer or Seller against delivery to the Manager for your account of the Securities to be purchased by you, and the Manager will deliver to you the Securities paid for by you which will have been retained by or released to you for direct sale. If the Manager determines that transactions in the Securities are to be settled through DTC or another clearinghouse facility and payment in the settlement currency is supported by such facility, payment for and delivery of Securities purchased by you will be made through such facilities, if you are a participant, or, if you are not a participant, settlement will be made through your ordinary correspondent who is a participant.

 

VII. EXPENSES

 

7.1.        Management Fee. You authorize the Manager to charge your account as compensation for the Manager’s and Co-Managers’ services in connection with the Offering, including the purchase from the Issuer or Seller of the Securities, as the case may be, and the management of the Offering, the amount, if any, set forth as the management fee, global coordinators’ fee, praecipium, or other similar fee in the applicable AAU. Such amount will be divided among the Manager and any Co-Managers named in the applicable AAU as they may determine. Each Underwriter acknowledges that such fees are being paid by the Underwriters, and are not a benefit received directly or indirectly from the Issuer of the type referred to in Section 11(e) of the 1933 Act.

 

 

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7.2.        Offering Expenses. You authorize the Manager to charge your account with your Underwriting Percentage of all expenses agreed to be paid by the Underwriters in the Underwriting Agreement and all expenses of a general nature incurred by the Manager and Co-Managers under the applicable AAU in connection with the Offering, including the negotiation and preparation thereof, or in connection with the purchase, carrying, marketing, sale and distribution of any securities under the applicable AAU and any Intersyndicate Agreement, including, without limitation, legal fees and expenses, transfer taxes, costs associated with approval of the Offering by FINRA, and the costs of currency transactions (including forward and hedging currency transactions) or, if permitted pursuant to Section 3.1 hereof, any other forward or hedging transactions (including interest rate swaps) entered into to facilitate settlement of the purchase of Securities permitted hereunder.

 

VIII. MANAGEMENT OF SECURITIES AND FUNDS

 

8.1.        Advances; Loans; Pledges. You authorize the Manager to advance the Manager’s own funds for your account, charging current interest rates, and to arrange loans for your account for the purpose of carrying out the provisions of the applicable AAU and any Intersyndicate Agreement, and in connection therewith, to hold or pledge as security therefor all or any securities which the Manager may be holding for your account under the applicable AAU and any Intersyndicate Agreement, to execute and deliver any notes or other instruments evidencing such advances or loans, and to give all instructions to the lenders with respect to any such loans and the proceeds thereof. The obligations of the Underwriters under loans arranged on their behalf will be several in proportion to their respective Original Underwriting Obligations, and not joint. Any lender is authorized to accept the Manager’s instructions as to the disposition of the proceeds of any such loans. In the event of any such advance or loan, repayment thereof will, in the discretion of the Manager, be effected prior to making any remittance or delivery pursuant to Section 8.2, 8.3, or 9.2 hereof.

 

8.2.        Return of Amount Paid for Securities. Out of payment received by the Manager for Securities sold for your account which have been paid for by you, the Manager will remit to you promptly an amount equal to the price paid by you for such Securities.

 

8.3.        Delivery and Redelivery of Securities for Carrying Purposes. The Manager may deliver to you from time to time prior to the termination of the applicable AAU pursuant to Section 9.1 hereof against payment, for carrying purposes only, any Securities or Other Securities purchased by you under the applicable AAU or any Intersyndicate Agreement which the Manager is holding for sale for your account but which are not sold and paid for. You will redeliver to the Manager against payment any Securities or Other Securities delivered to you for carrying purposes at such times as the Manager may demand.

 

 

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IX. TERMINATION; INDEMNIFICATION; CONTRIBUTION; SETTLEMENT

 

9.1.        Termination. Each AAU will terminate at the close of business on the later of: (a) the date on which the Underwriters pay the Issuer or Seller for the Securities, and (b) 45 calendar days after the applicable Offering Date, unless sooner terminated by the Manager. The Manager may at its discretion by notice to you prior to the termination of such AAU alter any of the terms or conditions of the Offering to the extent permitted by Articles III and IV hereof, or terminate or suspend the effectiveness of Article V hereof, or any part thereof. No termination or suspension pursuant to this paragraph will affect the Manager’s authority under Section 3.1 hereof to take actions in respect of the Offering or under Article V hereof to cover any short position incurred under such AAU or in connection with covering any such short position to require you to repurchase Securities as specified in Section 5.2 hereof. For the avoidance of doubt, unless otherwise agreed in a Wire or an Intersyndicate Agreement, the Manager’s authority to purchase Securities or Other Securities, for long account, pursuant to Section 5.1 hereof, will terminate or be suspended upon the termination or suspension, as the case may be, of the applicable AAU (or any provision and/or term thereof in respect of trading, price or offering restrictions as set forth in a Wire that is sent by the Manager following the time the Securities are released for sale to purchasers) or Article V or Section 5.1 hereof pursuant to this paragraph.

 

9.2.        Delivery or Sale of Securities; Settlement of Accounts. Upon termination of each AAU, or prior thereto at the Manager’s discretion, the Manager will deliver to you any Securities paid for by you pursuant to Article VI hereof and held by the Manager for sale pursuant to Section 3.4 or 3.5 hereof but not sold and paid for and any Securities or Other Securities that are held by the Manager for your account pursuant to the provisions of Article V hereof or any Intersyndicate Agreement. Notwithstanding the foregoing, at the termination of such AAU, if the aggregate initial Offering Price of any such Securities and the aggregate purchase price of any Other Securities so held and not sold and paid for does not exceed an amount equal to 20% of the aggregate initial Offering Price of the Securities, the Manager may, in its discretion, sell such Securities and Other Securities for the accounts of the several Underwriters, at such prices, on such terms, at such times, and in such manner as it may determine. Within the period specified by applicable FINRA Rules or, if no period is so specified, as soon as practicable after termination of such AAU, your account will be settled and paid. The Manager may reserve from distribution such amount as the Manager deems advisable to cover possible additional expenses. The determination by the Manager of the amount so to be paid to or by you will be final and conclusive. Any of your funds under the Manager’s control may be held with the Manager’s general funds without accountability for interest.

 

Notwithstanding any provision of this Master AAU other than Section 10.12 hereof, upon termination of each AAU, or prior thereto at the Manager’s discretion, the Manager may: (i) allocate to the accounts of the Underwriters the expenses described in Section 7.2 hereof and any losses incurred upon the sale of Securities or Other Securities pursuant to the applicable AAU or any Intersyndicate Agreement (including any losses incurred upon the sale of securities referred to in Section 5.4(ii) hereof), (ii) deliver to the Underwriters any unsold Securities or Other Securities purchased pursuant to Section 5.1 hereof or any Intersyndicate Agreement, and (iii) deliver to the Underwriters any unsold Securities purchased pursuant to the applicable Underwriting Agreement, in each case in the Manager’s discretion. The only limitations on such discretion will be as follows: (a) no Underwriter that is not the Manager or a Co-Manager will bear more than its share of such expenses, losses, or Securities (such share will not exceed such Underwriter’s Underwriting Percentage and will be determined pro rata among all such Underwriters based on their Underwriting Percentages), (b) no such Underwriter will receive Securities that, together with any Securities purchased by such Underwriter pursuant to Article VI (but excluding any Securities that such Underwriter is required to repurchase pursuant to Section 5.2 hereof) exceed such Underwriter’s Original Underwriting Obligation, and (c) no Co-Manager will bear more than its share of such expenses, losses, or Securities (such share to be determined pro rata among the Manager and all Co-Managers based on their Underwriting Percentages). If any Securities or Other Securities returned to you pursuant to clause (ii) or (iii) above were not paid for by you pursuant to Article VI hereof, you will pay to the Manager an amount per security equal to the amount set forth in clause (i) of Article VI, in the case of Securities returned to you pursuant to clause (iii) above, or the purchase price of such securities, in the case of Securities or Other Securities returned to you pursuant to clause (ii) above.

 

 

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9.3.        Certain Other Expenses. You will pay your Underwriting Percentage of: all expenses incurred by the Manager in investigating, preparing to defend, and defending against any action, claim, or proceeding which is asserted, threatened, or instituted by any party, including any governmental or regulatory body (each, an “Action”), relating to: (A) the Registration Statement, any Preliminary Prospectus or Prospectus (and any amendment or supplement thereto), any Preliminary Offering Circular or Offering Circular (and any amendment or supplement thereto), any Supplemental Materials, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, and any ABS Underwriter Derived Information used by any Underwriter other than the Manager, (B) the violation of any applicable restrictions on the offer, sale, resale, or purchase of Securities or Other Securities imposed by U.S. Federal or state laws or non-U.S. laws and the rules and regulations of any regulatory body promulgated thereunder or pursuant to the terms of the applicable AAU, the Underwriting Agreement, or any Intersyndicate Agreement, and (C) any claim that the Underwriters constitute a partnership, an association, or an unincorporated business or other separate entity, and (ii) any Losses (as defined in Section 9.4 hereof) incurred by the Manager in respect of any such Action, whether such Loss will be the result of a judgment or arbitrator’s determination or as a result of any settlement agreed to by the Manager. Notwithstanding the foregoing, you will not be required to pay your Underwriting Percentage of any such expense or liability: (1) to the extent that such expense or liability was caused by the Manager’s gross negligence or willful misconduct as determined in a final judgment of a court of competent jurisdiction; (2) as to which, and to the extent, the Manager actually receives (a) indemnity pursuant to Section 9.4 hereof, (b) contribution pursuant to Section 9.5 hereof, (c) indemnity or contribution pursuant to the Underwriting Agreement, or (d) damages from an Underwriter for breach of its representations, warranties, agreements, or covenants contained in the applicable AAU; or (3) of the Manager (other than fees of Syndicate Counsel) that relates to a settlement entered into by the Manager on a basis that results in a settlement of such Action against it and fewer than all the Underwriters. None of the foregoing provisions of this Section 9.3 will relieve any defaulting or breaching Underwriter from liability for its defaults or breach. Failure of any party to give notice under Section 9.10 hereof will not relieve any Underwriter of an obligation to pay expenses pursuant to the provisions of this Section 9.3.  

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9.4.        Indemnification. Notwithstanding any settlement or the termination of the applicable AAU, you agree to indemnify and hold harmless each other Underwriter and each person, if any, who controls any such Underwriter within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act (each, an “Indemnified Party”), to the extent and upon the terms which you agree to indemnify and hold harmless any of the Issuer, the Guarantor, the Seller, any person controlling the Issuer, the Guarantor, the Seller, its directors, and, in the case of a Registered Offering, its officers who signed the Registration Statement and, in the case of an Offering other than a Registered Offering, its officers, in each case as set forth in the Underwriting Agreement. You further agree to indemnify and hold harmless each Indemnified Party from and against any and all losses, claims, damages, liabilities, and expenses not reimbursed pursuant to Section 9.3 hereof (collectively, “Losses”) related to, arising out of, or in connection with the breach or violation by you of the terms of Section 3.3 hereof, including any and all Losses under Section 5 of the 1933 Act, and any litigation, investigation, and proceeding (collectively, “Litigation”) relating to any of the foregoing. You will also reimburse each such Indemnified Party upon demand for all expenses, including fees and expenses of counsel, as they are incurred, in connection with investigating, preparing for, or defending any of the foregoing. You will indemnify and hold harmless each Indemnified Party from and against any and all Losses related to, arising out of, or in connection with, any untrue statement or alleged untrue statement of a material fact contained in any Underwriter Free Writing Prospectus, Manager-Approved Communication or Supplemental Material used by you, or any research report in the form of a written communication (as defined in Rule 405 under the 1933 Act) used by you in reliance upon the penultimate sentence of Section 2(a)(3) of the 1933 Act prior to completion of the distribution of an initial public offering (a “Written Research Report”), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and any Litigation relating to any of the foregoing, and to reimburse each such Indemnified Party upon demand for all expenses, including fees and expenses of counsel, as they are incurred, in connection with investigating, preparing for, or defending any of the foregoing. In addition, you will indemnify and hold harmless each Indemnified Party from and against any and all Losses related to, arising out of, or in connection with any untrue statement or alleged untrue statement of a material fact contained in any ABS Underwriter Derived Information used by you, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and any Litigation relating to any of the foregoing, and to reimburse each such Indemnified Party upon demand for all expenses, including fees and expenses of counsel, as they are incurred, in connection with investigating, preparing for, or defending any of the foregoing; provided, however, that any Losses, joint or several, paid or incurred by any Underwriter, arising out of or based upon any ABS Underwriter Derived Information which was used only by such Underwriter, or in connection with the preparation of which an Underwriter is found to have acted with gross negligence or willful misconduct in a final judgment of a court of competent jurisdiction, will be paid solely by such Underwriter.

 

 

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Each Underwriter will further indemnify and hold harmless any investment banking firm identified in a Wire as the qualified independent underwriter as defined in FINRA Rule 5121 or any successor rule thereto (in such capacity, a “QIU”) for an Offering and each person, if any, who controls such QIU within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, from and against any and all Losses related to, arising out of, or in connection with such investment banking firm’s activities as QIU for the Offering. Each Underwriter will reimburse such QIU for all expenses, including fees and expenses of counsel, as they are incurred, in connection with investigating, preparing for, and defending any Action related to, arising out of, or in connection with such QIU’s activities as a QIU for the Offering. Each Underwriter will be responsible for its Underwriting Percentage of any amount due to such QIU on account of the foregoing indemnity and reimbursement. Such QIU will have no additional liability to any Underwriter or otherwise as a result of its serving as QIU in connection with the Offering. To the extent the indemnification provided to a QIU under this Section 9.4 is unavailable to such QIU or is insufficient in respect of any Losses related thereto, whether as a matter of law or public policy or as a result of the default of any Underwriter in performing its obligations under this Section 9.4, each other Underwriter will contribute to the amount paid or payable by such QIU as a result of such Losses related thereto in proportion to its Underwriting Percentage.

 

For the avoidance of doubt, references to an “Underwriter” or “you” in this Section 9.4 shall include the Manager in its role as an Underwriter.

 

9.5.        Contribution. Notwithstanding any settlement or the termination of the applicable AAU, you will pay upon request of the Manager, as contribution, your Underwriting Percentage of any Losses, joint or several, paid or incurred by any Indemnified Party to any person other than an Indemnified Party, arising out of or in connection with the breach or violation of the terms of Section 3.3 hereof, including any and all Losses under Section 5 of the 1933 Act, and any Litigation relating to the foregoing. Further, you will pay upon request of the Manager, as contribution, your Underwriting Percentage of any Losses, joint or several, paid or incurred by any Indemnified Party to any person other than an Indemnified Party, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus or Prospectus (and any amendment or supplement thereto), any Preliminary Offering Circular or Offering Circular (and any amendment or supplement thereto), any Supplemental Materials, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, any other materials prepared or used by an Underwriter in accordance with Section 3.3 hereof, or any Underwriter Free Writing Prospectus, Manager-Approved Communication or Written Research Report, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (other than an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished to the Company In Writing by the Underwriter on whose behalf the request for contribution is being made expressly for use therein), or any act or omission to act or any alleged act or omission to act by the Manager or, if applicable, a Representative, as the Manager or a Representative, in connection with any transaction contemplated by this Agreement or undertaken in preparing for the purchase, sale, and delivery of the Securities (provided, that you will not be required to pay in any such case to the extent that any such Loss resulted from the Manager’s or such Representative’s gross negligence or willful misconduct as determined in a final judgment of a court of competent jurisdiction), and your Underwriting Percentage of any legal or other expenses, including fees and expenses of counsel, as they are incurred, reasonably incurred by the Indemnified Party (with the approval of the Manager) on whose behalf the request for contribution is being made in connection with investigating or defending any such Loss or any action in respect thereof; provided, however, that no request will be made on behalf of any Indemnified Party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) from any Indemnified Party who was not guilty of such fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act); provided, further, that any Losses, joint or several, paid or incurred by any Indemnified Party, arising out of or based upon an Underwriter’s Underwriter Free Writing Prospectus, Manager- Approved Communication, Written Research Report or Supplemental Material, will be paid by only the Underwriters that used such Underwriter Free Writing Prospectus, Manager- Approved Communication, Written Research Report or Supplemental Material, as the case may be (the “Contributing Underwriters”), and the amount to be paid by each Contributing Underwriter will be determined pro rata among the Contributing Underwriters based on their Underwriting Percentages. None of the foregoing provisions of this Section 9.5 will relieve any defaulting or breaching Underwriter from liability for its defaults or breach.

 

 

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In addition, you will pay upon request of the Manager, as contribution, your Underwriting Percentage of any Losses, joint or several, paid or incurred by any Indemnified Party to any person other than an Indemnified Party, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any ABS Underwriter Derived Information, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (other than an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished to the Company In Writing by the Underwriter on whose behalf the request for contribution is being made expressly for use therein) and your Underwriting Percentage of any expenses, including fees and expenses of counsel, as they are incurred, reasonably incurred by the Indemnified Party (with the approval of the Manager) on whose behalf the request for contribution is being made in connection with investigating, preparing for, or defending any such Loss or any action in respect thereof; provided, however, that any Losses, joint or several, paid or incurred by any Underwriter, arising out of or based upon any ABS Underwriter Derived Information which was used only by such Underwriter, or in connection with the preparation of which the Underwriter is found to have acted with gross negligence or willful misconduct in a final judgment of a court of competent jurisdiction, will be paid solely by the Underwriter. 

 

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For the avoidance of doubt, references to an “Underwriter” or “you” in this Section 9.5 shall include the Manager in its role as an Underwriter.

 

9.6.        Separate Counsel. If any Action is asserted or commenced pursuant to which the indemnity provided in Section 9.4 hereof or the right of contribution provided in Section 9.5 hereof may apply, the Manager may take such action in connection therewith as it deems necessary or desirable, including retention of counsel for the Underwriters (“Syndicate Counsel”), and in its discretion separate counsel for any particular Underwriter or group of Underwriters, and the fees and disbursements of any counsel so retained will be allocated among the several Underwriters as determined by the Manager. Any such Syndicate Counsel retained by the Manager will be counsel to the Underwriters as a group and, in the event that: (a) the Manager settles any Action on a basis that results in the settlement of such Action against it and fewer than all the Underwriters, or (b)(i) a conflict develops between the Manager and the other Underwriters, or (ii) differing defenses are available to the other Underwriters and not available to the Manager, and as a result of either (b)(i) or (b)(ii) such Syndicate Counsel concludes that it is unable to continue to represent the Manager and the other Underwriters, then in each such case, after notification to the Manager and the other Underwriters, Syndicate Counsel will remain counsel to the other Underwriters and will withdraw as counsel to the Manager. The Manager hereby consents to such arrangement and undertakes to take steps to: (i) ensure that any engagement letters with Syndicate Counsel are consistent with such arrangement; (ii) issue a notice to all other Underwriters promptly following receipt of any advice (whether oral or written) from Syndicate Counsel regarding its inability to represent the Manager and the other Underwriters jointly; and (iii) facilitate Syndicate Counsel’s continued representation of the other Underwriters. Any Underwriter may elect to retain at its own expense its own counsel and, on advice of such counsel, may settle or consent to the settlement of any such Action, but only in compliance with Section 9.7 hereof, and in each case, only after notification to every other Underwriter. The Manager may settle or consent to the settlement of any such Action, but only in compliance with Section 9.7 hereof.

 

9.7.       Settlement of Actions. Neither the Manager nor any other Underwriter party to this Master AAU may settle or agree to settle any Action related to or arising out of the Offering, nor may any other Underwriter settle or agree to settle any such Action without the consent of the Manager, nor may any other Underwriter seek the Manager’s consent to any such settlement agreement, nor may the Manager consent to any such settlement agreement, unless: (A) the Manager, together with such other Underwriters as constitute a majority in aggregate interest based on the Underwriting Percentage of the Underwriters as a whole (including the Manager’s interest), approve the settlement of such Action, in which case the Manager is authorized to settle for all Underwriters, provided, however, that the settlement agreement results in the settlement of the Action against all Underwriters raised by the plaintiffs party thereto; or (B) (i) such settlement agreement expressly provides that the non- settling Underwriters will be given a judgment credit (or credit in settlement) with respect to all such Actions for which the non-settling Underwriters may be found liable (or will pay in subsequent settlement), in an amount that is the greatest of: (x) the dollar amount paid in such initial settlement to settle such Actions, (y) the proportionate share of the settling Underwriter’s fault in respect of common damages arising in connection with such Actions as proven at trial, if applicable, or (z) the amount by which the settling Underwriter would have been required to make contribution had it not settled, under Sections 9.5 and 11.2 hereof in respect of the final non-appealable judgment (or settlement) subsequently entered into by the non-settling Underwriters (such greatest amount of either (x), (y), or (z), the “Judgment Credit”); 3 (ii) such settlement agreement expressly provides that in the event that the applicable court does not approve the Judgment Credit as part of the settlement, the settlement agreement will automatically terminate; and (iii) the final judgment entered with respect to the settlement agreement contains the Judgment Credit. 

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9.8.        Survival. Except as set forth in the last sentence of Section 9.1, your agreements contained in Article V and Sections 3.1, 9.3, 9.4, 9.5, 9.6, 9.7, 9.8, 9.9, 9.10, and 11.2 hereof will remain operative and in full force and effect regardless of any termination of an AAU and: (a) any termination of the Underwriting Agreement, (b) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Issuer, the Guarantor, the Seller, its directors or officers, or any person controlling the Issuer, the Guarantor or the Seller, and (c) acceptance of any payment for any Securities.

 

9.9.        Replacement of Manager. If at any time after any Action is brought the Manager settles the Action on a basis that results in the settlement of such Action against it and fewer than all the Underwriters (whether or not such settlement complies with Section 9.7 hereof), the Manager will, at such time, for purposes of Sections 9.3, 9.4, 9.5, 9.6, and 9.7 hereof, cease to be the Manager. The non-settling Underwriters will, by vote of holders of a majority of the Underwriting Percentage of such non-settling Underwriters, select a new Manager, which will become the new “Manager” for all purposes of Sections 9.3, 9.4., 9.5, 9.6, and 9.7 hereof as well as this section; provided that the non-settling Underwriter(s) with the largest Underwriting Percentage will act as Manager until such vote occurs and a new Manager is selected.4

 

Notwithstanding such a settlement, the Manager and the other settling Underwriters will remain obligated to the non-settling Underwriters to assist and cooperate fully, in good faith, and at their own expense, in the defense of any Actions, including, without limitation, by providing, upon reasonable request of any non-settling Underwriter, and without the necessity of court process, access to or copies of all relevant records, and reasonable access to all witnesses under control of the Manager or the other settling Underwriters, for the purpose of interviews, depositions, and testimony attrial, subject in each case to the applicable legal and proceduralobligations of such Manager and such other settling Underwriter.

 

 

 

3  Seeks to ensure that there is no harm to non-settling Underwriter due to settlement. For example, assume that plaintiffs have suffered $1,000 in damages in a case in which the Underwriters are 50% at fault and other defendants, all of whom are insolvent, are 50% at fault. Further assume that there were two Underwriters, each which underwrote 50% of the offering, and they were equally at fault. If neither Underwriter settles, then each would be required to pay $500 to satisfy the $1,000 verdict for which they are jointly and severally liable (or, if one paid $1,000, Section 9.5 would obligate the other to contribute $500 towards such payment). If the first Underwriter settles for $100, then the second Underwriter will obtain a judgment credit of $500, being equal to the greater of: (a) settlement amount ($100), (b) the first Underwriter’s fault ($250), and (c) the amount which the settling Underwriters would have been required to contribute under the contribution provisions ($500). This formula ensures that the second Underwriter is not harmed by the settlement. By contrast, the judgment credit applied in WorldCom ignored clause (c), resulting in a credit of only $250 and leading the non-settling Underwriter to pay $750, or $250 more than had the first Underwriter not settled.

 

4  Permits new Manager to replace settling Manager and manage the litigation–related provisions of this Agreement.

 

 

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In addition, if at any time, the Manager is unwilling or unable for any reason to assume or discharge its duties as Manager under the applicable AAU, whether resulting from its insolvency (voluntary or involuntary), resignation or otherwise, to the extent permitted by applicable law, the remaining Underwriters will, by vote of holders of a majority of the Underwriting Percentage of such Underwriters, be entitled to select a new Manager, which will become the new Manager for all purposes under this Agreement. 5

 

Notwithstanding the foregoing, a Manager replaced pursuant to this Section 9.9 shall continue to benefit from and be subject to all other terms and conditions of this Agreement applicable to an Underwriter.

 

9.10.      Notice. When the Manager receives notice of the assertion of any Action to which the provisions of Sections 9.4, 9.5, 9.6, or 9.7 hereof would apply, it will give prompt notice thereof to each Underwriter, and whenever an Underwriter receives notice of the assertion of any claim or commencement of any Action to which the provisions of Sections 9.4, 9.5, 9.6, or 9.7 hereof would apply, such Underwriter will give prompt notice thereof to the Manager. The Manager also will furnish each Underwriter with periodic reports, at such times as it deems appropriate, as to the status of such Action, and the actions taken by it in connection therewith. If the Manager or any other Underwriter engages in any settlement discussion that involves or contemplates settlement on any basis other than settlement of all Actions against all Underwriters on a pro rata basis according to their Underwriting Percentages, the Manager (or other Underwriter engaging in such discussions) will notify all other Underwriters promptly and provide reasonable details about such discussions.

 

X. REPRESENTATIONS AND COVENANTS OF UNDERWRITERS

 

10.1.      Knowledge of Offering. You acknowledge that it is your responsibility to examine the Registration Statement, the Prospectus, or the Offering Circular, as the case may be, any amendment or supplement thereto relating to the Offering, any Preliminary Prospectus or Preliminary Offering Circular, and the material, if any, incorporated by reference therein, any Issuer Free Writing Prospectus, any Supplemental Materials, and any ABS Underwriter Derived Information, and you will familiarize yourself with the terms of the Securities, any applicable Indenture, and the other terms of the Offering thereof which are to be reflected in the Prospectus or the Offering Circular, as the case may be, and the applicable AAU and Underwriting Agreement. The Manager is authorized, with the advice of counsel for the Underwriters, to approve on your behalf any amendments or supplements to the documents described in the preceding sentence.

 

 

 

5  Permits new Manager to replace insolvent Manager and manage all aspects of this MAAU.

 

 

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10.2.     Accuracy of Underwriters’ Information. You confirm that the information that you have given and are deemed to have given in response to the Underwriters’ Questionnaire attached as Exhibit A hereto (and to any other questions addressed to you in the Invitation Wire or other Wires), which information has been furnished to the Issuer for use in the Registration Statement, Prospectus, or Offering Circular, as the case may be, or has otherwise been relied upon in connection with the Offering, is complete and accurate. You will notify the Manager immediately of any development before the termination of the applicable AAU which makes untrue or incomplete any information that you have given or are deemed to have given in response to the Underwriters’ Questionnaire (or such other questions).

 

10.3.     Name; Address. Unless you have promptly notified the Manager In Writing otherwise, your name as it should appear in the Registration Statement, Prospectus or Offering Circular and any advertisement, if different, and your address, are as set forth on the signature pages hereof.

 

10.4.     Compliance with Capital Requirements. You represent that your commitment to purchase the Securities will not result in a violation of the financial responsibility requirements of Rule 15c3-1 under the 1934 Act or of any similar provision of any applicable rules of any securities exchange to which you are subject or, if you are a financial institution subject to regulation by the Board of Governors of the U.S. Federal Reserve System, the U.S. Comptroller of the Currency, or the U.S. Federal Deposit Insurance Corporation, will not place you in violation of any applicable capital requirements or restrictions of such regulator or any other regulator to which you are subject.

 

10.5.     FINRA Requirements. (A) You represent that you are a member in good standing of FINRA, or a non-U.S. bank, broker, dealer, or institution not eligible for membership in FINRA or a Bank.

  

(i) If you are a member of FINRA, you will comply with all applicable rules of FINRA in respect of any Offering of Securities, including, without limitation, the requirements of FINRA Rules 5110, 5121, 5130, 5131 and 5141 (to the extent any or all such rules are applicable to the particular Offering).

 

(ii) If you are a non-U.S. bank, broker, dealer, or other non-U.S. institution not eligible for membership in FINRA, you represent that you are not required to be registered as a broker or dealer under the 1934 Act and you will not make any offers or sales of the Securities in, or to nationals or residents of, the United States, its territories, or its possessions, except to the extent permitted by Rule 15a-6 under the 1934 Act (or any successor rule thereto adopted by the SEC). In making any offers or sales of the Securities, to the extent that you are acting as a “conduit” for, or are receiving in connection with such offers and sales any selling commissions, discounts, allowances or other compensation from, or are otherwise being directed with respect to allocations or disposition of the Securities by, a FINRA member, you also agree to comply with the requirements of FINRA Rule 5130 and FINRA Rule 5141 as though you are a member of FINRA.

 

 

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(iii)        If you are a Bank, you agree that (a) to the extent you are acting, in respect of offers or sales of the Securities, as a “conduit” for, or are receiving in connection with such offers and sales any selling commissions, discounts, allowances or other compensation from, or are otherwise being directed with respect to allocations or disposition of the Securities by, a FINRA member, you will comply with FINRA Rules 5130 and 5141 as though you are a member of FINRA, and (b) you will not accept any portion of the management fee paid by the Underwriters with respect to any Offering or, in connection with any Offering of Securities that do not constitute “exempted securities” within the meaning of Section 3(a)(12) of the 1934 Act, or purchase any Securities at a discount from the offering price from any Underwriter or Dealer or otherwise accept any Fees and Commissions from any Underwriter or Dealer, which in any such case is not permitted under FINRA rules (including, without limitation, FINRA Rule 2040) or would subject you to registration and regulation as a “broker” or “dealer” under Section 3(a)(4) or 3(a)(5) of the 1934 Act.

  

(B) With respect to any Offering of Securities that constitutes a “new issue” under FINRA Rule 5131, you agree that, with respect to any Securities trading at a premium to the public offering price that are returned by a purchaser (the “Returned Securities”) to you after secondary market trading commences, you will promptly consult with the Manager or Co-Manager that has been appointed to manage the syndicate short position for that Offering (the “Designated Syndicate Agent”) to determine the appropriate treatment of the Returned Securities under FINRA Rule 5131(d)(3), and agree to (i) return the Returned Securities to the Designated Syndicate Agent if directed to do so by that entity, or (ii) if no such direction has been provided by the Designated Syndicate Agent, to comply with the provisions of FINRA Rule 5131(d)(3)(B) with respect to the disposition of the Returned Securities. 

 

10.6.      FATCA Certification. If you are a Foreign Financial Institution (“FFI”) as that term is defined pursuant to FATCA (as defined below) (including a U.S. branch of a non- U.S. bank), you represent that you are not, and have not been identified by the U.S. Internal Revenue Service (“IRS”) as, a nonparticipating FFI as that term is defined pursuant to FATCA. Unless otherwise agreed, promptly following your acceptance of an AAU for an Offering, but not later than such Offering’s Pricing Date, you will provide us such documents (including an IRS Form W-8BEN-E or an IRS Form W-8BEN if the instructions to the IRS Form W-8BEN-E have not been released) as may be necessary to confirm that no tax is required to be withheld under FATCA in respect of payments to you that we make or are deemed to make for U.S. federal income tax purposes. If we are required to make any deduction or withholding pursuant to or on account of FATCA in respect of payments to you that we make or are deemed to make for U.S. federal income tax purposes, and we do not so deduct or withhold and a liability resulting from such failure to withhold or deduct is assessed directly against us, then you will indemnify us therefor (without duplication of any applicable indemnification obligation, and without triggering any contribution obligation of any other Underwriter, with respect thereto under Article IX hereof) and promptly pay us the amount of such liability (including any related liability for interest and penalties). “FATCA” means sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986 (the “Code”), any current or future regulations or official interpretations thereof, any agreement entered into thereunder, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation thereof.

 

 

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10.7.     Further State Notice. The Manager will file a Further State Notice with the Department of State of New York, if required.

 

10.8.     Compliance with Rule 15c2-8. In the case of a Registered Offering and any other Offering to which the provisions of Rule 15c2-8 under the 1934 Act are made applicable pursuant to the AAU or otherwise, you will comply with such Rule in connection with the Offering. In the case of an Offering other than a Registered Offering, you will comply with applicable Federal and state laws and the applicable rules and regulations of any regulatory body promulgated thereunder governing the use and distribution of offering circulars by underwriters.

 

10.9.     Discretionary Accounts. In the case of a Registered Offering of Securities issued by an Issuer that was not, immediately prior to the filing of the Registration Statement, subject to the requirements of Section 13(a) or 15(d) of the 1934 Act, you will not make sales to any account over which you exercise discretionary authority in connection with such sale, except as otherwise permitted by the applicable AAU for such Offering.

 

10.10.   Offering Restrictions. You will not make any offers or sales of Securities or any Other Securities in jurisdictions outside the United States except under circumstances that will result in compliance with (i) applicable laws, including private placement requirements, in each such jurisdiction and (ii) the restrictions on offers or sales set forth in any AAU or the Prospectus, Preliminary Prospectus, Offering Circular, or Preliminary Offering Circular, as the case may be.

 

It is understood that, except as specified in the Prospectus or Offering Circular or applicable AAU, no action has been taken by the Manager, the Issuer, the Guarantor, or the Seller to permit you to offer Securities in any jurisdiction other than the United States, in the case of a Registered Offering, where action would be required for such purpose.

 

10.11.   Representations, Warranties, and Agreements. You will make to each other Underwriter participating in an Offering the same representations, warranties, and agreements, if any, made by the Underwriters to the Issuer, the Guarantor, or the Seller in the applicable Underwriting Agreement or any Intersyndicate Agreement, and you authorize the Manager to make such representations, warranties, and agreements to the Issuer, the Guarantor, or the Seller on your behalf.

 

10.12.   Limitation on the Authority of the Manager to Purchase and Sell Securities for the Account of Certain Underwriters. Notwithstanding any provision of this AAU authorizing the Manager to purchase or sell any Securities or Other Securities (including arranging for the sale of Contract Securities) or over-allot in arranging sales of Securities for the accounts of the several Underwriters, the Manager may not, in connection with the Offering of any Securities, make any such purchases, sales, and/or over-allotments for the account of any Underwriter that, not later than its acceptance of the Invitation Wire relating to such Offering, has advised the Manager that, due to its status as, or relationship to, a bank or bank holding company such purchases, sales, and/or over-allotments are prohibited by applicable law. If any Underwriter so advises the Manager, the Manager may allocate any such purchases, sales, and over-allotments (and the related expenses) which otherwise would have been allocated to your account based on your respective Underwriting Percentage to your account based on the ratio of your Original Underwriting Obligation to the Original Underwriting Obligations of all Underwriters other than the advising Underwriter or Underwriters, or in such other manner as the Manager will determine.

 

 

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10.13.     Agreement Regarding Oral Due Diligence. By participating in an Offering, each Underwriter agrees that it, each of its affiliates participating in an Offering as Underwriter or financial intermediary and each controlling person of it and each such participating affiliate are bound by the Agreement Regarding Oral Due Diligence currently in effect between UBS Securities LLC and the accounting firm or firms that participate in oral due diligence in such offering.

 

XI. DEFAULTING UNDERWRITERS

 

11.1.     Effect of Termination. If the Underwriting Agreement is terminated as permitted by the terms thereof, your obligations hereunder with respect to the Offering of the Securities will immediately terminate except: (a) as set forth in Section 9.8 hereof, (b) that you will remain liable for your Underwriting Percentage (or such other percentage as may be specified pursuant to Section 9.2 hereof) of all expenses, and for any purchases or sales which may have been made for your account pursuant to the provisions of Article V hereof or any Intersyndicate Agreement, and (c) that such termination will not affect any obligations of any defaulting or breaching Underwriter.

 

11.2.      Sharing of Liability. If any Underwriter defaults in its obligations: (a) pursuant to Section 5.1, 5.2 or 5.4 hereof, (b) to pay amounts charged to its account pursuant to Section 7.1, 7.2, or 8.1 hereof, or (c) pursuant to Section 9.2, 9.3, 9.4, 9.5, 9.6, or 11.1 hereof, you will assume your proportionate share (determined on the basis of the respective Underwriting Percentages of the non-defaulting Underwriters) of such obligations, but no such assumption will relieve any defaulting Underwriter from liability to the non- defaulting Underwriters, the Issuer, the Guarantor, or the Seller for its default.

 

11.3.      Arrangements for Purchases. The Manager is authorized to arrange for the purchase by others (including the Manager or any other Underwriter) of any Securities not purchased by any defaulting Underwriter in accordance with the terms of the applicable Underwriting Agreement or, if the applicable Underwriting Agreement does not provide arrangements for defaulting Underwriters, in the discretion of the Manager. If such arrangements are made, the respective amounts of Securities to be purchased by the remaining Underwriters and such other person or persons, if any, will be taken as the basis for all rights and obligations hereunder, but this will not relieve any defaulting Underwriter from liability for its default.

 

 

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XII. MISCELLANEOUS

 

12.1.     Obligations Several. Nothing contained in this Master AAU or any AAU constitutes you partners with the Manager or with the other Underwriters, and the obligations of you and each of the other Underwriters are several and not joint. Each Underwriter elects to be excluded from the application of Subchapter K, Chapter 1, Subtitle A, of the Code. Each Underwriter authorizes the Manager, on behalf of such Underwriter, to execute such evidence of such election as may be required by the IRS.

 

12.2.     Liability of Manager. The Manager will not be liable to you for any act or omission, except for obligations expressly assumed by the Manager in the applicable AAU.

 

12.3.     Termination of Master AAU. This Master AAU may be terminated by either party hereto upon five business days’ written notice to the other party; provided, however, that with respect to any Offering for which an AAU was sent prior to such notice, this Master AAU as it applies to such Offering will remain in full force and effect and will terminate with respect to such Offering in accordance with Section 9.1 hereof.

 

12.4.     Recognition of the U.S. Special Resolution Regimes.

 

(i)        In the event that any party that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such party of this Master AAU and each AAU, and any interest and obligation in or under this Master AAU and each AAU, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Master AAU and each AAU, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.

 

(ii)        In the event that any party that is a Covered Entity or a BHC Act Affiliate of such party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Master AAU or any AAU that may be exercised against such party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Master AAU and such AAU were governed by the laws of the United States or a state of the United States.

  

For purposes of this Section 12.4, a “BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k). “Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b). “Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable. “U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.

  

 

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12.5.     Governing Law; Waiver of Jury Trial. This Master AAU and each AAU will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State, without giving effect to principles of conflicts of law. You hereby irrevocably: (a) submit to the jurisdiction of any court of the State of New York located in the City of New York or the U.S. District Court for the Southern District of the State of New York for the purpose of any suit, action, or other proceeding arising out of this Master AAU, or any of the agreements or transactions contemplated hereby (each, a “Proceeding”), (b) agree that all claims in respect of any Proceeding may be heard and determined in any such court, (c) waive, to the fullest extent permitted by law, any immunity from jurisdiction of any such court or from any legal process therein, (d) agree not to commence any Proceeding other than in such courts, and (e) waive, to the fullest extent permitted by law, any claim that such Proceeding is brought in an inconvenient forum. Each party hereto irrevocably waives any right that it may have to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Master AAU and each AAU or the transactions contemplated thereby.

 

12.6.     Amendments. This Master AAU may be amended from time to time by consent of the parties hereto. Your consent will be deemed to have been given to an amendment to this Master AAU, and such amendment will be effective, five business days following written notice to you of such amendment if you do not notify us In Writing prior to the close of business on such fifth business day that you do not consent to such amendment. Upon effectiveness, the provisions of this Master AAU as so amended will apply to each AAU thereafter entered into, except as otherwise specifically provided in any such AAU.

 

12.7.     Notices. Any notice to any Underwriter will be deemed to have been duly given if mailed, sent by wire, telecopy or electronic transmission or other written communication, or delivered in person to such Underwriter at the address set forth in its Underwriters’ Questionnaire, or if no address is provided in an Underwriters’ Questionnaire, then at the address set forth in reports filed by such Underwriter with FINRA. Any such notice will take effect upon receipt thereof.

 

12.8.     Severability. In case any provision in this Master AAU is deemed invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions will not in any way be affected or impaired thereby.

 

12.9.     Counterparts; Electronic Signatures. This Master AAU may be executed in any number of counterparts, each of which will be deemed to be an original, and all of which taken together constitute one and the same instrument. Electronic signatures complying with the New York Electronic Signatures and Records Act (N.Y. State Tech. §§ 301-309), as amended from time to time, or other applicable law will be deemed original signatures for purposes of this Master AAU. Transmission by telecopy, electronic mail or other transmission method of an executed counterpart of this Master AAU will constitute due and sufficient delivery of such counterpart.

 

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Please confirm your acceptance of this Master AAU by signing and returning to us the enclosed duplicate copy hereof.

  

 

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  UBS SECURITIES LLC
         
  By:    
    Name:  
    Title:  
      (Authorized Officer)
         
  By:    
    Name:    
    Title:    
      (Authorized Officer)  

  

Confirmed and accepted  
as of                   ,        20  
   
   
(Legal Name of Underwriter)  
   
   
(Address)  

 

 

By:    
Name:    
Title:    
(Authorized Officer)  

 

(If person signing is not an officer or a partner, please attach instrument of authorization)

  

 

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GUIDE TO DEFINED TERMS

 

Term   Section Reference
1933 Act 1.1
1934 Act 3.5
AAU Foreword
ABS Underwriter Derived Information 2.1
Action 9.3
Additional Securities 1.1
Bank 3.5
Code 10.6
Co-Managers 1.1
Commission 2.1
Contract Securities 3.1
Contributing Underwriters 9.5
Dealer 3.5
Designated Syndicate Agent 10.5
DTC 5.2
FATCA 10.6
Fees and Commissions 1.1
FFI 10.6
FINRA 3.1
Firm Securities 1.1
Free Writing Prospectus 2.1
Guarantor 1.1
In Writing 1.2
Indemnified Party 9.4
Indenture 1.1
International Offering 1.1
Intersyndicate Agreement 2.3
Invitation Wire Foreword
IRS 10.6
Issuer 1.1
Issuer Free Writing Prospectus 3.3
Issuer Information 3.3
Judgment Credit 9.7
Litigation 9.4
Losses 9.4
Manager 1.1
Manager-Approved Communication 3.3
Master AAU Foreword
Offering Foreword
Offering Circular 2.2
Offering Date 3.2

 

 

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Offering Price 1.1
Original Underwriting Obligation 1.1
Preliminary Offering Circular 2.2
Preliminary Prospectus 2.1
Pricing Date 1.1
Proceeding 12.4
Prospectus 2.1
Purchase Price 1.1
QIU 9.4
Reallowance 1.1
Registered Offering 2.1
Registration Statement 2.1
Regulation M 5.1
Representative 1.1
Returned Securities 10.5
Securities 1.1
Securities Offering Reform Release 2.1
Seller 1.1
Selling Concession 1.1
Settlement Date 1.1
Supplemental Materials 3.3
Syndicate Counsel 9.6
Trustee 1.1
Underwriter Free Writing Prospectus 3.3
Underwriters 1.1
Underwriters’ Securities 3.1
Underwriting Agreement 1.1
Underwriting Percentage 1.1
Wire Foreword
Written Research Report 9.4
Written Testing-the-Waters Communication 3.3

 

 

 

EXHIBIT A

 

UNDERWRITERS’ QUESTIONNAIRE

 

In connection with each Offering governed by the UBS Securities LLC Master Agreement Among Underwriters dated December 2, 2020, except as otherwise indicated in a timely acceptance of the Invitation Wire pursuant to Section 1.2 of the Master Agreement Among Underwriters (“Master AAU”) or already expressly disclosed in the Preliminary Prospectus or Preliminary Offering Circular, as the case may be, each Underwriter participating in such Offering severally advises the Issuer and the other participating Underwriters (all capitalized terms used herein and not otherwise defined herein will have the meanings given to them in the Master AAU) as follows:

 

(a)        neither such Underwriter nor any of its directors, officers, or partners have a material relationship, as “material” is defined in Regulation C under the 1933 Act, with the Issuer, the Guarantor, or the Seller;

 

(b)        if the Registration Statement is on Form S-1, neither such Underwriter nor any “group” (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) of which such Underwriter is aware is the beneficial (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) owner of more than 5% of any class of voting securities of the Issuer or Guarantor, nor does such Underwriter have any knowledge that more than 5% of any class of voting securities of the Issuer or the Guarantor is held or to be held subject to any voting trust or other similar agreement, nor does such Underwriter have any knowledge that more than 5% of any class of voting securities of the Issuer or the Guarantor is held or to be held subject to any voting trust or other similar agreement;

 

(c)        other than as may be stated in the UBS Securities LLC Master Agreement Among Underwriters dated December 4, 2019, the applicable AAU, the Intersyndicate Agreement or dealer agreement, if any, the Prospectus, the Registration Statement, or the Offering Circular, such Underwriter does not know and has no reason to believe that there is an intention to over-allot or that the price of any security may be stabilized to facilitate the offering of the Securities;

 

(d)        other than as stated in the Invitation Wire, such Underwriter does not know of (i) any other discounts or commissions to be allowed or paid to the Underwriters or of any other items that would be deemed by the Financial Industry Regulatory Authority, Inc. (“FINRA”) to constitute underwriting compensation for purposes of FINRA Rule 5110, or (i) any discounts or commissions to be allowed or paid to dealers, including all cash, securities, contracts, or other consideration to be received by any dealer in connection with the sale of the Securities;

 

(e)        such Underwriter has not prepared any report or memorandum for external use in connection with the Offering;

 

 

2 

 

(f)        if the offer and sale of the Securities are to be registered under the 1933 Act pursuant to a Registration Statement on Form S-1 or Form F-1, such Underwriter has not within the past 12 months prepared or had prepared for such Underwriter any engineering, management, or similar report or memorandum relating to broad aspects of the business, operations, or products of the Issuer or the Guarantor. The immediately preceding sentence does not apply to reports solely comprised of recommendations to buy, sell, or hold the Issuer’s or the Guarantor’s securities, unless such recommendations have changed within the past six months, or to information already contained in documents filed with the Commission;

 

(g)        in the case of Registered Offerings and Offerings of Securities exempt under Section 3 of the 1933 Act, such Underwriter does not have a “conflict of interest” with the Issuer or the Guarantor under FINRA Rule 5121. In that regard, such Underwriter specifically confirms that, at the time of such Underwriter's participation in the subject Offering, (A) such Underwriter is not issuing the Securities in such Offering; (B) neither the Issuer nor the Guarantor controls, is controlled by or is under common control (as the term “control” is defined in FINRA Rule 5121(f)(6)) with such Underwriter or such Underwriter's “associated persons” (as such term is defined by FINRA); (C) less than five percent of the net proceeds of the Offering, not including Fees and Commissions, are intended to be: (i) used to reduce or retire the balance of a loan or credit facility extended by such Underwriter, its “affiliates” and its “associated persons” (as such terms are defined by FINRA), in the aggregate; or (ii) otherwise directed to such Underwriter, its affiliates and associated persons, in the aggregate, and (D) as a result of such Offering and any transactions contemplated at the time of such Offering: (i) such Underwriter will not become an affiliate of the Issuer or Guarantor; (ii) such Underwriter will not become publicly owned; and (iii) the Issuer or Guarantor will not become a FINRA member or form a broker-dealer subsidiary. Furthermore, such Underwriter specifically confirms that such Underwriter does not, (a) beneficially own 10% or more of the Issuer's or Guarantor's outstanding “common equity”, “preferred equity” or “subordinated debt” (as each such term is defined in FINRA Rule 5121), including the right to receive such securities or subordinated debt within 60 days of such Underwriter's participation in the Offering; (b) in the case of an Issuer or Guarantor which is a partnership, beneficially own a general, limited or special partnership interest in 10% or more of the Issuer's or Guarantor's distributable profits or losses, or a right to receive an interest in such distributable profits or losses within 60 days of such Underwriter's participation in the Offering; or (c) have the power to direct or cause the direction of the management or policies of the Issuer or the Guarantor;

 

(h)        other than as stated in the Invitation Wire, in the case of Registered Offerings and Offerings of Securities exempt under Section 3 of the 1933 Act, neither such Underwriter nor any of its directors, officers, partners, or “persons associated with” such Underwriter (as defined by FINRA) nor, to such Underwriter’s knowledge, any “related person” (defined by FINRA to include counsel, financial consultants and advisors, finders, members of the selling or distribution group, any FINRA member participating in the offering, and any other persons associated with or related to and members of the immediate family of any of the foregoing) or any other broker-dealer: (A) within the last six months have purchased in private transactions, or intend before, at, or within six months after the commencement of the public offering of the Securities to purchase in private transactions, any securities of the Issuer, the Guarantor, or any Issuer Related Party (as hereinafter defined), (B) within the last 6 months have had any dealings with the Issuer, the Guarantor, any Seller, or any subsidiary or controlling person thereof (other than relating to the proposed Underwriting Agreement) as to which documents or information are required to be filed with FINRA, or (C) during the 6 months immediately preceding the filing of the Registration Statement (or, if there is none, the Offering Circular), have entered into any arrangement which provided or provides for the receipt of any item of value (including, but not limited to, cash payments, expense reimbursements and rights of first refusal to participate in a future public offering, private placement or other financing transaction) and/or the transfer of any warrants, options, or other securities from the Issuer, the Guarantor, or any Issuer Related Party to you or any related person;

 

 

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(i)        in the case of Registered Offerings and Offerings of Securities exempt under Section 3 of the 1933 Act, there is no association or affiliation between such Underwriter and; (A) any officer or director of the Issuer, the Guarantor or, any Issuer Related Party, or (B) any securityholder of 5% or more (or, in the case of an initial public offering of equity securities, any securityholder) of any class of securities of the Issuer, the Guarantor, or an Issuer Related Party; it being understood that for purposes of paragraph (i) above and this paragraph (j), the term “Issuer Related Party” includes any Seller, any affiliate of the Issuer, the Guarantor, or a Seller, and the officers or general partners, directors, employees, and securityholders thereof;

  

(j)        in the case of Registered Offerings and Offerings of Securities exempt under Section 3 of the 1933 Act, and if the Securities are not issued by a real estate investment trust, no portion of the net offering proceeds from the sale of the Securities will be paid to such Underwriter or any of its affiliates or “persons associated with” such Underwriter (as defined by FINRA) or members of the immediate family of any such person; and

  

(k)        in the case of Securities which are debt securities whose offer and sale is to be registered under the 1933 Act, such Underwriter is not an affiliate (as defined in Rule 0-2 under the Trust Indenture Act of 1939) of the Trustee for the Securities or of its parent, if any. Neither the Trustee nor its parent, if any, nor any of their directors or executive officers is a “director, officer, partner, employee, appointee, or representative” of such Underwriter (as those terms are defined in the Trust Indenture Act of 1939 or in the relevant instructions to Form T-1). Such Underwriter and its directors, partners, and executive officers, taken as a group, did not on the date specified in the Invitation, and do not, own beneficially 1% or more of the shares of any class of voting securities of the Trustee or of its parent, if any. If such Underwriter is a corporation, it does not have outstanding and has not assumed or guaranteed any securities issued otherwise than in its present corporate name.

  

 

4 

 

If an Underwriter notes an exception with respect to material of the type referred to in clauses (e) and (f), such underwriter will send three copies of each item of such material, together with a statement as to distribution, identifying classes of recipients and the number of copies distributed to each such class, and, if relevant, the number of equity securities or the face value of debt securities owned by such person, the date such securities were acquired, and the price paid for such securities to UBS Securities LLC, 1285 Avenue of the Americas, New York, New York 10019, Attention: Syndicate Department.

 

 

UBS SECURITIES LLC

 

MASTER SELECTED DEALERS AGREEMENT

 

REGISTERED SEC OFFERINGS

 

AND

 

EXEMPT OFFERINGS

 

(OTHER THAN OFFERINGS OF MUNICIPAL
SECURITIES)

 

December 4, 2019

 

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This Master Selected Dealers Agreement (this “Master SDA”), dated as of December 4, 2019, is by and between UBS Securities LLC (including its successors and assigns) (“we,” “our,” “us” or the “Manager”) and the party named on the signature page hereof (a “Dealer,” “you” or “your”). From time to time, in connection with an offering and sale (an “Offering”) of securities (the “Securities”), managed solely by us or with one or more other managers or co-managers, we or one or more of our affiliates may offer you (and others) the opportunity to purchase as principal a portion of such securities on the terms set forth herein as a Selected Dealer (as defined below).

 

References herein to laws, statutory and regulatory sections, rules, regulations, forms and interpretive materials are deemed to include successor provisions. The following provisions of this Master SDA shall apply separately to each individual Offering of Securities. You and we further agree as follows:

 

1.    Applicability of this Master SDA. The terms and conditions of this Master SDA will be applicable to any Offering in which you accept an offer to participate as a Selected Dealer (including through the receipt by you of Securities), whether pursuant to a registration statement filed under the Securities Act of 1933, as amended (the “1933 Act”), or exempt from registration thereunder, in respect of which we (acting for our own account or for the account of any underwriting or similar group or syndicate) are responsible for managing or otherwise implementing the sale of Securities to Selected Dealers. A Dealer is a person who meets the requirements of Section 11 hereof. The parties who agree to participate (including by the receipt by such parties of Securities) or are designated a selling concession to Dealers (the “Selling Concession”), and reallowance, if any (the “Reallowance”), in such Offering as selected Dealers are hereinafter referred to as “Selected Dealers”. In the case of any Offering where we are acting for the account of the several underwriters, initial purchasers or others acting in a similar capacity (the “Underwriters”), the terms and conditions of this Master SDA will be for the benefit of such Underwriters, including, in the case of any Offering where we are acting with others as representatives of Underwriters, such other representatives.

 

2.    Terms of the Offering. We may advise you orally or by one or more wires, telexes, telecopy or electronic data transmissions, or other written communications (each, a “Wire”) of the particular method and supplementary terms and conditions of any Offering (including the price or prices at which the Securities initially will be offered by the several Underwriters, or if the price is to be determined by a formula based on market price, the terms of the formula, (the “Offering Price”) and any Selling Concession or, if applicable, Reallowance) in which you are invited to participate. Any such Wire may also amend or modify such provisions of this Master SDA in respect of the Offering to which such Wire relates, and may contain such supplementary provisions as may be specified in any Wire relating to an Offering. To the extent such supplementary terms and conditions are inconsistent with any provision herein, such supplementary terms and conditions shall supersede any provision of this Master SDA. Unless otherwise indicated in any such Wire, acceptances and other communications by you with respect to an Offering should be sent pursuant to the terms of Section 20 hereof. Notwithstanding that we may not have sent you a Wire or other form of invitation to participate in such Offering or that you may not otherwise have responded by wire or other written communication (any such communication being deemed “In Writing”) to any such Wire or other form of invitation, you will be deemed to have accepted the terms of our offer to participate as a Selected Dealer and of this Master SDA (as amended, modified or supplemented by any Wire) by your purchase of Securities or otherwise receiving and retaining an economic benefit for participating in the Offering as a Selected Dealer. We reserve the right to reject any acceptance in whole or in part.

 

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Any Offering will be subject to delivery of the Securities and their acceptance by us and any other Underwriters may be subject to the approval of all legal matters by counsel and may be subject to the satisfaction of other conditions. Any application for additional Securities will be subject to rejection in whole or in part.

 

3.    Offering Documents. Upon your request, we will furnish, make available to you or make arrangements for you to obtain copies (which may, to the extent permitted by law, be in electronic form) of each prospectus, prospectus supplement, offering memorandum, offering circular or similar offering document, and any preliminary version thereof, as soon as reasonably practicable after sufficient quantities thereof have been made available by the issuer of the Securities (each, an “Issuer”) and any guarantor (each, a “Guarantor”) thereof, and, if different from the Issuer, the seller or sellers (each, a “Seller”) of the Securities. You agree that you will comply with the applicable United States federal and state laws, and the applicable rules and regulations of any regulatory body promulgated thereunder, and the applicable laws, rules and regulations of any non-United States jurisdiction, governing the use and distribution of offering materials by brokers and dealers. You represent and warrant that you are familiar with Rule l5c2-8 under the Securities Exchange Act of 1934, as amended (the “1934 Act”), relating to the distribution of preliminary and final prospectuses and agree that your purchase of Securities shall constitute your confirmation that you have delivered and will deliver all preliminary prospectuses and final prospectuses required for compliance therewith. You agree to make a record of your distribution of each preliminary prospectus and, when furnished with copies of any revised preliminary prospectus or final prospectus, you will, upon our request, promptly forward copies thereof to each person to whom you have theretofore distributed a preliminary prospectus. You agree that, in purchasing Securities, you will rely upon no statement whatsoever, written or oral, other than the statements in the final prospectus, offering memorandum, offering circular or similar offering document delivered to you by us. You are not authorized by the Issuer or other Seller of Securities offered pursuant to a final prospectus, offering memorandum, offering circular or similar offering document or by any Underwriters to give any information or to make any representation not contained therein in connection with the sale of such Securities.

 

4. Offering of Securities.

 

(a)      In respect of any Offering, we will inform you of any Selling Concession and Reallowance, if any. The Offering of Securities is made subject to the conditions referred to in the prospectus, offering memorandum, or offering circular or similar offering document related to the Offering and to the terms and conditions set forth in any Wire. After the initial Offering has commenced, we may change the Offering Price, the Selling Concession and the Reallowance (if any) to Selected Dealers. If a Reallowance is in effect, a reallowance from the Offering Price not in excess of such Reallowance may be allowed (i) in the case of Offerings of Securities that are not exempted securities (as defined in Section 3(a)(12) of the 1934 Act), as consideration for services rendered in distribution to Dealers who are either members in good standing of the Financial Industry Regulatory Authority, Inc. (“FINRA”) who agree to abide by the applicable rules of FINRA or non-U.S. banks, brokers, dealers or other non-U.S. institutions not eligible for membership in FINRA who represent to you that they will promptly reoffer such Securities at the Offering Price and will abide by the conditions with respect to non-U.S. banks, dealers and other non-U.S. institutions set forth in Section 11 hereof, or (ii) in the case of Offerings of Securities that are exempted securities (as defined in Section 3(a)(12) of the 1934 Act), as consideration for services rendered in distribution not only to Dealers identified in the immediately preceding clause but also to Dealers that are Banks (as defined in Section 11 hereof) and represent to you that they will promptly reoffer such Securities at the Offering Price and will abide by the conditions with respect to Banks set forth in Section 11 hereof.

 

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(b)   No expenses will be charged to Selected Dealers. A single transfer tax upon the sale of the Securities by the respective Underwriters to you will be paid by such Underwriters when such Securities are delivered to you. However, you shall pay any transfer tax on sales of Securities by you and you shall pay your proportionate share of any transfer tax or other tax (other than the single transfer tax described above) in the event that any such tax shall from time to time be assessed against you and other Selected Dealers as a group or otherwise.

 

5.    Payment and Delivery. You will deliver to us, on the date and at the place and time specified by us orally or In Writing, payment in the manner and type of currency specified by us orally or In Writing, payable to the order of UBS Securities LLC (or as we may subsequently inform you), for an amount equal to the Offering Price plus (if not included in the Offering Price) accrued interest, amortization of original issue discount or dividends, if any, specified in the prospectus or offering circular or other similar offering document furnished in connection with the Offering of the Securities. We may, in our sole discretion, retain the applicable Selling Concession in respect of the Securities to be purchased by you for release at a date specified by us. We will make payment to the Issuer or Seller against delivery to us for your account of the Securities to be purchased by you, and we will deliver to you the Securities paid for by you which will have been retained by or released to you for direct sale. If we determine that transactions in the Securities are to be settled through The Depository Trust Company (“DTC”) or another clearinghouse facility and payment in the settlement currency is supported by such facility, payment for and delivery of Securities purchased by you will be made through such facility, if you are a participant, or, if you are not a participant, settlement will be made through your ordinary correspondent who is a participant.

 

6.    Over-allotment; Stabilization; Unsold Allotments; Penalty Bids. We may, with respect to any Offering, be authorized to over-allot in arranging sales to Selected Dealers, to purchase and sell Securities for long or short account and to stabilize or maintain the market price of the Securities. You agree that upon our request at any time and from time to time prior to the termination of the provisions of Section 4 hereof with respect to any Offering, you will report to us the amount of Securities purchased by you pursuant to such Offering which then remain unsold by you and will, upon our request at any such time, sell to us for our account or the account of one or more Underwriters such amount of such unsold Securities as we may designate at the Offering Price less an amount to be determined by us not in excess of the Selling Concession. Prior to the termination of the Manager’s authority to cover any short position in connection with the Offering or such other date as the Manager may specify by Wire, if the Manager determines pursuant to the “Initial Public Offering Tracking System” of DTC that the Manager has purchased, or any of your customers have sold, a number or amount of Securities retained by, or released to, you for direct sale or any Securities sold pursuant to Section 4 hereof for which you received a portion of the Selling Concession, or any Securities which may have been issued on transfer or in exchange for such Securities, which Securities were therefore not effectively placed for investment, then you authorize the Manager to charge your account with an amount equal to such portion of the Selling Concession received by you with respect to such Securities at a price equal to the total cost of such purchase, including transfer taxes, accrued interest, dividends, and commissions, if any.

 

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7. Termination.

 

(a)    The terms and conditions set forth in (i) Section 4, (ii) the second sentence of Section 6, (iii) Section 16 and (iv) Section 17 of this Master SDA (collectively, the “offering provisions”) will terminate with respect to each Offering pursuant to this Master SDA at the close of business on the later of (a) the date on which the Underwriters pay the Issuer or Seller for the Securities, and (b) 45 calendar days after the applicable Offering date, unless in either such case the effectiveness of such offering provisions is extended or sooner terminated as hereinafter provided. We may terminate such offering provisions other than Section 6 at any time by notice to you to the effect that the offering provisions are terminated and we may terminate the provisions of Section 6 at any time at or subsequent to the termination of the other offering provisions by notice to you to the effect that the penalty bid provisions are terminated. All other provisions of the Master SDA shall remain operative and in full force and effect with respect to such Offering.

 

(b)    This Master SDA may be terminated by either party hereto upon five business days’ written notice to the other party; provided, however, that with respect to any particular Offering, if we receive any such notice from you after we have advised you of the amount of Securities allotted to you, this Master SDA shall remain in full force and effect as to such Offering and shall terminate with respect to such Offering and all previous Offerings only in accordance with and to the extent provided in subsection (a) of this Section 7.

 

8.    Recognition of the U.S. Special Resolution Regimes. Notwithstanding anything to the contrary in this Master SDA:

 

(a)    In the event that any party that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such party of this Master SDA, and any interest and obligation in or under this Master SDA, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Master SDA, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.

 

(b)    In the event that any party that is a Covered Entity or a BHC Act Affiliate of such party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Master SDA that may be exercised against such party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Master SDA were governed by the laws of the United States or a state of the United States.

 

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For purposes of this Section 8, a “BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k). “Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b). “Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable. “U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.

 

9.    Amendments. This Master SDA may be amended from time to time by consent of the parties hereto. Your consent will be deemed to have been given to an amendment to this Master SDA, and such amendment will be effective, five business days following written notice to you of such amendment if you do not notify us In Writing prior to the close of business on such fifth business day that you do not consent to such amendment. Notwithstanding the foregoing, you agree that any amendment, supplement or modification of the terms of this Master SDA by Wire or otherwise In Writing will be effective immediately and your consent will be deemed to have been given to any such amendment, supplement or modification by your purchase of Securities or otherwise receiving and retaining an economic benefit for participating in the Offering as a Selected Dealer; provided that such amendment, supplement or modification of the terms of this Master SDA shall only be effective with respect to the related Offering.

 

10.   Relationship Among Underwriters and Selected Dealers. We shall have full authority to take such actions as we deem advisable in all matters pertaining to any Offering under this Master SDA. You are not authorized to act as an agent for us, any Underwriter or the Issuer or other Seller of any Securities in offering Securities to the public or otherwise. Neither we nor any Underwriter will be under any obligation to you except for obligations assumed hereby or in any Wire from us in connection with any Offering, and no obligations on our part as the Manager will be implied hereby or inferred herefrom. Nothing contained in this Master SDA or any Wire shall constitute the Selected Dealers an association or partners with us or any Underwriter or with one another, and the obligations of you and each of the other Selected Dealers or any of the Underwriters are several and not joint. If the Selected Dealers, among themselves, with us or with the Underwriters, should be deemed to constitute a partnership for federal income tax purposes, then you elect to be excluded from the application of Subchapter K, Chapter 1, Subtitle A of the Internal Revenue Code of 1986 and agree not to take any position inconsistent with such election. You authorize the Manager, in its discretion, to execute on your behalf such evidence of such election as may be required by the U.S. Internal Revenue Service. In connection with any Offering, you will be liable for your proportionate share of the amount of any tax, claim, demand or liability that may be asserted against you alone or against one or more Selected Dealers participating in such Offering, or against us or the Underwriters, based upon the claim that the Selected Dealers, or any of them, constitute an association, an unincorporated business or other entity, including, in each case, your proportionate share of the amount of any expense (including attorneys' fees and expenses) incurred in defending against any such tax, claim, demand or liability.

 

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11.   FINRA Compliance. You represent and warrant that you are (a) a broker or dealer (as defined in Section 3(a)(4) or 3(a)(5) of the 1934 Act) that is a member in good standing of FINRA, (b) a non-U.S. bank, broker, dealer or other non-U.S. institution that is not eligible for membership in FINRA and is not required to be registered as a broker or dealer under the 1934 Act (a “non-member non-U.S. dealer”), or (c) only in the case of Offerings of Securities that are exempted securities (as defined in Section 3(a)(12) of the 1934 Act), and such other Securities as from time to time may be sold by a “bank” (as defined in Section 3(a)(6) of the 1934 Act (a “Bank”)), that you are a Bank that is acting in connection with the Offering in accordance with an applicable exception or exemption from the definitions of broker and dealer under Sections 3(a)(4) and 3(a)(5) of the 1934 Act.

 

You further represent, warrant and agree that, in connection with any purchase or sale of the Securities wherein a selling concession, discount or other allowance is received or granted by or to you:

 

(i)      if you are a member of FINRA, you will comply with all applicable rules of FINRA, including, without limitation, the requirements of FINRA Rules 5110, 5121, 5130, 5131 and 5141 (to the extent any or all such rules are applicable to the particular Offering);

 

(ii)      if you are a non-member non-U.S. dealer, (x) you will not make any offers or sales of the Securities in, or to nationals or residents of, the United States, its territories, or its possessions, except to the extent permitted by Rule 15a-6 under the 1934 Act (or any successor rule thereto adopted by the U.S. Securities and Exchange Commission (the “SEC”)), (y) in making any offers or sales of the Securities, to the extent that you are acting as a “conduit” for, or are receiving in connection with such offers and sales any selling commissions, discounts, allowances or other compensation from, or are otherwise being directed with respect to allocations or disposition of the Securities by, a FINRA member, you will comply with the requirements of FINRA Rule 5130 and FINRA Rule 5141 as though you are a member of FINRA, and (z) you are, and will remain at all relevant times, an appropriately registered or licensed broker or dealer (to the extent required) in your home jurisdiction and in any non-U.S. jurisdiction in which you engage in activities in connection with an Offering;

 

(iii)     if you are a Bank, (x) to the extent you are acting, in respect of offers or sales of the Securities, as a “conduit” for, or are receiving in connection with such offers and sales any selling commissions, discounts, allowances or other compensation from, or are otherwise being directed with respect to allocations or disposition of the Securities by, a FINRA member, you will comply with FINRA Rules 5130 and 5141 as though you are a member of FINRA, and (y) you will not accept any fee or other compensation, or purchase any Securities at a discount from the offering price from any Underwriter or Dealer, which would not be permitted under applicable FINRA rules (including, without limitation, FINRA Rule 2040) or would subject you to registration and regulation as a “broker” or “dealer” under Section 3(a)(4) or 3(a)(5) of the 1934 Act;

 

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(iv)    in respect of each Offering in which you participate (as indicated by your participation therein), you have provided to us all documents and other information required to be filed with respect to you, any related person or any person associated with you or any such related person pursuant to FINRA’s requirements and related interpretations with respect to review of corporate financing transactions as such requirements and interpretations relate to such Offering; and

 

(v)      you are fully familiar with the 1933 Act, 1934 Act and FINRA provisions referenced in this Section 11 and elsewhere in this Master SDA.

 

12.   Blue Sky Matters. Upon application to us, we shall inform you as to any advice we have received from counsel concerning the jurisdictions in which Securities have been qualified for sale or are exempt under the securities or “Blue Sky” laws of such jurisdictions, but we do not assume any obligation or responsibility as to your right to sell Securities in any such jurisdiction, notwithstanding any information we may furnish to you in that connection.

 

13.   Governing Law; Submission to Jurisdiction. This Master SDA (as it may be modified or supplemented by any Wire) will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State. You hereby irrevocably: (a) submit to the jurisdiction of any court of the State of New York located in the City of New York or the U.S. District Court for the Southern District of the State of New York for the purpose of any suit, action, or other proceeding arising out of this Master SDA, or any of the agreements or transactions contemplated hereby (each, a “Proceeding”), (b) agree that all claims in respect of any Proceeding may be heard and determined in any such court, (c) waive, to the fullest extent permitted by law, any immunity from jurisdiction of any such court or from any legal process therein, (d) agree not to commence any Proceeding other than in such courts, and (e) waive, to the fullest extent permitted by law, any claim that such Proceeding is brought in an inconvenient forum.

 

14.   Successors and Assigns. This Master SDA will be binding on, and inure to the benefit of, the parties hereto and other persons specified in Section 1 hereof, and the respective successors and assigns of each of them; provided, however, that you may not assign your rights or delegate any of your duties under this Master SDA without our prior written consent.

 

15.   Compliance with Law. You agree that in selling Securities pursuant to any Offering (which agreement shall also be for the benefit of the Issuer or other Seller of such Securities) you will comply with all applicable rules and regulations, including the applicable provisions of the 1933 Act and the 1934 Act, the applicable rules and regulations of the SEC thereunder, the applicable rules and regulations of FINRA, the applicable rules and regulations of any securities exchange or other regulatory or self-regulatory organization having jurisdiction over the Offering and the applicable laws, rules and regulations specified in Section 17 hereof.

 

16.   Discretionary Accounts. In the case of an Offering of Securities registered under the 1933 Act by an Issuer that was not, immediately prior to the filing of the related registration statement, subject to the requirements of Section 13(a) or 15(d) of the 1934 Act, you will not make sales to any account over which you exercise discretionary authority in connection with such sale, except as otherwise permitted by us for such Offering In Writing.

 

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17.   Offering Restrictions. You will not make any offers or sales of Securities or any other securities in jurisdictions outside the United States except under circumstances that will result in compliance with (a) applicable laws, including private placement requirements, in each such jurisdiction and (b) the restrictions on offers or sales set forth in this Master SDA, any Wire or the prospectus, preliminary prospectus, offering memorandum, offering circular, or preliminary offering memorandum or preliminary offering circular or other similar offering document, as the case may be. It is understood that, except as specified in this Master SDA, the prospectus, offering memorandum or offering circular or other similar offering document, or applicable Wire, no action has been taken by us, the Issuer, the Guarantor, the Seller or any other party to permit you to offer Securities in any jurisdiction other than the United States, in the case of a Registered Offering, where action would be required for such purpose.

 

18.   Prohibition on Money Laundering. The operations of your business and your subsidiaries are and, to your knowledge, have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving you or any of your subsidiaries with respect to the Money Laundering Laws is pending or, to your knowledge, threatened.

 

19.   Liability of Manager. The Manager will not be liable to you for any act or omission, except for obligations expressly assumed by the Manager In Writing.

 

20.   Notices. Any notice to you will be deemed to have been duly given if mailed, sent by Wire, or delivered in person to you at the address set forth on the signature page hereto (or to such other address, telephone, telecopy or telex as you will be notified by us), or if such address is no longer valid, then at the address set forth in reports filed by you with FINRA. Any such notice will take effect upon receipt thereof. Communications by Wire will be deemed to be “written” communications and made In Writing.

 

21.   Severability. In case any provision in this Master SDA or any Wire is deemed invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions will not in any way be affected or impaired thereby.

 

22.   Counterparts. This Master SDA may be executed in any number of counterparts, each of which will be deemed to be an original, and all of which taken together constitute one and the same instrument. Transmission by telecopy of an executed counterpart of this Master SDA will constitute due and sufficient delivery of such counterpart.

 

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Please confirm by signing and returning to us the enclosed copy of this Master SDA that your subscription to, or your acceptance of any reservation of, any Securities pursuant to an Offering shall constitute (a) acceptance of and agreement to the terms and conditions of this Master SDA (as supplemented and amended pursuant to Section 9 hereof) together with and subject to any supplementary terms and conditions contained in any Wire from us in connection with such Offering, all of which shall constitute a binding agreement between you and us individually or as representative of any Underwriters, (b) confirmation that your representations and warranties set forth herein are true and correct at that time, (c) confirmation that your agreements herein have been and will be fully performed by you to the extent and at the times required thereby and (d) in the case of any Offering described in Section 3 hereof, acknowledgment that you have requested and received from us sufficient copies of the final prospectus, offering memorandum or offering circular, as the case may be, with respect to such Offering in order to comply with your undertakings in Section 17 hereof.

 

(Remainder of page intentionally left blank)

 

(Signature page follows)

 

 

This Master SDA is dated as of December 4, 2019 and executed by and between UBS Securities LLC and _______________.

  

  Very truly yours,
   
  UBS SECURITIES LLC
       
  By:    
       
  Name:  
       
  Title:  
       
  By:    
       
  Name:  
       
  Title:  

 

Confirmed as of (date):  
   
CONFIRMED:__________, 20_____

  

By:  
     
Name:  
     
Title:  
     
Address:  
     
Telephone:  
     
Facsimile:  
     
Email:  

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Master Selected Dealers Agreement

 

GUIDE TO DEFINED TERMS

 

Term   Section Reference
1933 Act 1
1934 Act 3
Bank 11
Dealer Foreword
DTC 5
FINRA 4(a)
Guarantor 3
In Writing 2
Issuer 3
Manager Foreword
Master SDA Foreword
Money Laundering Laws 18
non-member non-U.S. dealer 11
Offering Foreword
Offering Price 2
offering provisions 7(a)
Proceeding 13
Reallowance 1
SEC 6
Securities 1
Selected Dealers 1
Seller 3
Selling Concession 1
Underwriters 1
Wire 2

CLOSED-END FUND DISTRIBUTION SERVICES AGREEMENT

 

THIS CLOSED-END FUND DISTRIBUTION SERVICES AGREEMENT (this “Agreement”) is made, as of January 11, 2021 (the “Effective Date”), by and between Vision 4 Fund Distributors, LLC (“Vision”) and RiverNorth Capital Management, LLC (the “Adviser”), relating to certain services to be provided by Vision to the Adviser with respect to a proposed closed-end investment company, currently named RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”).

 

WHEREAS, the Adviser is the investment adviser to the Fund;

 

WHEREAS, the Fund will be operated as a closed-end management investment company registered under the Investment Company Act of 1940 (the “1940 Act”);

 

WHEREAS, the Fund will offer for sale common shares of beneficial interest (the “Shares” and the holders of the Shares being referred to herein as the “Shareholders”);

 

WHEREAS, in connection with serving as investment adviser to the Fund, the Adviser wishes to retain Vision to provide the distribution and marketing services set forth herein to the Adviser under the terms and conditions stated below, and Vision is willing to provide such services for the compensation set forth below;

 

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

 

1. APPOINTMENT. The Adviser hereby retains Vision to furnish, and Vision hereby agrees to furnish, the services set forth in paragraph 2 below.

 

2. SERVICES AND DUTIES OF VISION. At such times and to the extent that the Adviser may reasonably request, Vision registered representatives who are also employees of Vision will assist the Adviser with the distribution of the Shares in the Fund’s initial public offering (the “Offering”) by:

 

(a) making all of its registered representatives who are also employees of Vision available to the Adviser and the Fund to aid in the distribution of the Shares and to generally provide sales services with respect to the Shares;

 

(b) developing and coordinating a targeted “road show” with respect to the Offering;

 

(c) assisting in the customization of marketing materials for use by, and presentations to the sales networks at, broker-dealers that distribute the Shares;

 

(d) assisting in the review of educational materials made available to prospective investors and broker-dealers;

 

(e) assisting in scheduling and marketing national, informational conference calls in targeted broker-dealer channels for the Offering;

 

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(f) organizing and hosting educational meetings with key financial advisers, closed-end fund wholesalers, analysts, service providers and ratings and information organizations that cover closed-end funds;

 

(g) making such reports and recommendations to the board of directors of the Fund (the “Board”) as the Board and/or the Adviser may reasonably request or deem appropriate;

 

(h) replying to requests for information from broker-dealers or prospective investors concerning the Shares, the Offering or the Fund;

 

(i) assisting in the drafting of press releases in connection with the Offering; providing the sales support and marketing services typical for an offering of the Shares; and

 

(j) providing such other services as the parties may mutually agree from time to time.

 

For the avoidance of doubt, such distribution and marketing services shall not involve acting as underwriter of any offerings of the Fund on a firm commitment or best efforts basis.

 

For the avoidance of doubt, Vision acknowledges and agrees that it is not authorized to provide any information or make any representation regarding the Fund, the Offering or the Shares other than as contained in the Fund’s prospectus and statement of additional information or any sales literature and advertising or marketing materials specifically approved by the Adviser for use by Vision in connection with the performance of the services provided by Vision hereunder.

 

Vision further acknowledges and agrees that it will not use or cause to be used any sales literature or advertising or marketing materials in connection with the Offering unless such sales literature or advertising or marketing materials have, if required by applicable law or the rules and regulations of the Financial Industry Regulatory Authority (“FINRA”), been filed with FINRA in a timely manner and, if required by applicable law or the rules and regulations, FINRA has indicated that such sales literature or advertising or marketing materials appear consistent with applicable standards.

 

3. COMPLIANCE WITH LAW. In all matters pertaining to the performance of this Agreement, Vision will act in conformity with the reasonable directions of the Adviser and the Board, officers and employees of the Fund and will conform to and comply with the requirements of the 1940 Act and the rules and regulations thereunder and all other applicable federal and state laws and regulations, including, without limitation rules and regulations promulgated by the Securities and Exchange Commission (“SEC”) and FINRA. Furthermore, during the performance of its roles and obligations under this Agreement, Vision and Vision Representatives (as further defined in this Agreement) will use their best efforts to fully comply with any and all local, state and federal mandates related to controlling or reducing the current COVID-19 pandemic including, but not limited to, appropriate social distancing, use of personal protective equipment and observing limits on the number of people in group settings.

 

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4. SERVICES NOT EXCLUSIVE. The services to be provided hereunder by Vision are not deemed to be exclusive, and Vision and each of its respective members, officers, employees and affiliates are free to render such services to other funds or clients as long as Vision’s services under this Agreement are not impaired thereby.

 

5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF VISION.

 

Vision represents, warrants and agrees as follows:

 

(a) Vision has obtained all necessary registrations, licenses and approvals in order to perform the services provided in this Agreement. Vision is registered as a broker-dealer with the SEC, is a member of FINRA and is registered in each state where such registration is required. Vision covenants to maintain all necessary registrations, licenses and approvals in effect during the term of this Agreement.

 

(b) Vision shall promptly notify the Adviser (i) in the event that the SEC, FINRA or any other United States or state regulatory authority, governmental agency or body or securities exchange or association has censured Vision’s activities, functions or operations, suspended or revoked any registration, license or approval, or has commenced proceedings or an investigation that may result in any of these actions, (ii) in the event that there is a change of control of Vision or a change in its senior management or (iii) of any change to Vision that materially and adversely affects its ability to perform services under this Agreement.

 

(c) (i) Vision is validly existing entities and have full corporate power and authority to perform its obligations under this Agreement, (ii) this Agreement has been duly and validly authorized, executed and delivered on behalf Vision and constitutes the binding and enforceable obligation of Vision in accordance with its terms, and (iii) the execution and delivery of this Agreement, the incurrence of its obligations herein set forth and the consummation of the transactions contemplated herein will not constitute a breach of, or default under, its constituent documents, other instruments to which Vision is a party or by which Vision is bound or affected, or under any order, rule or regulation applicable to Vision of any court or any governmental body or administrative agency having jurisdiction over Vision, except for those breaches or defaults that would not materially and adversely affect Vision’s ability to perform its obligations under this Agreement.

 

(d) Vision has reviewed and understands Rule 206(4)-5 (the “Rule”) promulgated by the SEC under the Investment Advisers Act of 1940, and Vision shall not, and shall cause each of its members, managers, employees and affiliates, including each registered representatives who is also an employee of Vision, (each of the foregoing, together with Vision, “Vision Representatives”) not to engage in conduct that would reasonably be expected to (i) cause paragraphs (a)(1) or (a)(2) of the Rule to apply to the Adviser or any of its affiliates (taking into account the exceptions provided by paragraph (b) of the Rule, to the extent applicable) or (ii) constitute a violation of paragraph (a)(2) of the Rule with respect to the Adviser or its affiliates, in either case, as though each Vision Representative was a covered associate of the Adviser or its affiliates. Vision hereby further represents and warrants that (except to the extent disclosed in writing to the Adviser as of the date hereof) no Vision Representative has, in the two year period prior to the date of this Agreement, engaged in conduct that would reasonably be expected to cause paragraph (a)(1) of the Rule to apply to the Adviser or its affiliates (taking into account the exceptions provided by paragraph (b) of the Rule, to the extent applicable) as though each Vision Representative was a covered associate of the Adviser or its affiliates. Each of the representations, warranties and agreements in this Section 5(d) shall be subject to and interpreted in accordance with the other paragraphs of the Rule, including, without limitation, paragraphs (c) and (d) thereof. Terms used in this subsection shall have the same meanings ascribed to them as set forth in paragraph (f) of the Rule.

 

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(e) Any information furnished by Vision expressly for use in the Fund’s registration statement, prospectus, statement of additional information, sales literature or advertising or marketing materials does not or will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

 

6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ADVISER.

 

(a) The Adviser agrees that it shall promptly notify Vision (i) in the event that the SEC or any other United States or state regulatory authority, governmental agency or body or securities exchange or association has censured in writing the Adviser’s or the Fund’s activities, functions or operations, suspended or revoked any registration, license or approval, or has commenced proceedings that may result in any of these actions, (ii) in the event that there is a change of control of the Adviser or (iii) of any change to the Adviser that materially and adversely affects the Adviser’s ability to perform its obligations under this Agreement.

 

(b) The Adviser represents and warrants that (i) it is a validly existing entity and has full power and authority to perform its obligations under this Agreement, (ii) this Agreement has been duly and validly authorized, executed and delivered on its behalf and constitutes the binding and enforceable obligation of the Adviser in accordance with its terms, (iii) the execution and delivery of this Agreement, the incurrence of its obligations herein set forth and the consummation of the transactions contemplated herein will not constitute a breach of, or default under, its constituent documents, other instruments to which the Adviser is a party or by which the Adviser is bound or affected, or under any order, rule or regulation applicable to it of any court or any governmental body or administrative agency having jurisdiction over it, and (iv) the Adviser is, or will be prior to the commencement of investment operations of the Fund, registered as an investment adviser under the Investment Advisers Act of 1940 and in any state where registration is required.

 

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7. COMPENSATION.

 

As compensation for the services to be provided by Vision to the Adviser under this Agreement, the Adviser shall pay Vision as follows:

 

(a) If the total price to the public on closing date (including Shares offered pursuant to an underwriter’s overallotment option) is under $300 Million:

 

1. Within 10 business days of the closing date of the initial offering of the Fund’s Shares, the Adviser shall pay Vision a fee in an amount equal to 0.45% (45 basis points) multiplied by the total price to the public of the Shares sold in the Fund’s Offering (including any Shares available for issuance pursuant to an underwriter’s overallotment option) (“Gross Proceeds from the Offering”). This first payment shall be subject to a 10% hold back to account for Shares eligible for repurchase within the first [ninety (90)] days after the initial public offering. Once the buyback program is complete, the Adviser shall pay Vision the amount held back after a proportional reduction to the amount of Shares bought back in the buyback program;

 

2. On the date 12 months following the closing date of the initial offering of the Fund’s shares, the Adviser shall pay Vision a fee in an amount equal to 0.15% (15 basis points) multiplied by the Gross Proceeds from the Offering, minus the price to the public of Shares bought back in accordance with the share buyback program;

 

3. On the date 24 months following the closing date of the initial offering of the Fund’s shares, the Adviser shall pay Vision a fee in an amount equal to 0.15% (15 basis points) multiplied by the Gross Proceeds from the Offering minus the price to the public of Shares bought back in accordance with the share buyback program;

 

4. On the date 36 months following the closing date of the initial offering of the Fund’s shares, the Adviser shall pay Vision a fee in an amount equal to 0.15% (15 basis points) multiplied by the Gross Proceeds from the Offering minus the price to the public of Shares bought back in accordance with the share buyback program.

 

(b) If the total price to the public on closing date (including Shares offered pursuant to an underwriter’s overallotment option) is $300 Million or more:

 

1. Within 10 business days of the closing date of the initial offering of the Fund’s Shares, the Adviser shall pay Vision a fee in an amount equal to 0.525% (52.5 basis points) multiplied by the Gross Proceeds from the Offering. This first payment shall be subject to a 10% hold back to account for Shares eligible for repurchase within the first [ninety (90)] days after the initial public offering. Once the buyback program is complete, the Adviser shall pay Vision the amount held back after a proportional reduction to the amount of Shares bought back in the buyback program;;

 

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2. On the date 12 months following the closing date of the initial offering of the Fund’s shares, the Adviser shall pay Vision a fee in an amount equal to 0.175% (17.5 basis points) multiplied by the Gross Proceeds from the Offering minus the price to the public of Shares bought back in accordance with the share buyback program;

 

3. On the date 24 months following the closing date of the initial offering of the Fund’s shares, the Adviser shall pay Vision a fee in an amount equal to 0.175% (17.5 basis points) multiplied by the Gross Proceeds from the Offering minus the price to the public of Shares bought back in accordance with the share buyback program;

 

4. On the date 36 months following the closing date of the initial offering of the Fund’s shares, the Adviser shall pay Vision a fee in an amount equal to 0.175% (17.5 basis points) multiplied by the Gross Proceeds from the Offering minus the price to the public of Shares bought back in accordance with the share buyback program.

 

(c) As compensation for the services under this Agreement, Vision may pay compensation to those persons who are registered representatives of Vision and employees of Vision pursuant to the terms of the contract between Vision and the registered representative.

 

8. REIMBURSEMENT OF EXPENSES. Within 10 business days of the earlier of the closing date of the Offering or the termination this Agreement pursuant to Paragraphs 11(b)(ii)-(iv), the Adviser will promptly reimburse Vision for all reasonable and documented out-of-pocket expenses incurred by it and its registered representatives providing services in connection with this Agreement, including expenses associated with hosting events and meetings as contemplated under this Agreement and expenses associated with travel, lodging, meals (provided the foregoing are conducted in compliance with local, state and federal mandates related to the control and reduction of the COVID-19 pandemic), printing, shipping, mailing expenses and other similar expenses. Such out-of-pocket expenses shall not exceed $200,000, without the prior written approval of the Adviser. Vision shall invoice the Adviser and provide reasonable evidence of such expenses.

 

9. LIMITATION OF LIABILITY OF VISION. Vision will not be liable for any act or omission or for any error of judgment or for any loss suffered by the Adviser in connection with the performance of its duties under this Agreement, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties, from the reckless disregard by it of its duties under this Agreement or from a material breach by Vision of any representation, warranty or covenant hereunder (“Vision Disabling Conduct”).

 

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The Adviser agrees to indemnify, defend and hold Vision, its members and officers, and any person who controls Vision within the meaning of Section 15 of the 1933 Act (collectively, “Vision Indemnified Persons”), free and harmless from and against any and all claims, demands, liabilities and expenses (including the reasonable and documented costs of investigating or defending such claims, demands or liabilities and the reasonable and documented fees of one counsel incurred in connection therewith) that any Vision Indemnified Persons may incur arising out of or relating to (i) the Adviser’s breach of any of its representations, warranties or covenants contained in this Agreement, (ii) the Adviser’s failure to comply with any applicable laws or regulations, or (iii) the Adviser’s willful misfeasance, bad faith or gross negligence in the performance of its duties or the Adviser’s reckless disregard by it of its duties under this Agreement, but only to the extent that such liability or expense incurred by the Vision Indemnified Persons or resulting from such claims or demands shall not arise out of or be based upon Vision Disabling Conduct.

 

10. LIMITATION OF LIABILITY OF THE ADVISER. The Adviser will not be liable for any act or omission or for any error of judgment or for any loss suffered by Vision in connection with the performance of its duties under this Agreement, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties, from the reckless disregard by it of its duties under this Agreement or from a material breach by the Adviser of any representation, warrant or covenant hereunder (“Adviser Disabling Conduct”).

 

Vision agrees to indemnify, defend and hold the Fund, the Adviser, their several officers and directors, and any person who controls the Adviser within the meaning of Section 15 of the Securities Act of 1933 (collectively, “Adviser Indemnified Persons”), free and harmless from and against any and all claims, demands, liabilities and expenses (including the reasonable and documented costs of investigating or defending such claims, demands or liabilities and reasonable and documented fees of one counsel incurred in connection therewith) that any Adviser Indemnified Persons may incur arising out of or relating to (i) Vision’s breach of any of its representations, warranties or covenants contained in this Agreement, (ii) Vision’s failure to comply with any applicable laws or regulations, or (iii) Vision’s willful misfeasance, bad faith or gross negligence in the performance of its duties or Vision’s reckless disregard by it of its duties under this Agreement, but only to the extent that such liability or expense incurred by the Adviser Indemnified Persons or resulting from such claims or demands shall not arise out of or be based upon Adviser Disabling Conduct.

 

11. TERMINATION.

 

(a) This Agreement shall continue until the completion of the Offering.

 

(b) This Agreement may be terminated solely as follows:

 

(i) The Adviser may terminate this Agreement upon 10 days’ prior written notice to Vision in the event of a material breach by Vision of any of its obligations, representations, warranties or covenants contained in this Agreement.

 

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(ii) Vision may terminate this Agreement upon 10 days’ prior written notice to the Adviser in the event of a material breach by the Adviser of any of its obligations, representations, warranties or covenants contained in this Agreement.

 

(iii) This Agreement may also be terminated upon the express written mutual agreement of Vision and the Adviser upon 30 days’ prior written notice.

 

(iv) This Agreement will terminate in the event the Fund does not consummate its initial public offering of Fund Shares with 30 days of its initially contemplated date for the closing of the initial public offering of the Fund’s Shares.

 

(b) In the event that the Adviser terminates this Agreement pursuant to paragraph 11(b)(i), the Adviser shall not be responsible for paying any fee to Vision or for reimbursing any expense of Vision pursuant to paragraph 8 above.

 

Upon termination of this Agreement pursuant to paragraphs 11(b)(ii) – (iv), the Adviser shall reimburse any amounts due to Vision pursuant to paragraph 8 above.

 

12. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be changed, waived, discharged, amended or terminated orally, but only by an instrument in writing signed by Vision and the Adviser.

 

13. CONFIDENTIALITY. Vision and the Adviser each acknowledge that it may obtain certain confidential information of the other party to this Agreement or, in the case of Vision, of the Fund or its Shareholders, during the performance of its duties under this Agreement and each party hereto agrees to treat all such confidential information as proprietary information of the applicable party and to keep such information confidential by using the same care and discretion it uses with respect to its own confidential information, property and trade secrets, provided that a party may disclose confidential information if (i) such disclosure is approved in writing by the applicable party to which the confidential information relates or originates or (ii) such disclosure is required by applicable laws, rules, and regulations, or such disclosure is made to a regulatory authority in the normal course of an examination, audit or investigation involving the receipt or otherwise in response to a valid request by a regulatory authority. If a party is required or requested to disclose confidential information of another party pursuant to (ii) above, such party shall, to the extent not prohibited by applicable law, immediately notify the other parties to this Agreement in order to provide such parties the opportunity to pursue such legal or other action as such parties may desire to prevent the release of such confidential information, and such party agrees to provide reasonable assistance to any party seeking to prevent the release of such confidential information, at the expense of the requesting party.

 

For purposes of this Agreement, “confidential information” does not include information which, without any breach of Vision or the Adviser of the foregoing, (1) is or becomes publicly available (other than in breach of this Agreement or a violation of a confidentiality obligation owed to a party hereto), (2) is in the possession of Vision or the Adviser (as the case may be) prior to disclosure by the other party, (3) is independently developed by Vision or the Adviser (as the case may be) outside the scope of this Agreement and without use of confidential information or (4) is rightfully obtained by Vision or the Adviser (as the case may be) from third parties who have no duty of confidentiality to the Adviser or Vision, respectively.

 

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In the performance of its obligations under this Agreement and in respect of any information provided to Vision in connection with this Agreement, Vision agrees to comply with all applicable laws and regulations related to the collection, storage, handling, processing and transfer of non-public personal information (“Applicable Data Security Laws”), and to implement and maintain appropriate security measures to protect the confidentiality, security and integrity of non-public personal information in the manner provided for under and to the extent required by all such Applicable Data Security Laws.

 

Vision confirms that it is aware that securities laws of various jurisdictions restrict persons from trading in securities of an issuer while in possession of material non-public information regarding such issuer, and from communicating such information to a person under circumstances in which it is reasonably foreseeable that such person may trade in such security.

 

14. GOVERNING LAW. This Agreement and all questions relating to its validity, interpretation, performance and enforcement shall be construed in accordance with the laws of the State of New York, notwithstanding any conflict of laws doctrines of any jurisdiction to the contrary.

 

15. BOOKS AND RECORDS.

 

(a) In compliance with the requirements of the 1940 Act and the Investment Advisers Act of 1940, Vision hereby agrees that all records which it may maintain for the Fund or the Adviser, as the case may be, are the property of the Adviser and the Fund, as the case may be, and further agrees to surrender promptly to the Adviser or the Fund, as the case may be any of such records upon request. Vision may retain such copies of records delivered to the Advisor or Fund as may be required to satisfy its record keeping requirements; provided that it holds such copies in strict confidence for as long as it retains them.

 

(b) Vision hereby agrees to furnish to regulatory authorities having the requisite authority any information or reports in connection with services that Vision renders pursuant to this Agreement which may be requested in order to ascertain whether the operations of the Adviser and/or the Fund are being conducted in a manner consistent with applicable laws and regulations. If Vision is required or requested to provide any information or reports to regulatory authorities, Vision shall, to the extent not prohibited by applicable law, immediately notify the Adviser in order to provide the Adviser the opportunity to pursue such legal or other action as it may desire to prevent the release of the information or reports, and Vision agrees to provide reasonable assistance to the Adviser in seeking to prevent the release of the information.

 

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16. BENEFIT TO OTHERS. The understandings contained in this Agreement are for the sole benefit of the parties hereto and their respective successors and assigns and, except as otherwise provided herein, they shall not be construed as conferring, and are not intended to confer, any rights on any other persons except as specifically provided herein.

 

17. BINDING NATURE OF AGREEMENT; NO ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no party may assign or transfer its rights nor delegate its obligations under this Agreement without the prior written consent of Vision and the Adviser.

 

18. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against the any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as signatories.

 

19. ENTIRE AGREEMENT. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.

 

20. WAIVERS. Neither the failure nor any delay on the part of any party to this Agreement to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and signed by the party asserted to have granted such waiver.

 

21. MISCELLANEOUS. The captions of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.

 

22. NOTICES.

 

All notices required or permitted to be sent under this Agreement shall be sent, if to the Adviser, to:

 

RiverNorth Capital Management, LC

c/o General Counsel

325 North LaSalle Street

Suite 645

Chicago, IL 60654

Email: mcollins@rivernorth.com

 

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Or if to Vision, to:

 

Vision 4 Fund Distributors, LLC

c/o Paul Kujalowicz

Vision 4 Fund Distributors

9260 East Raintree Drive, Suite 100

Scottsdale, AZ 85260

e-mail: paul@v4fd.com

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused the instrument to be executed by their officers designated below as of the day and year first above written.

 

  Vision 4 Fund Distributors, LLC  
         
  By: /s/ Paul Kujalowicz  
    Name: Paul Kujalowicz  
    Title: Managing Director  
         
  RiverNorth Capital Management, LLC  
         
  By: /s/ Marcus Collins  
    Name: Marcus Collins  
    Title: General Counsel  

 

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Master Custodian Agreement

 

This Agreement is made as of March 3, 2014 by and between each management investment company identified on Appendix A hereto (each such investment company and each management investment company made subject to this Agreement in accordance with Section 20.5 below, shall hereinafter be referred to as a “Fund”), and State Street Bank and Trust Company, a Massachusetts trust company (the “Custodian”).

 

Witnesseth:

 

Whereas, each Fund may or may not be authorized to issue shares of common stock or shares of beneficial interest in separate series (“Shares”), with each such series representing interests in a separate portfolio of securities and other assets;

 

Whereas, each Fund so authorized intends that this Agreement be applicable to each of its series set forth on Appendix A hereto (such series together with all other series subsequently established by the Fund and made subject to this Agreement in accordance with Section 20.5 below, shall hereinafter be referred to as the “Portfolio(s)”);

 

Whereas, each Fund not so authorized intends that this Agreement be applicable to it and all references hereinafter to one or more “Portfolio(s)” shall be deemed to refer to such Fund(s); and

 

Now, Therefore, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows:

 

Section 1. Employment of Custodian and Property to be Held by It.

 

Each Fund hereby employs the Custodian as a custodian of assets of the Portfolios, including securities which the Fund, on behalf of the applicable Portfolio, desires to be held in places within the United States (“domestic securities”) and securities it desires to be held outside the United States (“foreign securities”). Each Fund, on behalf of its Portfolio(s), agrees to deliver to the Custodian all securities and cash of the Portfolios, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Portfolio(s) from time to time, and the cash consideration received by it for such Shares as may be issued or sold from time to time. The Custodian shall not be responsible for any property of a Portfolio which is not received by it or which is delivered out in accordance with Proper Instructions (as such term is defined in Section 8 hereof). With respect to uncertificated shares (the “Underlying Shares”) of registered “investment companies” (as defined in Section 3(a)(1) of the Investment Company Act of 1940, as amended from time to time (the “1940 Act”)), whether in the same “group of investment companies” (as defined in Section 12(d)(1)(G)(ii) of the 1940 Act) or otherwise, including pursuant to Section 12(d)(1)(F) of the 1940 Act (hereinafter sometimes referred to as the “Underlying Portfolios”) the holding of confirmation statements that identify the shares as being recorded in the Custodian’s name on behalf of the Portfolios will be deemed custody for purposes hereof.

 

 

Upon receipt of Proper Instructions, the Custodian shall on behalf of a Fund appoint one or more banks, trust companies or other entities located in the United States and designated in such Proper Instructions to act as a sub-custodian for the purposes of effecting such transaction(s) as may be designated by a Fund. Each such designated sub-custodian is referred to herein as a “Special Sub-Custodian.” The Custodian may place and maintain each Fund’s foreign securities with foreign banking institution sub-custodians employed by the Custodian and/or foreign securities depositories, in accordance with the applicable provisions of Sections 3 and 4 hereof.

 

Section 2. Duties of the Custodian with Respect to Property of the Portfolios to be Held in the United States.

 

Section 2.1 Holding Securities. The Custodian shall hold and physically segregate for the account of each Portfolio all non-cash property to be held by it in the United States, including all domestic securities owned by such Portfolio other than (a) securities which are maintained pursuant to Section 2.8 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury (each, a “U.S. Securities System”) and (b) Underlying Shares owned by each Fund which are maintained pursuant to Section 2.10 hereof in an account with State Street Bank and Trust Company or such other entity which may from time to time be appointed by the Fund to act as a transfer agent for the Underlying Portfolios and with respect to which the Custodian is provided with Proper Instructions (the “Underlying Transfer Agent”).

 

Section 2.2 Delivery of Domestic Securities. The Custodian shall release and deliver domestic securities owned by a Portfolio held by the Custodian, in a U.S. Securities System account of the Custodian or in an account at the Underlying Transfer Agent, only upon receipt of Proper Instructions on behalf of the applicable Portfolio, specifying (a) the domestic securities of the Portfolio to be delivered and (b) the person or persons to whom delivery of such securities shall be made.

 

Section 2.3 Registration of Securities. Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Portfolio or in the name of any nominee of a Fund on behalf of the Portfolio or of any nominee of the Custodian which nominee shall be assigned exclusively to the Portfolio, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered management investment companies having the same investment adviser as the Portfolio, or in the name or nominee name of any agent appointed pursuant to Section 2.7 or in the name or nominee name of any sub-custodian appointed pursuant to Section 1. All securities accepted by the Custodian on behalf of the Portfolio under the terms of this Agreement shall be in “street name” or other good delivery form. If, however, a Fund directs the Custodian to maintain securities in “street name,” the Custodian shall utilize reasonable efforts only to timely collect income due the Fund on such securities and to notify the Fund of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers.

 

Section 2.4 Payment of Fund Monies. The Custodian shall pay out monies of a Portfolio upon receipt of Proper Instructions on behalf of the applicable Portfolio, specifying (a) the amount of such payment and (b) the person or persons to whom such payment is to be made.

 

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Section 2.5 Bank Accounts. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio of each Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the banking department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the board of directors or trustees, as applicable, of the Fund (the “Board”). Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity.

 

Section 2.6 Collection of Income. Subject to the provisions of Section 2.3, the Custodian shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which each Portfolio shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent. The Custodian shall present for payment all income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. The Custodian shall credit income to the Portfolio as such income is received or in accordance with the Custodian’s then current payable date income schedule. Any credit to the Portfolio in advance of receipt may be reversed when the Custodian determines that payment will not occur in due course and the Portfolio may be charged at the Custodian’s applicable rate for time credited. Income due each Portfolio on securities loaned shall be the responsibility of the applicable Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Portfolio is properly entitled.

 

Section 2.7 Appointment of Agents. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the 1940 Act to act as a custodian, as its agent to carry out such of the provisions of this Section 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. The Underlying Transfer Agent shall not be deemed an agent or sub-custodian of the Custodian for purposes of this Agreement.

 

Section 2.8 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may deposit and/or maintain securities owned by a Portfolio in a U.S. Securities System in compliance with the conditions of Rule 17f-4 under the 1940 Act, as amended from time to time.

 

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Section 2.9 Segregated Account. Upon receipt of Proper Instructions on behalf of each applicable Portfolio, the Custodian shall establish and maintain a segregated account or accounts for and on behalf of each such Portfolio for any purpose, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.8 hereof.

 

Section 2.10 Deposit of Fund Assets with the Underlying Transfer Agent. Underlying Shares beneficially owned by the Fund, on behalf of a Portfolio, shall be deposited and/or maintained in an account or accounts maintained with an Underlying Transfer Agent and the Custodian’s only responsibilities with respect thereto shall be limited to the following:

 

1) Upon receipt of a confirmation or statement from an Underlying Transfer Agent that such Underlying Transfer Agent is holding or maintaining Underlying Shares in the name of the Custodian (or a nominee of the Custodian) for the benefit of a Portfolio, the Custodian shall identify by book-entry that such Underlying Shares are being held by it as custodian for the benefit of such Portfolio.

 

2) In respect of the purchase of Underlying Shares for the account of a Portfolio, upon receipt of Proper Instructions, the Custodian shall pay out monies of such Portfolio as so directed, and record such payment from the account of such Portfolio on the Custodian’s books and records.

 

3) In respect of the sale or redemption of Underlying Shares for the account of a Portfolio, upon receipt of Proper Instructions, the Custodian shall transfer such Underlying Shares as so directed, record such transfer from the account of such Portfolio on the Custodian’s books and records and, upon the Custodian’s receipt of the proceeds therefor, record such payment for the account of such Portfolio on the Custodian’s books and records.

 

Section 2.11 Ownership Certificates for Tax Purposes. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of each Portfolio held by it and in connection with transfers of securities.

 

Section 2.12 Proxies. The Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities.

 

Section 2.13 Communications Relating to Domestic Portfolio Securities. Subject to the provisions of Section 2.3, the Custodian shall transmit promptly to the applicable Fund for each Portfolio all written information received by the Custodian from issuers of the securities being held for the Portfolio. With respect to tender or exchange offers, the Custodian shall transmit promptly to the applicable Fund all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer. The Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with domestic securities or other property of the Portfolios at any time held by it unless (i) the Custodian is in actual possession of such domestic securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power. For avoidance of doubt, upon and after the effective date of any termination of this Agreement, with respect to a Fund or its Portfolio(s), as may be applicable, the Custodian shall have no responsibility to so transmit any information under this Section 2.13.

 

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Section 3. Provisions Relating to Rules 17f-5 and 17f-7.

 

Section 3.1. Definitions. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings:

 

Country Risk” means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, risks arising from such country’s political environment, economic and financial infrastructure (including any Eligible Securities Depository operating in the country); prevailing or developing custody, tax and settlement practices; nationalization, expropriation or other government actions; currency restrictions, devaluations or fluctuations; market conditions affecting the orderly execution of securities transactions or the value of assets; the regulation of the banking and securities industries, including changes in market rules; and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country.

 

Eligible Foreign Custodian” has the meaning set forth in section (a)(1) of Rule 17f-5.

 

Eligible Securities Depository” has the meaning set forth in section (b)(1) of Rule 17f-7.

 

Foreign Assets” means any of the Portfolios’ investments (including foreign currencies) for which the primary market is outside the United States, and any cash and cash equivalents that are reasonably necessary to effect the Portfolios’ transactions in those investments.

 

Foreign Custody Manager” has the meaning set forth in section (a)(3) of Rule 17f-5.

 

Foreign Securities System” means an Eligible Securities Depository listed on Schedule B hereto.

 

Rule 17f-5” means Rule 17f-5 promulgated under the 1940 Act.

 

Rule 17f-7” means Rule 17f-7 promulgated under the 1940 Act.

 

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Section 3.2. The Custodian as Foreign Custody Manager.

 

3.2.1 Delegation to the Custodian as Foreign Custody Manager. Each Fund, by resolution adopted by its Board, hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5, the responsibilities set forth in this Section 3.2 with respect to Foreign Assets of the Portfolios held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager with respect to the Portfolios.

 

3.2.2 Countries Covered. The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Agreement, which list of countries may be amended from time to time by any Fund with the agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the assets of the Portfolios, which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager. The Foreign Custody Manager will provide amended versions of Schedule A in accordance with Section 3.2.5 hereof.

 

Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by each Fund, on behalf of the applicable Portfolio(s), of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by such Fund’s Board on behalf of such Portfolio(s) responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Agreement by each Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of a Portfolio with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board on behalf of such Portfolio to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager with respect to such Portfolio with respect to that country.

 

The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Fund. Thirty days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Fund, the Custodian shall have no further responsibility in its capacity as Foreign Custody Manager to the Fund with respect to the country as to which the Custodian’s acceptance of delegation is withdrawn.

 

3.2.3 Scope of Delegated Responsibilities:

 

(a) Selection of Eligible Foreign Custodians. Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1).

 

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(b) Contracts With Eligible Foreign Custodians. The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).

 

(c) Monitoring. In each case in which the Foreign Custody Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Assets with such Eligible Foreign Custodian and (ii) the contract governing the custody arrangements established by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Board in accordance with Section 3.2.5 hereunder.

 

3.2.4 Guidelines for the Exercise of Delegated Authority. For purposes of this Section 3.2, the Board shall be deemed to have considered and determined to accept such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Portfolios.

 

3.2.5 Reporting Requirements. The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the placement of such Foreign Assets with another Eligible Foreign Custodian by providing to the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such Schedule has occurred. The Foreign Custody Manager shall make written reports notifying the Board of any other material change in the foreign custody arrangements of the Portfolios described in this Section 3.2 after the occurrence of the material change.

 

3.2.6 Standard of Care as Foreign Custody Manager. The Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of the Foreign Assets would exercise, in performing the delegated responsibilities.

 

3.2.7 Representations with Respect to Rule 17f-5. The Foreign Custody Manager represents to each Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5. Each Fund represents to the Custodian that its Board has determined that it is reasonable for such Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Agreement to the Custodian as the Foreign Custody Manager of the Portfolios.

 

3.2.8 Effective Date and Termination of the Custodian as Foreign Custody Manager. Each Board’s delegation to the Custodian as Foreign Custody Manager of the Portfolios shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective thirty (30) days after receipt by the non-terminating party of such notice. The provisions of Section 3.2.2 hereof shall govern the delegation to and termination of the Custodian as Foreign Custody Manager of the Portfolios with respect to designated countries.

 

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Section 3.3 Eligible Securities Depositories.

 

3.3.1 Analysis and Monitoring. The Custodian shall (a) provide the Fund (or its duly-authorized investment manager or investment advisor (“Investment Advisor”)) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories set forth on Schedule B hereto in accordance with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a continuing basis, and promptly notify the Fund (or its Investment Advisor) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7.

 

3.3.2  Standard of Care. The Custodian agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in Section 3.3.1.

 

Section 4. Duties of the Custodian with Respect to Property of the Portfolios to be Held Outside the United States.

 

Section 4.1. Holding Securities. The Custodian shall identify on its books as belonging to the Portfolios the foreign securities held by each Eligible Foreign Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Portfolios, with any Eligible Foreign Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Portfolios which are maintained in such account shall identify those securities as belonging to the Portfolios and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Eligible Foreign Custodian be held separately from any assets of such Eligible Foreign Custodian or of other customers of such Eligible Foreign Custodian.

 

Section 4.2. Foreign Securities Systems. Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by the Custodian or an Eligible Foreign Custodian, as applicable, in such country.

 

Section 4.3. Transactions in Foreign Custody Account.

 

4.3.1. Delivery of Foreign Securities. The Custodian or an Eligible Foreign Custodian shall release and deliver foreign securities owned by a Portfolio held by the Custodian or such Eligible Foreign Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, specifying (a) the foreign securities to be delivered and (b) the person or persons to whom delivery of such securities shall be made.

 

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4.3.2. Payment of Portfolio Monies. The Custodian shall pay out, or direct the respective Eligible Foreign Custodian or the respective Foreign Securities System to pay out, monies of a Portfolio only upon receipt of Proper Instructions specifying (a) the amount of such payment and (b) the person or persons to whom such payment is to be made.

 

4.3.3. Market Conditions. Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Assets received for the account of the Portfolios and delivery of Foreign Assets maintained for the account of the Portfolios may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer.

 

The Custodian shall provide to each Board the information with respect to custody and settlement practices in countries in which the Custodian employs an Eligible Foreign Custodian described on Schedule C hereto at the time or times set forth on such Schedule. The Custodian may revise Schedule C from time to time, provided that no such revision shall result in a Board being provided with substantively less information than had been previously provided hereunder.

 

Section 4.4. Registration of Foreign Securities. Foreign securities maintained in the custody of an Eligible Foreign Custodian (other than bearer securities) shall be registered in the name of the applicable Portfolio or in the name of the Custodian or in the name of any Eligible Foreign Custodian or in the name of any nominee of the foregoing, and the applicable Fund on behalf of such Portfolio agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or an Eligible Foreign Custodian shall not be obligated to accept securities on behalf of a Portfolio under the terms of this Agreement unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice.

 

Section 4.5 Bank Accounts. The Custodian shall identify on its books as belonging to the applicable Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of a Portfolio with an Eligible Foreign Custodian. All accounts referred to in this Section shall be subject only to draft or order by the Custodian (or, if applicable, such Eligible Foreign Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Portfolio. Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts.

 

Section 4.6. Collection of Income. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Portfolios shall be entitled. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures. The Custodian shall credit income to the applicable Portfolio as such income is received or in accordance with Custodian’s then current payable date income schedule. Any credit to the Portfolio in advance of receipt may be reversed when the Custodian determines that payment will not occur in due course and the Portfolio may be charged at the Custodian’s applicable rate for time credited. Income on securities loaned other than from the Custodian’s securities lending program shall be credited as received.

 

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Section 4.7 Shareholder Rights. With respect to the foreign securities held pursuant to this Section 4, the Custodian shall use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. Each Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of such Fund to exercise shareholder rights.

 

Section 4.8. Communications Relating to Foreign Portfolio Securities. The Custodian shall transmit promptly to the applicable Fund written information with respect to materials received by the Custodian via Eligible Foreign Custodians from issuers of the foreign securities being held for the account of the Portfolios. With respect to tender or exchange offers, the Custodian shall transmit promptly to the applicable Fund written information with respect to materials so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. The Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Portfolios at any time held by it unless (i) the Custodian or the respective Eligible Foreign Custodian is in actual possession of such foreign securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power. For avoidance of doubt, upon and after the effective date of any termination of this Agreement, with respect to a Fund or its Portfolio(s), as may be applicable, the Custodian shall have no responsibility to so transmit any information under this Section 4.8.

 

Section 4.9. Contracts With Eligible Foreign Custodians. Each contract pursuant to which the Custodian employs an Eligible Foreign Custodian shall meet the requirements of Rule 17f-5 and, to the extent possible, require the Eligible Foreign Custodian to indemnify and hold harmless the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Eligible Foreign Custodian’s performance of such obligations. At a Fund’s election, the Portfolios shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against an Eligible Foreign Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Portfolios have not been made whole for any such loss, damage, cost, expense, liability or claim. In no event shall the Custodian be obligated to bring suit in its own name or to allow suit to be brought in its name.

 

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Section 5. Contractual Settlement Services (Purchase / Sales).

 

Section 5.1 The Custodian shall, in accordance with the terms set out in this section, debit or credit the appropriate cash account of each Portfolio in connection with (i) the purchase of securities for such Portfolio, and (ii) proceeds of the sale of securities held on behalf of such Portfolio, on a contractual settlement basis.

 

Section 5.2 The services described above (the “Contractual Settlement Services”) shall be provided for such instruments and in such markets as the Custodian may advise from time to time. The Custodian may terminate or suspend any part of the provision of the Contractual Settlement Services under this Agreement at its sole discretion immediately upon notice to the applicable Fund on behalf of each Portfolio, including, without limitation, in the event of force majeure events affecting settlement, any disorder in markets, or other changed external business circumstances affecting the markets or the Fund.

 

Section 5.3 The consideration payable in connection with a purchase transaction shall be debited from the appropriate cash account of the Portfolio as of the time and date that monies would ordinarily be required to settle such transaction in the applicable market. The Custodian shall promptly recredit such amount at the time that the Portfolio or the Fund notifies the Custodian by Proper Instruction that such transaction has been canceled.

 

Section 5.4 With respect to the settlement of a sale of securities, a provisional credit of an amount equal to the net sale price for the transaction (the “Settlement Amount”) shall be made to the account of the Portfolio as if the Settlement Amount had been received as of the close of business on the date that monies would ordinarily be available in good funds in the applicable market. Such provisional credit will be made conditional upon the Custodian having received Proper Instructions with respect to, or reasonable notice of, the transaction, as applicable; and the Custodian or its agents having possession of the asset(s) (which shall exclude assets subject to any third party lending arrangement entered into by a Portfolio) associated with the transaction in good deliverable form and not being aware of any facts which would lead them to believe that the transaction will not settle in the time period ordinarily applicable to such transactions in the applicable market.

 

Section 5.5. Simultaneously with the making of such provisional credit, the Portfolio agrees that the Custodian shall have, and hereby grants to the Custodian, a security interest in any property at any time held for the account of the Portfolio to the full extent of the credited amount, and each Portfolio hereby pledges, assigns and grants to the Custodian a continuing security interest and a lien on any and all such property under the Custodian’s possession, in accordance with the terms of this Agreement. In the event that the applicable Portfolio fails to promptly repay any provisional credit, the Custodian shall have all of the rights and remedies of a secured party under the Uniform Commercial Code of The Commonwealth of Massachusetts.

 

Section 5.6 The Custodian shall have the right to reverse any provisional credit or debit given in connection with the Contractual Settlement Services at any time when the Custodian believes, in its reasonable judgment, that such transaction will not settle in accordance with its terms or amounts due pursuant thereto, will not be collectable or where the Custodian has not been provided Proper Instructions with respect thereto, as applicable, and the Portfolio shall be responsible for any costs or liabilities resulting from such reversal. Upon such reversal, a sum equal to the credited or debited amount shall become immediately payable by the Portfolio to the Custodian and may be debited from any cash account held for benefit of the Portfolio.

 

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Section 5.7 In the event that the Custodian is unable to debit an account of the Portfolio, and the Portfolio fails to pay any amount due to the Custodian at the time such amount becomes payable in accordance with this Agreement, (i) the Custodian may charge the Portfolio for costs and expenses associated with providing the provisional credit, including without limitation the cost of funds associated therewith, (ii) the amount of any accrued dividends, interest and other distributions with respect to assets associated with such transaction may be set off against the credited amount, (iii) the provisional credit and any such costs and expenses shall be considered an advance of cash for purposes of the Agreement and (iv) the Custodian shall have the right to setoff against any property and to sell, exchange, convey, transfer or otherwise dispose of any property at any time held for the account of the Portfolio to the full extent necessary for the Custodian to make itself whole.

 

Section 6. Tax Services.

 

Subject to and to the extent of receipt by the Custodian of relevant and necessary documentation and information with respect to the Funds and Portfolios that the Custodian has requested, the Custodian shall perform the following services: (i) file claims for exemptions, reductions in withholding taxes, or refunds of any tax with respect to withheld foreign (non-U.S.) taxes in instances in which such claims are appropriate; (ii) withhold appropriate amounts as required by U.S. tax laws with respect to amounts received on behalf of nonresident aliens; and (iii) provide to the Funds such information actually received by the Custodian that could, in the Custodian’s reasonable belief and sole discretion, assist any of the Funds in their submission of any reports or returns with respect to taxes. Other than the servicing responsibilities identified herein, the Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on any Fund, the Portfolios or the Custodian as custodian of the Portfolios by the tax law of any country or of any state or political subdivision thereof.

 

It shall be the responsibility of each Fund to notify the Custodian of the obligations imposed on such Fund or the Custodian as custodian by the tax law of countries, states and political subdivisions thereof, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which such Fund has provided sufficient information and documentation. As the Custodian does not provide tax advice, it is specifically understood and agreed that the Custodian shall not be considered the Fund’s tax advisor or tax counsel. In connection with the provision of services pursuant to this Section 6, the Custodian shall be kept indemnified by and shall be without liability to a Fund for any obligations, including taxes, withholding and reporting requirements, claims for exemption and refund, additions for late payment, interest, penalties and other expenses that may be assessed against the Fund, the Portfolios or the Custodian as custodian of the assets of such Fund or Portfolios. Each of the Funds agrees that the Custodian is authorized to deduct from any cash received or credited to the account of a Portfolio any taxes or levies required by any tax or other governmental authority having jurisdiction in respect of such Portfolio’s transactions, and that the Custodian is authorized to disclose any information required by any such tax or other governmental authority in relation to processing any claim for exemption from or reduction or refund of any taxes relating to Portfolio transactions and holdings.

 

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Section 7. Payments for Sales or Repurchases or Redemptions of Shares.

 

The Custodian shall receive from the distributor of the Shares or from the Fund’s transfer agent (the “Transfer Agent”)and deposit into the account of the appropriate Portfolio such payments as are received for Shares thereof issued or sold from time to time by the applicable Fund. The Custodian will provide timely notification to such Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio.

 

From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by a Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between such Fund and the Custodian.

 

Section 8. Proper Instructions.

 

Proper Instructions,” which may also be standing instructions, shall mean instructions received by the Custodian from a Fund, its Investment Advisor, or a person or entity duly authorized by either of them. Such instructions may be in writing signed by the authorized person or persons or may be in a tested communication or in a communication utilizing access codes effected between electro-mechanical or electronic devices or may be by such other means and utilizing such intermediary systems and utilities as may be agreed from time to time by the Custodian and the person(s) or entity giving such instruction, provided that the Fund has followed any security procedures agreed to from time to time by the applicable Fund and the Custodian including, but not limited to, the security procedures selected by the Fund via the form of Funds Transfer Addendum hereto, the terms of which are hereby agreed to. The Custodian may agree to accept oral instructions, and in such case oral instructions will be considered Proper Instructions. The Fund shall cause all oral instructions to be confirmed in writing. The Custodian shall be entitled conclusively to rely and act upon Proper Instructions until the Custodian has received notice of any change from the Fund and has had a reasonable time to implement such change. The Custodian may act on a Proper Instruction if it reasonably believes it contains sufficient information, and may refrain from acting on any Proper Instructions until such time that it has determined, in its sole discretion, that is has received any required clarification and/or authentication of Proper Instructions. The Custodian may rely upon and shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it in good faith to be genuine and to have been properly executed by or on behalf of the applicable Fund.

 

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If the Custodian is not provided with reasonable time to execute a Proper Instruction (including any Proper Instruction not to execute, or any other modification to, a prior Proper Instruction) the Custodian will use good faith efforts to execute the Proper Instruction but will not be responsible or liable if such efforts are not successful (including any inability to change any actions that the Custodian had taken pursuant to the prior Proper Instruction). The inclusion of a statement of purpose or intent (or any similar notation) in a Proper Instruction shall not impose any additional obligations on the Custodian or condition or qualify its authority to effect such Proper Instruction. The Custodian will not assume a duty to ensure that the stated purpose or intent is fulfilled, and will have no responsibility or liability when it follows the Proper Instruction without regard to such purpose or intent.

 

Concurrently with the execution of this Agreement, and from time to time thereafter, as appropriate, each Fund shall deliver to the Custodian an officer’s certificate setting forth the names, titles, signatures and scope of authority of all persons authorized to give Proper Instructions or any other notice, request, direction, instruction, certificate or instrument on behalf of the Fund. Such certificate may be accepted and conclusively relied upon by the Custodian and shall be considered to be in full force and effect until receipt by the Custodian of a similar certificate to the contrary.

 

Section 9. Actions Permitted without Express Authority.

 

The Custodian may in its discretion, without express authority from the applicable Fund on behalf of each applicable Portfolio:

 

1) Make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement; provided that all such payments shall be accounted for to the Fund on behalf of the Portfolio;

 

2) Surrender securities in temporary form for securities in definitive form;

 

3) Endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and

 

4) In general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by the applicable Board.

 

Section 10. Duties of Custodian with Respect to the Books of Account and Calculation of Net Asset Value and Net Income.

 

The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the applicable Board to keep the books of account of each Portfolio and/or compute the net asset value per Share of the outstanding Shares or, if directed in writing to do so by a Fund on behalf of a Portfolio, shall itself keep such books of account and/or compute such net asset value per Share. If and as so directed, the Custodian shall also calculate daily the net income of the Portfolio as described in the Fund’s currently effective prospectus (“Prospectus”) and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. Each Fund acknowledges and agrees that, with respect to investments maintained with the Underlying Transfer Agent, the Underlying Transfer Agent is the sole source of information on the number of shares of a fund held by it on behalf of a Portfolio and that the Custodian has the right to rely on holdings information furnished by the Underlying Transfer Agent to the Custodian in performing its duties under this Agreement, including without limitation, the duties set forth in this Section 10 and in Section 11 hereof; provided, however, that the Custodian shall be obligated to reconcile information as to purchases and sales of Underlying Shares contained in trade instructions and confirmations received by the Custodian and to report promptly any discrepancies to the Underlying Transfer Agent. If and as so directed, the calculations of the net asset value per Share and the daily income of each Portfolio shall be made at the time or times described from time to time in the Prospectus.

 

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Section 11. Records.

 

The Custodian shall with respect to each Portfolio create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of each Fund under the 1940 Act, with particular attention to section 31 thereof and Rules 31a-1 and 31a-2 thereunder. 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 such Fund and employees and agents of the SEC. The Custodian shall, at the Fund’s request, supply the Fund with a tabulation of securities owned by each Portfolio and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. In the event that the Custodian is requested or authorized by a Fund, or required by subpoena, administrative order, court order or other legal process, applicable law or regulation, or required in connection with any investigation, examination or inspection of the Fund by state or federal regulatory agencies, to produce the records of the Fund or the Custodian’s personnel as witnesses or deponents, the Fund agrees to pay the Custodian for the Custodian’s time and expenses, as well as the fees and expenses of the Custodian’s counsel, incurred in such production.

 

Section 12. Opinion of Fund’s Independent Accountant.

 

The Custodian shall take all reasonable action, as a Fund with respect to a Portfolio may from time to time request, to obtain from year to year favorable opinions from the Fund’s independent accountants with respect to its activities hereunder in connection with the preparation of the Fund’s Form N-1A or Form N-2, as applicable, and Form N-SAR or other annual reports to the SEC and with respect to any other requirements thereof.

 

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Section 13. Reports to Fund by Independent Public Accountants.

 

The Custodian shall provide the applicable Fund, on behalf of each of the Portfolios at such times as such Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a U.S. Securities System or a Foreign Securities System (either, a “Securities System”), relating to the services provided by the Custodian under this Agreement; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state.

 

Section 14. Compensation of Custodian.

 

The Custodian shall be entitled to reasonable compensation for its services and expenses, as agreed upon from time to time between each Fund on behalf of each applicable Portfolio and the Custodian.

 

Section 15. Responsibility of Custodian.

 

The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, and shall be kept indemnified by and shall be without liability to any Fund for any action taken or omitted by it in good faith without negligence, including, without limitation, acting in accordance with any Proper Instruction. The Custodian shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall be without liability to any Fund or Portfolio for any loss or expense resulting from or caused by Country Risk. The Custodian shall be liable for the acts or omissions of an Eligible Foreign Custodian to the same extent as if such action or omission were performed by the Custodian itself, taking into account the facts and circumstances and the established local market practices and laws prevailing in the particular jurisdiction in which the Fund elects to invest. Notwithstanding any other provision of this Agreement, the Custodian shall not be liable for the insolvency of any Eligible Foreign Custodian. In no event shall the Custodian be liable for indirect, special or consequential damages.

 

The Custodian shall be without responsibility or liability to any Fund for: (i) events or circumstances beyond the reasonable control of the Custodian, including, without limitation, the interruption, suspension or restriction of trading on or the closure of any securities market or system, power or other mechanical or technological failures or interruptions, computer viruses or communications disruptions, work stoppages, natural disasters, acts of war, revolution, riots or terrorism or other similar force majeure events or acts; (ii) errors by any Fund, its Investment Advisor or any other duly authorized person in their instructions to the Custodian; (iii) the insolvency of or acts or omissions by a Securities System, Underlying Transfer Agent or Special Sub-Custodian; (iv) the failure of any Fund, its Investment Advisor or any duly authorized person to adhere to the Custodian’s operational policies and procedures;(v) any delay or failure of any broker, agent or intermediary, central bank or other commercially prevalent payment or clearing system to deliver to the Custodian’s sub-custodian or agent securities purchased or in the remittance or payment made in connection with securities sold; (vi) any delay or failure of any company, corporation, or other body in charge of registering or transferring securities in the name of the Custodian, any Fund, the Custodian’s sub-custodians, nominees or agents including non-receipt of bonus, dividends and rights and other accretions or benefits; (vii) delays or inability to perform its duties due to any disorder in market infrastructure with respect to any particular security or Securities System; and (viii) the effect of any provision of any law or regulation or order of the United States of America, or any state thereof, or any other country, or political subdivision thereof or of any court of competent jurisdiction.

 

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The Custodian is authorized and instructed to rely upon the information it receives from the Fund or any third party on behalf of the Fund. The Custodian shall have no responsibility to review, confirm or otherwise assume any duty with respect to the accuracy or completeness of any data supplied to it by or on behalf of any Fund. The Custodian shall have no liability in respect of any loss, damage or expense suffered by the Fund arising from the performance of the Custodian’s duties hereunder in reliance upon records that were maintained for the Fund by entities other than the Custodian prior to its appointment as custodian.

 

If a Fund on behalf of a Portfolio instructs the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund or the Portfolio being liable for the payment of money or incurring liability of some other form, such Fund on behalf of the Portfolio, as a prerequisite to the Custodian taking such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. The Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties.

 

Any property at any time held for the account of the applicable Portfolio shall be security for the Fund’s performance of its obligations under this Agreement. The obligations include the Fund’s obligations to reimburse the Custodian if the Custodian, its affiliates, subsidiaries or agents advances cash or securities to the Fund for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement), or 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 negligent action, negligent failure to act or willful misconduct, as well as the Fund’s obligation to compensate the Custodian pursuant to Section 14 hereof. Should the Fund fail to reimburse or otherwise pay the Custodian any obligation under this Agreement promptly, the Custodian shall have the rights and remedies of a secured party under this Agreement, the Uniform Commercial Code and other applicable law, including the right to utilize available cash and to dispose of such Portfolio’s assets to the extent necessary to obtain payment or reimbursement. The Custodian may at any time decline to follow Proper Instructions to deliver out to the Fund cash or securities if the Custodian determines in its reasonable discretion that, after giving effect to the Proper Instructions, the cash or securities remaining will not have sufficient value fully to secure the Fund's payment or reimbursement obligations, whether contingent or otherwise.

 

- 17 -

 

The Custodian has no responsibility to monitor or oversee the investment activity undertaken by a Fund or its Investment Advisor. The Custodian has no duty to ensure (or to inquire whether) an Investment Advisor complies with any investment objectives or restrictions agreed between a Fund and such Investment Advisor, or whether such Investment Advisor complies with its legal obligations to under applicable securities laws or other laws, including laws intended to protect the interests of investors. The Custodian shall neither assess nor take any responsibility or liability for the suitability or appropriateness of the investments made by a Fund or on its behalf.

 

A Fund’s receipt of securities from a counterparty in connection with any of its purchase transactions and its receipt of cash from a counterparty in connection with any sale of securities will be at the Fund’s sole risk, and the Custodian shall not be obligated to make demands on the Fund’s behalf if the Fund’s counterparty defaults. If a Fund’s counterparty fails to deliver securities or cash, the Custodian will, as its sole responsibility, notify the Investment Advisor of such failure within a reasonable time after becoming aware of the same.

 

Section 16. Effective Period and Termination.

 

This Agreement shall remain in full force and effect for an initial term ending March 3, 2017 (the “Initial Term”). After the expiration of the Initial Term, this Agreement shall automatically renew for successive one-year terms (each, a “Renewal Term”) unless a written notice of non-renewal is delivered by the non-renewing party no later than ninety (90) days prior to the expiration of the Initial Term or any Renewal Term, as the case may be. During the Initial Term and thereafter, either party may terminate this Agreement: (i) in the event of the other party’s material breach of a material provision of this Agreement that the other party has either (a) failed to cure or (b) failed to establish a remedial plan to cure that is reasonably acceptable, within 60 days’ written notice of such breach, or (ii) in the event of the appointment of a conservator or receiver for the other party or upon the happening of a like event to the other party at the direction of an appropriate agency or court of competent jurisdiction. Upon termination of this Agreement pursuant to this paragraph with respect to any Fund or Portfolio, the applicable Fund shall pay Custodian its compensation due and shall reimburse Custodian for its costs, expenses and disbursements.

 

In the event of: (i) any Fund's termination of this Agreement with respect to such Fund or its Portfolio(s) for any reason other than as set forth in the immediately preceding paragraph or (ii) a transaction not in the ordinary course of business pursuant to which the Custodian is not retained to continue providing services hereunder to a Fund or Portfolio (or its respective successor), the applicable Fund shall pay the Custodian its compensation due through the end of the then-current term (based upon the average monthly compensation previously earned by Custodian with respect to such Fund or Portfolio) and shall reimburse the Custodian for its costs, expenses and disbursements. Upon receipt of such payment and reimbursement, the Custodian will deliver such Fund’s or Portfolio’s securities and cash as set forth hereinbelow. For the avoidance of doubt, no payment will be required pursuant to clause (ii) of this paragraph in the event of any transaction such as (a) the liquidation or dissolution of a Fund or a Portfolio and distribution of such Fund’s or Portfolio’s assets as a result of the Board’s determination in its reasonable business judgment that the Fund or Portfolio is no longer viable (b) a merger of a Fund or Portfolio into, or the consolidation of a Fund or Portfolio with, another entity, or (c) the sale by a Fund or Portfolio of all, or substantially all, of its assets to another entity, in each of (b) and (c) where the Custodian is retained to continue providing services to such Fund or Portfolio (or its respective successor) on substantially the same terms as this Agreement.

 

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Termination of this Agreement with respect to any one particular Fund or Portfolio shall in no way affect the rights and duties under this Agreement with respect to any other Fund or Portfolio. The provisions of Sections 14 and 15 and the indemnification obligations of Section 6 of this Agreement shall survive termination of this Agreement for any reason.

 

Section 17. Successor Custodian.

 

If a successor custodian for one or more Portfolios shall be appointed by the applicable Board, the Custodian shall, upon termination and receipt of Proper Instructions, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities, funds and other properties of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System or at the Underlying Transfer Agent.

 

If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of Proper Instructions, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with Proper Instructions.

 

In the event that no Proper Instructions designating a successor custodian or alternative arrangements shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a “bank” as defined in the 1940 Act, doing business in Boston, Massachusetts or New York, New York, of its own selection, all securities, funds and other properties held by the Custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property of each applicable Portfolio then held by it under this Agreement on behalf of each applicable Portfolio, and to transfer to an account of such successor custodian all of the securities of each such Portfolio held in any Securities System or at the Underlying Transfer Agent. Thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement.

 

In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of any Fund to provide Proper Instructions as aforesaid, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect.

 

Section 18. Remote Access Services Addendum. The Custodian and each Fund agree to be bound by the terms of the Remote Access Services Addendum hereto.

 

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Section 19. Loan Services Addendum. In the event the Fund directs Custodian in writing to perform loan services, Custodian and the Fund hereby agree to be bound by the terms of the Loan Services Addendum attached hereto and the Fund shall reimburse Custodian for its fees and expenses related thereto as agreed upon from time to time in writing by the Fund and Custodian.

 

Section 20. General.

 

Section 20.1 Governing Law. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts, without giving effect to any conflict of laws rules.

 

Section 20.2 Prior Agreements; Amendments. This Agreement supersedes and terminates, as of the date hereof, all prior agreements between each Fund on behalf of each of the Portfolios and the Custodian relating to the custody of such Fund’s assets. This Agreement may be amended at any time in writing by mutual agreement of the parties hereto.

 

Section 20.3 Assignment. This Agreement may not be assigned by (a) any Fund without the written consent of the Custodian or (b) by the Custodian without the written consent of each applicable Fund, except that the Custodian may assign this Agreement to a successor of all or a substantial portion of its business, or to a party controlling, controlled by or under common control with the Custodian.

 

Section 20.4 Interpretive and Additional Provisions. In connection with the operation of this Agreement, the Custodian and each Fund on behalf of each of the Portfolios, may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by all parties, provided that no such interpretive or additional provisions shall contravene any applicable laws or regulations or any provision of a Fund’s articles of organization and by-laws or agreement or declaration of trust, as applicable, and Prospectus (collectively, “Governing Documents”). No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement.

 

Section 20.5 Additional Funds and Portfolios. In the event that any management investment company in addition to those listed on Appendix A hereto desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such management investment company shall become a Fund hereunder and be bound by all terms and conditions and provisions hereof including, without limitation, the representations and warranties set forth in Section 20.6 below. In the event that any Fund establishes one or more series of Shares in addition to those set forth on Appendix A hereto with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder.

 

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Section 20.6 The Parties. All references herein to the “Fund” are to each of the management investment companies listed on Appendix A hereto, and each management investment company made subject to this Agreement in accordance with Section 20.5 above, individually, as if this Agreement were between such individual Fund and the Custodian. In the case of a series corporation, trust or other entity, all references herein to the “Portfolio” are to the individual series or portfolio of such corporation, trust or other entity, or to such corporation, trust or other entity on behalf of the individual series or portfolio, as appropriate. Any reference in this Agreement to “the parties” shall mean the Custodian and such other individual Fund as to which the matter pertains. Each Fund hereby represents and warrants that (a) it is organized and validly existing in good standing in its jurisdiction of organization; (b) it has the requisite power and authority under applicable law and its Governing Documents to enter into and perform this Agreement; (c) all requisite proceedings have been taken to authorize it to enter into and perform this Agreement; (d) this Agreement constitutes its legal, valid, binding and enforceable agreement; and (e) its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Fund or any law or regulation applicable to it.

 

Section 20.7 Notices. Any notice, instruction or other instrument required to be given hereunder will be in writing and may be sent by hand, or by facsimile transmission, or overnight delivery by any recognized delivery service, to the parties at the following addresses or such other addresses as may be notified by any party from time to time.

 

To any Fund: c/o RiverNorth Funds

325 N. LaSalle St., Suite 645

Chicago, IL 60654

Attention: Jonathan Mohrdardt

Telephone: 312-840-9012

Telecopy: 312-832-1461

 

To the Custodian: State Street Bank and Trust Company

801 Pennsylvania

Kansasa City, MO 64105

Attention: Vice President – Mutual Funds

Telephone: 816-871-4100

Telecopy: 816-871-9675

 

Section 20.8 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts taken together shall constitute one and the same Agreement. Counterparts may be executed in either original or electronically transmitted form (e.g., faxes or emailed portable document format (PDF) form), and the parties hereby adopt as original any signatures received via electronically transmitted form.

 

Section 20.9 Severability. If any provision or provisions of this Agreement shall be held to be invalid, unlawful or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired. The failure of a party hereto to insist upo-n strict adherence to any term of this Agreement on any occasion or the failure of a party hereto to -exercise or any delay in exercising any right or remedy under this Agreement shall not constitute a waiver of any such term, right or remedy or a waiver of any other rights or remedies, and no single or partial exercise of any right or remedy under this Agreement shall prevent any further exercise of the right or remedy or the exercise of any other right or remedy.

 

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Section 20.10 Confidentiality. The parties hereto agree that each shall treat confidentially all information provided by each party to the other party regarding its business and operations. All confidential information provided by a party hereto shall be used by any other party hereto solely for the purpose of rendering or receiving services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party. The foregoing shall not be applicable to any information (i) that is publicly available when provided or thereafter becomes publicly available, other than through a breach of this Agreement, (ii) that is independently derived by any party hereto without the use of any information provided by the other party hereto in connection with this Agreement, (iii) that is required in any legal or regulatory proceeding, investigation, audit, examination, subpoena, civil investigative demand or other similar process, or by operation of law or regulation, or (iv) 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. Notwithstanding anything herein to the contrary, the Custodian and its affiliates may report and use nonpublic portfolio holdings information of its clients, including a Fund or Portfolio, on an aggregated basis with all or substantially all other client information and without specific reference to any Fund or Portfolio.

 

Section 20.11 Reproduction of Documents. This Agreement and all schedules, addenda, exhibits, appendices, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/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 reproduction of such reproduction shall likewise be admissible in evidence.

 

Section 20.12 Regulation GG. Each Fund hereby represents and warrants that it does not engage in an “Internet gambling business,” as such term is defined in Section 233.2(r) of Federal Reserve Regulation GG (12 CFR 233) (“Regulation GG”). Each Fund hereby covenants that it shall not engage in an Internet gambling business. In accordance with Regulation GG, each Fund is hereby notified that “restricted transactions,” as such term is defined in Section 233.2(y) of Regulation GG, are prohibited in any dealings with the Custodian pursuant to this Agreement or otherwise between or among any party hereto.

 

Section 20.13 Data Privacy. The Custodian will implement and maintain a written information security program that contains appropriate security measures to safeguard the personal information of the Funds’ shareholders, employees, directors and/or officers that the Custodian receives, stores, maintains, processes or otherwise accesses in connection with the provision of services hereunder. For these purposes, “personal information” shall mean (i) an individual’s name (first initial and last name or first name and last name), address or telephone number plus (a) Social Security number, (b) driver’s license number, (c) state identification card number, (d) debit or credit card number, (e) financial account number or (f) personal identification number or password that would permit access to a person’s account, or (ii) any combination of the foregoing that would allow a person to log onto or access an individual’s account. Notwithstanding the foregoing “personal information” shall not include information that is lawfully obtained from publicly available information, or from federal, state or local government records lawfully made available to the general public.

 

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Section 20.14 Shareholder Communications Election. SEC Rule 14b-2 requires banks 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 bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, as may be applicable, the Custodian needs each Fund to indicate whether it authorizes the Custodian to provide such Fund’s name, address, and share position to requesting companies whose securities the Fund owns. If a Fund tells the Custodian “no,” the Custodian will not provide this information to requesting companies. If a Fund tells the Custodian “yes” or does not check either “yes” or “no” below, the Custodian is required by the rule, as applicable, to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. For a Fund’s protection, the Rule, as applicable, 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 [X] The Custodian is not authorized to release the Fund’s name, address, and share positions.

 

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Signature Page

 

In Witness Whereof, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative under seal as of the date first above-written.

 

EACH OF THE ENTITIES

SET FORTH ON APPENDIX A HERETO

 

By:    
  Name: Jonathan M. Mohrhardt  
  Title: Treasurer  

 

STATE STREET BANK AND TRUST COMPANY

 

By:    
Name: Michael F. Rogers  
Title: Executive Vice President  

 

Master Custodian Agreement

 

- 24 -

 

APPENDIX A

to

Master Custodian Agreement

 

Management Investment Companies Registered with the SEC and Portfolios thereof, If Any

 

RiverNorth Funds

 

RiverNorth Core Opportunity Fund

RiverNorth Managed Volatility Fund

RiverNorth/Oaktree High Income Fund – RiverNorth

RiverNorth/Oaktree High Income Fund - Oaktree

RiverNorth/DoubleLine Strategic Income Fund – RiverNorth

RiverNorth/DoubleLine Strategic Income Fund – DoubleLine 1

RiverNorth/DoubleLine Strategic Income Fund – DoubleLine 2

RiverNorth Equity Opportunity Fund

 

D- 1

 

 

______________________, 2021

 

State Street Bank and Trust Company

801Pennsylvania Avenue

Kansas City, Missouri 64105

Attention: Vice President - Mutual Funds

 

Re: RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”)

 

Ladies and Gentlemen;

 

Please be advised that the undersigned Fund has been incorporated and registered a management investment company under the Investment Company Act of 1940, as amended.

 

In accordance with Section 20.5, the Additional Funds and Portfolios provision, of the Master Custodian Agreement dated as of March 3, 2014, as amended, modified, or supplemented from time to time (the "Agreement”), by and among each registered investment company party thereto, and State Street Bank and Trust Company ("State Street"), the undersigned Fund hereby requests that State Street act as Custodian for the Fund(s) under the terms of the Agreement. In connection with such request, the undersigned Fund hereby confirms, as of the date hereof, its representations and warranties set forth in Section 20.6 of the Agreement.

 

Attached hereto is a revised Appendix A to the Agreement marked to show the addition of the Fund.

 

Please indicate your acceptance of the foregoing by executing this letter agreement and returning a copy to the Fund.

 

  Sincerely,  
     
  RiverNorth FLEXIBLE MUNICIPAL INCOME FUND II, INC.
     
  By:    
  Name: Marcus L. Collins  
  Title: Secretary and Chief Compliance Officer  

 

Agreed and Accepted:

 

State Street Bank and Trust Company

 

By:  
Name:    
Title:    

Effective Date: ________________, 2021  

  

 

 

APPENDIX A TO

MASTER CUSTODIAN AGREEMENT

 

RiverNorth Funds

RiverNorth Core Opportunity Fund

RiverNorth Core Opportunity Fund - Collateral REFLOW

RiverNorth Core Opportunity Fund - Collateral FBO Goldman Sachs

 

RiverNorth/Oaktree High Income Fund –RiverNorth

RiverNorth/Oaktree High Income Fund -Oaktree

RiverNorth/Oaktree High Income Fund - Collateral

RiverNorth/Oaktree High Income Fund -Collateral FBO Goldman Sachs

RiverNorth/Oaktree High Income Fund - Collateral FBO REFLOW

 

RiverNorth/DoubleLine Strategic Income Fund –RiverNorth

RiverNorth/DoubleLine Strategic Income Fund -Collateral FBO REFLOW

RiverNorth/DoubleLine Strategic Income Fund -Collateral FBO Goldman Sachs

RiverN01th/DoubleLine Strategic Income Fund -DoubleLine 1

RiverNorth/DoubleLine Strategic Income Fund -DoubleLine 2

 

RiverNorth Opportunistic Municipal Income Fund, Inc.

RiverNorth Opportunistic Municipal Income Fund, Inc. -Collateral

RiverNorth Opportunistic Municipal Income Fund, Inc. -MacKay Shields

RiverNorth Opportunistic Municipal Income Fund, Inc. -MacKay Shields Collateral

RiverNorth Opportunistic Municipal Income Fund, Inc. -MacKay Shields TOBs

 

RiverNorth Managed Duration Municipal Income Fund, Inc.

RiverNorth Managed Duration Municipal Income Fund, Inc. - RN Collateral

RiverNorth Managed Duration Municipal Income Fund, Inc. - MacKay

RiverNorth Managed Duration Municipal Income Fund, Inc. - MacKay Collateral

RiverNorth Managed Duration Municipal Income Fund - Mackay TOB

 

RiverNorth DoubleLine Strategic Opportunity Fund, Inc.

 

RiverNorth Flexible Municipal Income Fund, Inc.

 

RiverNorth Flexible Municipal Income Fund II, Inc.

 

RiverNorth Specialty Finance Corporation

 

AGENCY AGREEMENT

 

THIS AGREEMENT made the 24th day of October, 2018, by and between RIVERNORTH OPPORTUNISTIC MUNICIPAL INCOME FUND, INC., a corporation existing under the laws of the State of Maryland, having its principal place of business at 325 North LaSalle Street, Suite 645, Chicago, Illinois 60654 (the "Fund") and any other investment products set forth on Schedule I, attached hereto, as amended from time to time (each such investment program hereinafter jointly and severally referred to as "Fund"), and DST SYSTEMS, INC., a corporation existing under the laws of the State of Delaware, having its principal place of business at 333 West 11th Street, 5th Floor, Kansas City, Missouri 64105 ("DST"):

 

WITNESSETH:

 

WHEREAS, the Fund desires to appoint DST as Transfer Agent and Dividend Disbursing Agent, and DST desires to accept such appointment upon the terms and conditions set forth herein;

 

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

 

1. Documents to be Provided with Appointment.

 

In connection with the appointment of DST as Transfer Agent and Dividend Disbursing Agent for the Fund, there will be filed with DST the following documents:

 

A. A certified copy of the resolutions of the Board of Directors/Trustees, as appropriate, of the Fund appointing DST as Transfer Agent and Dividend Disbursing Agent, approving the form of this Agreement, and designating certain persons to sign stock certificates, if any, and give written instructions and requests on behalf of the Fund;

 

B. A certified copy of the Articles of Incorporation/Declaration of Trust, as appropriate, of the Fund and all amendments thereto;

 

C. A certified copy of the Bylaws/Articles, as appropriate, of the Fund;

 

D. Copies of Registration Statements and amendments thereto, filed with the Securities and Exchange Commission.

 

E. Specimens of all forms of outstanding stock certificates, if any, in the forms approved by the Board of Directors/Trustees, as appropriate, of the Fund, with a certificate of the Secretary/Clerk of the Fund, evidencing such approval;

 

 

 

F. Specimens of the signatures of the officers of the Fund authorized to sign stock certificates, if any, and individuals authorized to sign written instructions and requests;

 

G. A certificate by the Secretary or similarly situated officer of the Fund (who may be the Fund’s General Counsel) with respect to:

 

(1) The Fund's organization and existence under the laws of its state of organization,

 

(2) The status of all shares of stock of the Fund covered by the appointment under the Securities Act of 1933, as amended (the “1933 Act”), and any other applicable federal or state statute, and

 

(3) That all issued shares are, and all unissued shares will be, when issued, validly issued, fully paid and nonassessable.

 

H. For this Section 1, a certificate from the Fund’s Secretary or Chief Financial Officer is acceptable.

 

2. Certain Representations and Warranties of DST.

 

DST represents and warrants to the Fund that:

 

A. It is a corporation duly organized and existing and in good standing under the laws of Delaware.

 

B. It is duly qualified to carry on its business in the State of Missouri.

 

C. It is empowered under applicable laws and by its Articles of Incorporation and Bylaws to enter into and perform the services contemplated in this Agreement.

 

D. It is registered as a transfer agent to the extent required under the Securities Exchange Act of 1934, as amended (the “1934 Act”'), and is a transfer agent and registrar approved by the New York Stock Exchange (“NYSE-Approved Transfer Agent”), and DST will continue to be registered and so approved during the term of this Agreement. DST will promptly notify the Fund in the event of any material change in its status as a registered transfer agent or NYSE-Approved Transfer Agent; and if DST fails to be so registered or approved by the Securities and Exchange Commission (“SEC”) or the New York Stock Exchange, or any successor agency of the SEC or the New York Stock Exchange, or any additional agency to the extent the existing Services as they apply to the current Funds become subject to additional regulatory oversight by an agency other than the SEC or the New York Stock Exchange, DST shall register as a transfer agent for such Services.

 

 

 

E. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement.

 

F. It has and will continue to have and maintain the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement.

 

G. It is accepted by The Depository Trust Company (“DTC”) as a DTC Direct Registration System Limited Participant. In this regard, DST will participate in DTC's Fast Automated Transfer Program, provide a Direct Mail by Agent function as mandated by DST in connection with participation in the Direct Registration System (“DRS”); will undergo sufficient training regarding DRS and DST’s Profile Modification System (“Profile”); and will participate in DTC’s Profile Surety Program as a prerequisite to initiating Profile transactions.

 

H. For so long as this Agreement remains in full force and effect DST will maintain an electronic interface with the FAST System owned and operated by DTC.

 

I. DST will add the Fund to the FAST System program and Profile through DTC and will make the Fund’s shares eligible for the DRS Program as soon as reasonably practicably, and, except for the Fund’s responsibility to ensure that (i) the Fund’s governing documents permit the issuance of uncertificated shares, (ii) the Fund’s Board of Directors has authorized the issuance of uncertificated shares, and (iii) all associated tax reporting requirements are complied with, will maintain the Fund’s eligibility to participate therein, in accordance with all applicable DTC requirements and SEC rules and regulations, including, without limitation, by mailing or otherwise making available to a shareholder (i) a shareholder transaction advice or statement within three (3) business days of each DRS account transaction that affects the shareholders’ position or more often as required by SEC regulations; and (ii) DRS Book Entry statements to registered owners at least annually or more often as required by SEC regulations.

 

 

 

3. Certain Representations and Warranties of the Fund.

 

The Fund represents and warrants to DST that:

 

A. It is a corporation duly organized and existing and in good standing under the laws of the State of Maryland and it is duly qualified, as required, to carry on its business in the jurisdictions in which it is required to so qualify or in which DST provides the Services.

 

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

 

C. A registration statement under the Securities Act of 1933 has been filed and will be effective with respect to all shares of the Fund being offered for sale.

 

D. All requisite steps have been and will at all times material hereto continue to be taken to register the Fund's shares for sale in all applicable states and such registration will be effective at all times shares are offered for sale in such state All Shares issued and outstanding as of the date of this Agreement were issued pursuant to an effective registration statement under the 1933 Act or were exempt or were issued in a transaction or transactions exempt from the registration requirements of the 1933 Act. Any Shares issued after the date hereof will be issued pursuant to an effective registration statement under the 1933 Act, unless in each case such Shares or transaction is exempt from the registration requirements of the 1933 Act.

 

E. Each offer to sell or sale of shares of the Fund by the Fund or its agents, representatives and dealers in each state in which a share is offered for sale or sold will be made in material compliance with all applicable Federal, State or local laws, rules and regulations.

 

F. The Fund is empowered under applicable laws and by its charter/declaration, as appropriate, and Bylaws/Articles, as appropriate, to enter into and perform this Agreement.

 

4. Scope of Appointment.

 

A. Subject to the terms and conditions set forth in this Agreement, the Fund hereby appoints DST as Transfer Agent and Dividend Disbursing Agent.

 

B. DST hereby accepts such appointment and agrees that it will act as the Fund's Transfer Agent and Dividend Disbursing Agent. DST agrees that it will also act as agent in connection with the Fund's periodic withdrawal payment accounts and other open accounts or similar plans for securityholders, if any.

 

 

 

C. The Fund agrees to use its reasonable efforts to deliver to DST in Kansas City, Missouri, as soon as they are available, all of its securityholder account records.

 

D. DST, utilizing TA2000TM, DST's computerized data processing system for securityholder accounting (the "TA2000 System") and in accordance with the terms and conditions of this Agreement, will perform the following services as transfer and dividend disbursing agent for the Fund, and as agent of the Fund for securityholder accounts thereof, in a timely manner: (i) issuing (including countersigning), transferring and canceling share certificates; (ii) maintaining on the TA2000 System securityholder accounts; (iii) accepting and effectuating the registration and maintenance of accounts through Networking and the purchase, redemption, transfer and exchange of shares in such accounts through Fund/SERV (Networking and Fund/SERV being programs operated by the National Securities Clearing Corporation (“NSCC”) on behalf of NSCC’s participants, including the Funds), in accordance with instructions transmitted to and received by DST by transmission from NSCC on behalf of broker-dealers and banks which have been established by, or in accordance with the instructions of, an Authorized Person, as hereinafter defined, on the Dealer File maintained by DST; (iv) issuing instructions to the Funds’ banks for the settlement of transactions between the Funds and NSCC (acting on behalf of its broker-dealer and bank participants); (v) providing account and transaction information from each affected Fund’s records on TA2000 in accordance with NSCC’s Networking and Fund/SERV rules for those broker-dealers; (vi) maintaining securityholder accounts on TA2000 through Networking; (vii) providing transaction journals; (viii) once annually preparing securityholder meeting lists for use in connection with the annual meeting and certifying a copy of such list; (ix) mailing securityholder reports and prospectuses; (x) withholding, as required by federal law, taxes on securityholder accounts, preparing, filing and mailing U.S. Treasury Department Forms 1099, 1042, and 1042S and performing and paying backup withholding as required for all securityholders; (xi) disbursing income dividends and capital gains distributions to securityholders and recording reinvestment of dividends and distributions in shares of the Fund; (xii) preparing and mailing confirmation forms to securityholders and dealers, as instructed, for all purchases and liquidations of shares of the Fund and other confirmable transactions in securityholders' accounts; (xiii) providing or making available on-line daily and monthly reports as provided by the TA2000 System and as requested by the Fund or its management company; (xiv) maintaining those records necessary to carry out DST's duties hereunder, including all information reasonably required by the Fund to account for all transactions in the Fund shares; (xv) calculating the appropriate sales charge with respect to each purchase of the Fund shares as instructed by an Authorized Person, as hereinafter defined, determining the portion of each sales charge payable to the dealer participating in a sale in accordance with schedules and instructions delivered to DST by the Fund's principal underwriter or distributor (hereinafter "principal underwriter") or an Authorized Person from time to time, disbursing dealer commissions collected to such dealers, determining the portion of each sales charge payable to such principal underwriter and disbursing such commissions to the principal underwriter; (xvi) receiving correspondence pertaining to any former, existing or new securityholder account, processing such correspondence for proper recordkeeping, and responding promptly to securityholder correspondence; mailing to dealers confirmations of wire order trades; mailing copies of securityholder statements to securityholders and registered representatives of dealers in accordance with the instructions of an Authorized Person; (xvii) processing, generally on the date of receipt, purchases or redemptions or instructions to settle any mail or wire order purchases or redemptions received in proper order as set forth in the prospectus, rejecting promptly any requests not received in proper order (as defined by an Authorized Person or the Procedures as hereinafter defined), and causing exchanges of shares to be executed in accordance with the instructions of Authorized Persons, the applicable prospectus and the general exchange privilege applicable; (xviii) providing to the person designated by an Authorized Person the daily Blue Sky reports generated by the Blue Sky module of TA2000 with respect to purchases of shares of the Funds on TA2000; (xix) providing to the Fund escheatment reports as requested by an Authorized Person with respect to the status of accounts and outstanding checks on TA2000 and (xxi) providing a Cash Utilization Arrangement consistent with the provisions set forth in Exhibit A. For clarification, with respect to Blue Sky obligations, the Fund is responsible any registration or filing with a federal or state government body or obtaining approval from such body required for the sale of shares of the Fund in each jurisdiction in which it is sold. DST’s sole obligation is to provide the Fund access to the Blue Sky module of TA2000 with respect to purchases of shares of the Fund on TA2000. It is the Fund’s responsibility to validate that the blue sky module settings are accurate and complete and to validate the output produced thereby and other applicable reports provided by DST, to ensure accuracy. DST is not responsible in any way for claims that the sale of shares of the Fund violated any such requirement (unless such violation results from a failure of the DST Blue Sky module to notify the Fund that such sales do not comply with the parameters set by the Fund for sales to residents of a given state).

 

 

 

 

E. At the request of an Authorized Person, DST shall use reasonable efforts to provide the services set forth in Section 4.D in connection with transactions (i) the processing of which transactions require DST to use methods and procedures other than those usually employed by DST to perform securityholder servicing agent services, (ii) involving the provision of information to DST after the commencement of the nightly processing cycle of the TA2000 System or (iii) which require more manual intervention by DST, either in the entry of data or in the modification or amendment of reports generated by the TA2000 System than is usually required by normal transactions, (the “Exception Services”).

 

F. DST shall use reasonable efforts to provide, reasonably promptly under the circumstances, the same services with respect to any new, additional functions or features or any changes or improvements to existing functions or features as provided for in the Fund's instructions, prospectus or application as amended from time to time, for the Fund provided (i) DST is advised in advance by the Fund of any changes therein and (ii) the TA2000 System and the mode of operations utilized by DST as then constituted supports such additional functions and features. If any addition to, improvement of or change in the features and functions currently provided by the TA2000 System or the operations as requested by the Fund requires an enhancement or modification to the TA2000 System or to operations as presently conducted by DST, DST shall not be liable therefore until such modification or enhancement is installed on the TA2000 System or new mode of operation is instituted. If any new, additional function or feature or change or improvement to existing functions or features or new service or mode of operation is considered in DST’s discretion to be an optional service, and which measurably increases DST's cost of performing the services required hereunder at the current level of service, DST shall advise the Fund of the amount of such increase and if the Fund elects to utilize such function, feature or service, DST shall be entitled to increase its fees by an amount mutually agreed to by the parties. In no event shall DST be responsible for or liable to provide any additional function, feature, improvement or change in method of operation until DST has consented thereto in writing and DST and the Fund have agreed upon an incremental fee for such additional function, feature, improvement or change in method of operation. If any new, additional function or feature or change or improvement to existing functions or features or new service or mode of operation is in DST’s discretion a mandated change to the Services, and are charged generally to other existing clients used the modified or improved system, then DST may charge the Fund for the Fund’s pro rata share (based on number of accounts or other equitable measure based on the Service revised or modified) of the cost of the system modifications and improvements.

 

 

 

G. The Fund shall add all new series to the TA2000 System upon at least thirty (30) days’ prior written notice to DST provided that the requirements of the new series are generally consistent with services then being provided by DST under this Agreement. Rates or charges for additional series shall be as set forth in Exhibit A, as hereinafter defined, for the remainder of the contract term except as such series use functions, features or characteristics for which DST has imposed an additional charge as part of its standard pricing schedule. In the latter event, rates and charges shall be in accordance with DST's then-standard pricing schedule.

 

H. The provisions of this Section 4.H that follow this sentence shall take precedence over and shall govern in the event of any inconsistency between such provisions and any other provisions of this Agency Agreement or any provisions of any exhibit or other attachment to this Agency Agreement (or any provisions of any attachment to any such exhibit or attachment). The parties agree that – to the extent that DST provides any services under this Agency Agreement that relate to compliance by the Fund with the Internal Revenue Code of 1986 or any other tax law, including without limitation the services described in Section 4.D(x) – it is the parties’ mutual intent that DST will provide only printing, reproducing, and other mechanical assistance to the Fund and that DST will not make any judgments or exercise any discretion of any kind, and particularly that DST will not make any judgments or exercise any discretion in: (1) determining generally the actions that are required in connection with such compliance or determining generally when such compliance has been achieved; (2) determining the amounts of taxes that should be withheld on securityholder accounts (except to the extent of making mathematical calculations of such amounts based on express instructions provided by the Fund); (3) determining the amounts that should be reported in or on any specific box or line of any tax form (except to the extent of making mathematical calculations of such amounts based on express instructions provided by the Fund which among other things identify the specific boxes and lines into which amounts calculated by DST are to be placed); (4) classifying the status of securityholders and securityholder accounts under applicable tax law (except to the extent of following express instructions regarding such classification provided by the Fund); and (5) paying withholding and other taxes, except pursuant to the express instructions of the Fund. The Fund agrees that it will provide express and comprehensive instructions to DST in connection with all of the services that are to be provided by DST under this Agency Agreement that relate to compliance by the Fund with the Internal Revenue Code of 1986 or any other tax law (including without limitation the services described in Section 4.D(x)), including promptly providing responses to requests for direction that may be made from time to time by DST of the Fund in this regard.

 

 

 

I. Additionally, upon receipt of a Financial Product’s written request, DST shall provide transmissions of shareholder activity to the print vendor selected by the Financial Product.

 

5. Limit of Authority.

 

Unless otherwise expressly limited by the resolution of appointment or by subsequent action by the Fund, the appointment of DST as Transfer Agent will be construed to cover the full amount of authorized stock of the class or classes for which DST is appointed as the same will, from time to time, be constituted, and any subsequent increases in such authorized amount.

 

 

 

In case of such increase the Fund will file with DST:

 

A. If the appointment of DST was theretofore expressly limited, a certified copy of a resolution of the Board of Directors of the Fund increasing the authority of DST;

 

B. A certified copy of the amendment to the Articles of Incorporation of the Fund authorizing the increase of stock;

 

C. A certified copy of the order or consent of each governmental or regulatory authority required by law to consent to the issuance of the increased stock, and an opinion by the Secretary or similarly situated officer of the Fund (who may be the Fund’s General Counsel) stating that the order or consent of no other governmental or regulatory authority is required;

 

D. A certificate by the Secretary or similarly situated officer of the Fund (who may be the Fund’s General Counsel) stating:

 

(1) The status of the additional shares of stock of the Fund under the Securities Act of 1933, as amended, and any other applicable federal or state statute; and

 

(2) That the additional shares are, or when issued will be, validly issued, fully paid and nonassessable.

 

6. Compensation and Expenses.

 

A. In consideration for its services hereunder as Transfer Agent and Dividend Disbursing Agent, the Fund will pay to DST from time to time a reasonable compensation for all services rendered as Agent, and also, all its reasonable billable expenses, charges, counsel fees, and other disbursements ("Compensation and Expenses") incurred in connection with the agency. Such compensation is set forth in a separate schedule to be agreed to by the Fund and DST, a copy of which is attached hereto as Exhibit A. If the Fund has not paid such Compensation and Expenses to DST within a reasonable time, DST may, charge against any monies held under this Agreement, the amount of any Compensation and/or Expenses for which it shall be entitled to reimbursement under this Agreement. The monthly fee for an open account shall be charged in the month during which an account is opened through the month in which such account is closed. The monthly fee for a closed account shall be charged in the month following the month during which such account is closed and shall cease to be charged in the month following the Purge Date, as hereinafter defined in Section 17.

 

 

 

B. The Fund also agrees promptly to reimburse DST for all reasonable and reasonably verified billable expenses or disbursements incurred by DST in connection with the performance of services under this Agreement including, but not limited to, expenses for postage, express delivery services, freight charges, envelopes, checks, drafts, forms (continuous or otherwise), specially requested reports and statements, telephone calls, telegraphs, stationery supplies, counsel fees, outside printing and mailing firms, magnetic tapes, reels or cartridges (if sent to the Fund or to a third party at the Fund's request) and magnetic tape handling charges, off-site record storage, media for storage of records (e.g., microfilm, microfiche, optical platters, computer tapes), computer equipment installed at the Fund's request at the Fund's or a third party's premises, telecommunications equipment, telephone/telecommunication lines between the Fund and its agents, on one hand, and DST on the other, proxy soliciting, processing and/or tabulating costs, second-site backup computer facility, transmission of statement data for remote printing or processing, and National Securities Clearing Corporation ("NSCC") transaction fees (collectively the “Expenses” and each an “Expense”) to the extent any of the foregoing are paid by DST. The Fund agrees to pay postage expenses at least one day in advance if so requested. In addition, any other expenses incurred by DST at the request or with the consent of the Fund will be promptly reimbursed by the Fund. Notwithstanding anything herein to the contrary, DST must provide a reasonably itemized invoice showing aggregated Expenses for all Funds, or other reasonable evidence of such Expenses upon the request of the Fund as a condition to reimbursement.

 

C. Amounts due hereunder shall be due and paid on or before the thirtieth (30th) business day after receipt of the statement therefor by the Fund (the "Due Date"). The Fund is aware that its failure to pay all amounts in a timely fashion so that they will be received by DST on or before the Due Date will give rise to costs to DST not contemplated by this Agreement, including but not limited to carrying, processing and accounting charges. Accordingly, subject to Section 6.D. hereof, in the event that any amounts due hereunder are not received by DST by the Due Date, the Fund shall pay a late charge equal to the lesser of the maximum amount permitted by applicable law or the product of one and one-half percent (1.5%) per month times the amount overdue times the number of months from the Due Date up to and including the day on which payment is received by DST. The parties hereby agree that such late charge represents a fair and reasonable computation of the costs incurred by reason of late payment or payment of amounts not properly due. Acceptance of such late charge shall in no event constitute a waiver of the Fund's or DST's default or prevent the non-defaulting party from exercising any other rights and remedies available to it.

 

 

 

D. In the event that any charges are disputed, the Fund shall, on or before the Due Date, pay all undisputed amounts due hereunder and notify DST in writing of any disputed charges for billable expenses which it is disputing in good faith. Payment for such disputed charges shall be due on or before the close of the fifth (5th) business day after the day on which DST provides to the Fund documentation which an objective observer would agree reasonably supports the disputed charges (the "Revised Due Date"). Late charges shall not begin to accrue as to charges disputed in good faith until the first business day after the Revised Due Date.

 

E. The fees and charges set forth on Exhibit A shall increase or may be increased as follows:

 

(1) On the first day of each new term, in accordance with the "Fee Increases" provision in Exhibit A;

 

(2) DST may increase the fees and charges set forth on Exhibit A upon at least ninety (90) days prior written notice, if changes in existing laws, rules or regulations: (i) require substantial system modifications or (ii) materially increase cost of performance hereunder;

 

(3) DST may charge for additional features of TA2000 used by the Fund which features are not consistent with the Fund's current processing requirements and if in DST’s sole discretion those additional features are optional services, then the Fund must elect to utilize or have DST utilize such services on the Fund’s behalf prior to the Fund being responsible for payment; and

 

 

 

(4) In the event DST, at the Fund’s request or direction, performs Exception Services, DST shall be entitled to increase the fees and charges for such Exception Services from those set forth on Exhibit A to the extent such Exception Services increase DST’s cost of performance.

 

If DST notifies the Fund of an increase in fees or charges pursuant to subparagraph (2) of this Section 6.E., the parties shall confer, diligently and in good faith and agree upon a new fee to cover the amount necessary, but not more than such amount, to reimburse DST for the Fund's allocable portion of the cost of developing the new software to comply with regulatory charges and for the increased cost of operation.

 

If DST notifies the Fund of an increase in fees or charges under subparagraphs (3) or (4) of this Section 6.E., the parties shall confer, diligently and in good faith, and agree upon a new fee to cover such new fund feature.

 

7. Operation of DST System.

 

In connection with the performance of its services under this Agreement, DST is responsible for such items as:

 

A. That entries in DST's records, and in the Fund's records on the TA2000 System created by DST, reflect the orders, instructions, and other information received by DST from the Fund, the Fund's distributor, manager or principal underwriter, the Fund's investment adviser, the Fund’s sponsor, the Fund’s custodian, the Fund’s administrator and any other person whom the Fund names on Exhibit B (each an “Authorized Person”), broker-dealers or securityholders;

 

B. That securityholder lists, securityholder account verifications, confirmations and other securityholder account information to be produced from its records or data be available and accurately reflect the data in the Fund's records on the TA2000 System;

 

C. The accurate and timely issuance of dividend and distribution checks in accordance with instructions received from the Fund and the data in the Fund's records on the TA2000 System;

 

D. That redemption transactions and payments be effected timely, under normal circumstances on the day of receipt, and accurately in accordance with redemption instructions received by DST from Authorized Persons, broker-dealers or securityholders and the data in the Fund's records on the TA2000 System;

 

 

 

E. The deposit daily in the Fund's appropriate special bank account of all checks and payments received by DST from NSCC, broker-dealers or securityholders for investment in shares;

 

F. Notwithstanding anything herein to the contrary, with respect to "as of" adjustments, DST will not assume one hundred percent (100%) responsibility for losses resulting from "as ofs" due to clerical errors or misinterpretations of securityholder instructions, but DST will discuss with the Fund DST's accepting liability for an "as of" on a case-by-case basis and may accept financial responsibility for a particular situation resulting in a financial loss to the Fund where such loss is “material”, as hereinafter defined, and, under the particular facts at issue, DST in its discretion believes DST’s conduct was culpable and DST’s conduct is the sole cause of the loss. A loss is “material” for purposes of this Section 7.F. when it results in a pricing error on a given day which is (i) greater than a negligible amount per securityholder, (ii) equals or exceeds one ($.01) full cent per share times the number of shares outstanding or (iii) equals or exceeds the product of one-half of one percent (½%) times Fund’s Net Asset Value per share times the number of shares outstanding (or, in case of (ii) or (iii), such other amounts as may be adopted by applicable accounting or regulatory authorities from time to time). When DST concludes that it should contribute to the settlement of a loss, DST’s responsibility will commence with that portion of the loss over $0.01 per share calculated on the basis of the total value of all shares owned by the affected portfolio (i.e., on the basis of the value of the shares of the total portfolio, including all classes of that portfolio, not just those of the affected class);

 

G. The requiring of proper forms of instructions, signatures and signature guarantees and any necessary documents supporting the opening of securityholder accounts, transfers, redemptions and other securityholder account transactions, all in conformance with DST's present procedures as set forth in its Legal Manual, Third Party Check Procedures, Checkwriting Draft Procedures, Compliance + and Identity Theft Programs and Signature Guarantee Procedures (collectively the "Procedures") with such changes or deviations therefrom as may be from time to time required or approved by the Fund, its investment adviser or principal underwriter, or its or DST's counsel and the rejection of orders or instructions not in good order in accordance with the applicable prospectus or the Procedures;

 

 

 

H. The maintenance of customary records in connection with its agency in accordance with the transfer agent recordkeeping requirements under the Securities Exchange Act of 1934, as well as those records required to be maintained pursuant to subparagraph (2)(iv) of paragraph (b) of Rule 31a-1 under the Investment Company Act of 1940, as amended, if any; and

 

I. The maintenance of a current, duplicate set of the Fund's essential records at a secure separate location, in a form available and usable forthwith in the event of any breakdown or disaster disrupting its main operation.

 

8. Indemnification.

 

A. DST shall at all times use reasonable care, due diligence and act in good faith in performing its duties under this Agreement. DST shall provide its services as Transfer Agent in accordance with Section 17A of the Securities Exchange Act of 1934, and the rules and regulations thereunder. In the absence of bad faith, willful misconduct, knowing violations of applicable law pertaining to the manner in which transfer agency services are to be performed by DST (excluding any violations arising directly or indirectly out of the actions or omissions to act of third parties unaffiliated with DST), reckless disregard of the performance of its duties, or material default by DST of DST’s obligations under this Agreement, DST shall not be liable for any action taken, suffered, or omitted by it or for any error of judgment made by it in the performance of its duties under this Agreement. For those activities or actions delineated in the Procedures, DST shall be presumed to have used reasonable care, due diligence and acted in good faith and have acted in accordance with the terms and conditions of this Agreement if it has acted in accordance with the Procedures in effect when DST acted or omitted to act.

 

B. DST shall not be responsible for, and the Fund shall indemnify and hold DST harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability which may be asserted against DST or for which DST may be held to be liable (including without limitation any attorney’s fees or court costs incurred by DST in enforcing this right to the Fund’s indemnification) (the “Adverse Consequences”), arising out of or attributable to:

 

 

 

(1) All actions or omissions of DST required to be taken or omitted by DST pursuant to this Agreement, provided that DST has acted in good faith, with due diligence and with reasonable care and fulfilled all obligations under this Agreement with respect to the matter for which DST is seeking indemnification;

 

(2) The Fund's refusal or failure to comply with the terms of this Agreement, the Fund’s willful misconduct or the material breach of any representation or warranty of the Fund hereunder;

 

(3) The good faith reliance on, or the carrying out of, any written or oral instructions or requests of persons designated by the Fund in writing (see Exhibit B) from time to time as authorized to give instructions on its behalf or representatives of an Authorized Person or DST's good faith reliance on, or use of, information, data, records, transmissions and documents received from, or which have been prepared and/or maintained by the Fund, its investment advisor, its sponsor, its principal underwriter or any other person or entity from whom the Fund instructs DST to accept and utilize information, data, records, transmissions and documents;

 

(4) Defaults by dealers or shareowners with respect to payment for share orders previously entered;

 

(5) The offer or sale of the Fund's shares in violation of any requirement under federal securities laws or regulations or the securities laws or regulations of any state or in violation of any stop order or other determination or ruling by any federal agency or state with respect to the offer or sale of such shares in such state (unless such violation results from DST's failure to comply with written instructions of the Fund or of any officer of the Fund that no offers or sales be permitted to remain in the Fund's securityholder records in or to residents of such state);

 

 

 

(6) The Fund's errors and mistakes in the use of the TA2000 System, the data center, computer and related equipment used to access the TA2000 System (the "DST Facilities"), and control procedures relating thereto in the verification of output and in the remote input of data;

 

(7) Errors, inaccuracies, and omissions in, or errors, inaccuracies or omissions of DST arising out of or resulting from such errors, inaccuracies and omissions in, the Fund's records, securityholder and other records, delivered to DST hereunder by the Fund or its prior agent(s);

 

(8) Actions or omissions to act by the Fund or agents designated by the Fund with respect to duties assumed thereby as provided for in Section 21 hereof; and

 

(9) DST’s performance of Exception Services except where DST acted or omitted to act in bad faith, with reckless disregard of its obligations or with gross negligence.

 

C. Except where DST is entitled to indemnification under Section 8.B. hereof and with respect to "as ofs" set forth in Section 7.F., DST shall indemnify and hold the Fund harmless from and against any and all Adverse Consequences arising out of or attributable to DST’s bad faith, willful misconduct, knowing violations of applicable law pertaining to the manner in which transfer agency services are to be performed by DST (excluding any violations arising directly or indirectly out of the actions or omissions to act of third parties unaffiliated with DST), reckless disregard of the performance of DST’s duties, negligence on its part, or material default by DST under this Agreement; provided, however, that DST's cumulative liability during any term of this Agreement with respect to, arising from or arising in connection with this Agreement, or from all services provided or omitted to be provided under this Agreement, whether in contract, or in tort, or otherwise, is limited to, and shall not exceed, the amounts paid hereunder by the Fund to DST as fees and charges, but not including reimbursable expenses, during the twelve (12) months immediately preceding the event giving rise to DST’s liability.

 

D. IN NO EVENT AND UNDER NO CIRCUMSTANCES SHALL EITHER PARTY UNDER THIS AGREEMENT BE LIABLE TO ANY PERSON, INCLUDING WITHOUT LIMITATION THE OTHER PARTY, FOR PUNITIVE, CONSEQUENTIAL, INCIDENTAL, INDIRECT, OR OTHER SPECIAL DAMAGES UNDER ANY PROVISION OF THIS AGREEMENT OR FOR ANY ACT OR FAILURE TO ACT HEREUNDER, EVEN IF ADVISED OF THE POSSIBILITY THEREOF.

 

 

 

E. Promptly after receipt by an indemnified person of notice of the commencement of any action, such indemnified person will, if a claim in respect thereto is to be made against an indemnifying party hereunder, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party will not relieve an indemnifying party from any liability that it may have to any indemnified person for contribution or otherwise under the indemnity agreement contained herein except to the extent it is prejudiced as a proximate result of such failure to timely notify. In case any such action is brought against any indemnified person and such indemnified person seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, assume the defense thereof (in its own name or in the name and on behalf of any indemnified party or both with counsel reasonably satisfactory to such indemnified person); provided, however, if the defendants in any such action include both the indemnified person and an indemnifying party and the indemnified person shall have reasonably concluded that there may be a conflict between the positions of the indemnified person and an indemnifying party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified persons which are inconsistent with those available to an indemnifying party, the indemnified person or indemnified persons shall have the right to select one separate counsel (in addition to local counsel) to assume such legal defense and to otherwise participate in the defense of such action on behalf of such indemnified person or indemnified persons at such indemnified party's sole expense. Upon receipt of notice from an indemnifying party to such indemnified person of its election so to assume the defense of such action and approval by the indemnified person of counsel, which approval shall not be unreasonably withheld (and any disapproval shall be accompanied by a written statement of the reasons therefor), the indemnifying party will not be liable to such indemnified person hereunder for any legal or other expenses subsequently incurred by such indemnified person in connection with the defense thereof. An indemnifying party will not settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified persons are actual or potential parties to such claim, action, suit or proceeding) unless such settlement, compromise or consent includes an unconditional release of each indemnified person from all liability arising out of such claim, action, suit or proceeding. An indemnified party will not, without the prior written consent of the indemnifying party settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder. If it does so, it waives its right to indemnification therefor.

 

 

 

9. Certain Covenants of DST and the Fund.

 

A. All requisite steps will be taken by the Fund from time to time when and as necessary to register the Fund's shares for sale in all states in which the Fund's shares shall at the time be offered for sale and require registration. If at any time the Fund receives notice or becomes aware of any stop order or other proceeding in any such state affecting such registration or the sale of the Fund's shares, or of any stop order or other proceeding under the federal securities laws affecting the sale of the Fund's shares, the Fund will give prompt notice thereof to DST.

 

B. DST hereby agrees to perform such transfer agency functions as are set forth in Section 4.D. above and establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms, and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices, and to carry such insurance as it considers adequate and reasonably available.

 

C. To the extent required by Section 31 of the Investment Company Act of 1940 as amended and Rules thereunder, DST agrees that all records maintained by DST relating to the services to be performed by DST under this Agreement are the property of the Fund and will be preserved and will be surrendered promptly to the Fund on request.

 

 

 

D. DST agrees to furnish the Fund annual reports of its financial condition, consisting of a balance sheet, earnings statement and any other financial information reasonably requested by the Fund. The annual financial statements will be certified by DST's certified public accountants.

 

E. DST represents and agrees that it will use its reasonable efforts to keep current on the trends of the investment company industry relating to securityholder services and will use its reasonable efforts to continue to modernize and improve.

 

F. DST will permit the Fund and its authorized representatives (subject to execution of DST’s standard confidentiality and non-use agreement) to make periodic inspections of its operations as such involves or is utilized by DST to provide services to the Fund at reasonable times during business hours. DST will permit the Internal Revenue Service and any other tax authority to inspect its operations in connection with examinations by any such authority of DST’s or other taxpayer’s compliance with the tax laws, and the costs of each such inspection and examination shall be paid by the Fund to the extent that the examination relates to DST’s performance of services under this Agency Agreement. DST will permit duly authorized federal examiners to make periodic inspections of its operations as such would involve the Fund to obtain, inter alia, information and records relating to DST’s performance of its Compliance + Program or Identity Theft Program obligations and to inspect DST’s operations for purposes of the Program.” Any costs imposed by such examiners in connection with such examination (other than fines or other penalties) shall be paid by the Fund.

 

G. DST shall comply with Exhibit C (Information Protection Program), which are made a part of this Agreement and apply to the Services. The policies and procedures specified in Exhibit C (Information Protection Program) are subject to change at any time in accordance with DST’s internal change control procedures, provided that the protections afforded thereby will not be diminished in comparison with those currently provided by DST to the Fund under this Agreement. Throughout the Term of this Agreement, as part of the Services, DST shall maintain reasonable backup and security procedures in accordance with its then current internal policies and procedures. DST will be reasonably available to meet with and provide assurances to the Fund concerning its backup procedures as well as its security procedures.

 

 

 

10. Recapitalization or Readjustment.

 

In case of any recapitalization, readjustment or other change in the capital structure of the Fund requiring a change in the form of stock certificates, DST will issue or register certificates in the new form in exchange for, or in transfer of, the outstanding certificates in the old form, upon receiving:

 

A. Written instructions from an officer of the Fund;

 

B. Certified copy of the amendment to the Articles of Incorporation or other document effecting the change;

 

C. Certified copy of the order or consent of each governmental or regulatory authority, required by law to the issuance of the stock in the new form, and an opinion of counsel that the order or consent of no other government or regulatory authority is required;

 

D. Specimens of the new certificates in the form approved by the Board of Directors of the Fund, with a certificate of the Secretary of the Fund as to such approval;

 

E. A certificate by the Secretary or similarly situated officer of the Fund (who may be the Fund’s General Counsel) stating:

 

(1) The status of the shares of stock of the Fund in the new form under the 1933 Act, and any other applicable federal or state statute; and

 

(2) That the issued shares in the new form are, and all unissued shares will be, when issued, validly issued, fully paid and nonassessable.

 

11. Stock Certificates.

 

A. The Fund will furnish DST with a sufficient supply of blank stock certificates and from time to time will renew such supply upon the request of DST. Such certificates will be signed manually or by facsimile signatures of the officers of the Fund authorized by law and by bylaws to sign stock certificates, and if required, will bear the corporate seal or facsimile thereof.

 

 

 

B. In the event that certificates for shares of the Fund shall be represented to have been lost, stolen or destroyed, DST, upon being furnished with an indemnity bond in such form and amount and with such surety as shall be reasonably satisfactory to it, is authorized to countersign a new certificate or certificates for the number of shares of the Fund represented by the lost or stolen certificate.

 

C. In the event that certificates of the Fund shall be represented to have been lost, stolen, missing, counterfeited or recovered, DST shall file Form X-17F-1A with the Securities and Exchange Commission (the “SEC”), or its designee, as required by Rule 17f-1(c) under the 1934 Act.

 

12. Death, Resignation or Removal of Signing Officer.

 

The Fund will file promptly with DST written notice of any change in the officers authorized to sign stock certificates, written instructions or requests, together with two signature cards bearing the specimen signature of each newly authorized officer. In case any officer of the Fund who will have signed manually or whose facsimile signature will have been affixed to blank stock certificates will die, resign, or be removed prior to the issuance of such certificates DST may issue or register such stock certificates as the stock certificates of the Fund notwithstanding such death, resignation, or removal, until specifically directed to the contrary by the Fund in writing.

 

In the absence of such direction, the Fund will file promptly with DST such approval, adoption, or ratification as may be required by law.

 

13. Future Amendments of Charter/Declaration and Bylaws/Articles, as appropriate.

 

The Fund will promptly file with DST copies of all material amendments to its Articles of Incorporation or Bylaws made after the date of this Agreement.

 

14. Instructions, Opinion of Counsel and Signatures.

 

At any time DST may apply to any person authorized by the Fund to give instructions to DST, and may with the approval of a Fund officer consult with legal counsel for the Fund, or DST’s own legal counsel at the expense of the Fund with the approval of an Authorized Person or a Fund officer, with respect to any matter arising in connection with the agency and it will not be liable for any action taken or omitted by it in good faith in reliance upon such instructions or upon the opinion of such counsel. In connection with services provided by DST under this Agency Agreement that relate to compliance by the Fund with the Internal Revenue Code of 1986 or any other tax law, including without limitation the services described in Section 4.D(x), DST shall have no obligation to continue to provide such services after it has asked the Fund to give it instructions which it reasonably believes are needed by it to so continue to provide such services and before it receives the needed instructions from the Fund, and DST shall have no liability for any damages (including without limitation penalties imposed by any tax authority) caused by or that result from its failure to provide services as contemplated by this sentence. DST will be protected in acting upon any paper or document reasonably believed by it to be genuine and to have been signed by the proper person or persons and will not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. It will also be protected in recognizing stock certificates which it reasonably believes to bear the proper manual or facsimile signatures of the officers of the Fund, and the proper countersignature of any former Transfer Agent or Registrar, or of a co-Transfer Agent or co-Registrar.

 

 

 

15. Force Majeure and Disaster Recovery Plans.

 

A. DST shall not be responsible or liable for its failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation: any interruption, loss or malfunction of any public utility, transportation, computer (hardware or software, provided any such hardware has been reasonably maintained in accordance with the manufacturer’s instructions, if any, and any delay or failure caused by such malfunctioning hardware cannot be mitigated or eliminated by implementation of a disaster recovery plan) or communication service (provided that any such delay caused by the inability to access the telecommunication lines/network between the Fund and DST or obstruction of such telecommunication lines/network between the Fund and DST cannot reasonably be circumvented through the prompt implementation of alternative routing options); inability to obtain labor, material, equipment or transportation, or a delay in mails; governmental or exchange action, statute, ordinance, rulings, regulations or direction; war, strike, riot, emergency, civil disturbance, terrorism, vandalism, explosions, labor disputes, freezes, floods, fires, tornados, acts of God or public enemy, revolutions, or insurrection; or any other cause, contingency, circumstance or delay not subject to DST's reasonable control which prevents or hinders DST's performance hereunder.

 

 

 

B. Provided the Fund is paying its pro rata portion of the charge therefor, DST shall provide back-up facilities to the data center or centers used by DST to provide the transfer agency services hereunder (collectively, the “Back-Up Facilities”) capable of supplying the transfer agency services specified herein to the Funds in case of damage to the primary facility providing those services. The back-up to the data center operations facility will have no other function that could not be suspended immediately for an indefinite period of time to the extent necessary to allow, or continue to be supported while allowing, the facility to function as a back-up facility and support all functionality scheduled to be supported in DST’s Business Contingency Plan. Transfer to the Back-Up Facility shall commence promptly after the DST’s declaration of a disaster and shall be conducted in accordance with DST’s Business Contingency Plan, which Plan calls for the transfer of TA2000 to the Back-Up Facilities to be completed within 4 hours after DST’s declaration of a disaster. The Fund shall not bear any costs (in addition to the Fees and charges set forth in Exhibit A attached hereto) related to such transfer. At least once annually, DST shall complete a successful test of the Business Contingency Plan.

 

C. DST also currently maintains, separate from the area in which the operations which provides the services to the Fund hereunder are located, a Crisis Management Center consisting of phones, computers and the other equipment necessary to operate a full service transfer agency business in the event one of its operations areas is rendered inoperable. The transfer of operations to other operating areas or to the Crisis Management Center is also covered in DST's Business Contingency Plan.

 

D. DST is not responsible for a failure, unavailability, disruption, or any circumstance arising out of, related to, or resulting from DST’s efforts (including DST intentionally making the System(s) unavailable) to block or otherwise prevent a security breach, provided that DST has fulfilled its information security obligations under the Agreement otherwise and Client is notified promptly as reasonably practicable.

 

 

 

16. Certification of Documents.

 

The required copy of the Articles of Incorporation of the Fund and copies of all amendments thereto will be certified by the Secretary of State (or other appropriate official) of the State of Incorporation, and if such Articles of Incorporation and amendments are required by law to be also filed with a county, city or other officer of official body, a certificate of such filing will appear on the certified copy submitted to DST. A copy of the order or consent of each governmental or regulatory authority required by law to the issuance of the stock will be certified by the Secretary or Clerk of such governmental or regulatory authority, under proper seal of such authority. The copy of the Bylaws and copies of all amendments thereto, and copies of resolutions of the Board of Directors of the Fund, will be certified by the Secretary or an Assistant Secretary of the Fund under the Fund's seal.

 

17. Records.

 

DST will maintain customary records in connection with its agency, and particularly will maintain those records required to be maintained pursuant Section 17A under the Securities Exchange Act of 1934 and pursuant to subparagraph (2) (iv) of paragraph (b) of Rule 31a-1 under the 1940 Act, as amended, if any. Notwithstanding anything in this Agreement to the contrary, the records to be maintained and preserved by DST on the TA2000 System under this Agreement shall be maintained and preserved in accordance with the following:

 

A. Annual Purges by August 31: DST and the Fund shall mutually agree upon a date for the annual purge of the appropriate history transactions from the Transaction History (A88) file for accounts (both regular and tax advantaged accounts) that were open as of January 1 of the current year, such purge to be complete no later than August 31. Purges completed after this date will subject Fund to the Aged History Retention fees set forth in the Fee Schedule attached hereto as Exhibit A.

 

B. Purge Criteria: In order to avoid the Aged History Retention fees, history data for regular or ordinary accounts (that is, non-tax advantaged accounts) must be purged if the confirmation date of the history transaction is prior to January 1 of the current year and history data for tax advantaged accounts (retirement and educational savings accounts) must be purged if the confirmation date of the history transaction is prior to January 1 of the prior year. All purged history information shall be retained on magnetic tape for seven (7) years.

 

 

 

C. Purged History Retention Options (entail an additional fee): For the additional fees set forth on the Fee Schedule attached hereto as Exhibit A, Fund may choose (i) to place purged history information on the Purged Transaction History (A19) table or (ii) to retain history information on the Transaction History (A88) file beyond the timeframes defined above. Retaining information on the A19 table allows for viewing of this data through online facilities and E-Commerce applications. This database does not support those histories being printed on statements and reports and is not available for on request job executions.

 

18. Disposition of Books, Records and Canceled Certificates.

 

DST may send periodically to the Fund, or to where designated by the Secretary or an Assistant Secretary of the Fund, all books, documents, and all records no longer deemed needed for current purposes and stock certificates which have been canceled in transfer or in exchange, upon the understanding that such books, documents, records, and stock certificates will be maintained by the Fund under and in accordance with the requirements of Section 17Ad-7 adopted under the 1934 Act, including by way of example and not limitation Section 17Ad-7(g) thereof. Such materials will not be destroyed by the Fund without the consent of DST (which consent will not be unreasonably withheld), but will be safely stored for possible future reference.

 

19. Provisions Relating to DST as Transfer Agent.

 

A. DST will make original issues of shares or, if shares are certificated, stock certificates upon written request of an officer of the Fund and upon being furnished with a certified copy of a resolution of the Board of Directors authorizing such original issue, an opinion of counsel as outlined in subparagraphs 1.D. and G. of this Agreement, any documents required by Sections 5. or 10. of this Agreement, and necessary funds for the payment of any original issue tax.

 

B. Before making any original issue of certificates the Fund will furnish DST with sufficient funds to pay all required taxes on the original issue of the stock, if any. The Fund will furnish DST such evidence as may be required by DST to show the actual value of the stock. If no taxes are payable DST will be furnished with an opinion of outside counsel to that effect.

 

 

 

C. Shares of stock will be transferred and, if shares are certificated, new certificates issued in transfer, or shares of stock accepted for redemption and funds remitted therefor, or book entry transfer be effected, upon surrender of the old certificates in form or receipt by DST of instructions deemed by DST properly endorsed for transfer or redemption accompanied by such documents as DST may deem necessary to evidence the authority of the person making the transfer or redemption. DST reserves the right to refuse to transfer, exchange, sell or redeem shares until it is satisfied that the endorsement or signature on the certificate or any other document is valid and genuine, and for that purpose it may require a guaranty of signature in accordance with the Signature Guarantee Procedures. DST also reserves the right to refuse to transfer, exchange, sell or redeem shares until it is satisfied that the requested transfer or redemption is legally authorized, and it will incur no liability for the refusal in good faith to make transfers or redemptions which, in its judgment, are improper or unauthorized. DST may, in effecting such transfers, exchanges, ssles or redemptions, rely upon the Procedures, Simplification Acts, Uniform Commercial Code or other statutes that protect DST and the Fund or both in not requiring complete fiduciary documentation. In cases in which DST is not directed or otherwise required to maintain the consolidated records of securityholder's accounts, DST will not be liable for any loss which may arise by reason of not having such records.

 

D. When mail is used for delivery of stock certificates, DST will forward stock certificates in "nonnegotiable" form by first class or registered mail and stock certificates in "negotiable" form by registered mail, all such mail deliveries to be covered while in transit to the addressee by insurance arranged for by DST.

 

E. DST will issue and mail subscription warrants, certificates representing stock dividends, exchanges or split ups, or act as Conversion Agent upon receiving written instructions from any officer of the Fund and such other documents as DST deems necessary.

 

 

 

F. DST will issue, transfer, and split up certificates and will issue certificates of stock representing full shares upon surrender of scrip certificates aggregating one full share or more when presented to DST for that purpose upon receiving written instructions from an officer of the Fund and such other documents as DST may deem necessary.

 

G. If the Fund issues shares in certificated form, DST may issue new certificates in place of certificates represented to have been lost, destroyed, stolen or otherwise wrongfully taken upon receiving instructions from the Fund and indemnity satisfactory to DST and the Fund, and may issue new certificates in exchange for, and upon surrender of, mutilated certificates. Such instructions from the Fund will be in such form as will be approved by the Board of Directors of the Fund and will be in accordance with the provisions of law and the bylaws of the Fund governing such matter.

 

H. DST will supply a securityholders list to the Fund for its annual meeting upon receiving a request from an officer of the Fund. It will also, at the expense of the Fund, supply lists at such other times as may be requested by an officer of the Fund.

 

I. Upon receipt of written instructions of an officer of the Fund, DST will, at the expense of the Fund, address and mail notices to securityholders.

 

J. In case of any request or demand for the inspection of the stock books of the Fund or any other books in the possession of DST, DST will promptly notify the Fund and to secure instructions as to permitting or refusing such inspection. DST reserves the right; however, to exhibit the stock books or other books to any person in case it is advised by its counsel that it is legally required to do so.

 

K. DST agrees to furnish the Fund with (1) annual reports of its financial condition, consisting of a balance sheet, earnings statement and any other financial information as is made public by DST in connection with the foregoing and (2) semi-annually with a copy of a Statement on Standards for Attestation Engagements No. 16 (SSAE 16), report on controls at a Service Organization or successor report issued by DST’s certified public accountants pursuant to Rule 17Ad-13 under the 1934 Act as filed with SEC. The annual financial statements will be certified by DST's certified public accountants and the posting of a current copy thereof on DST’s website shall be deemed to be delivery to the Fund.

 

 

 

L. (1) DST shall assist the Fund to fulfill the Fund’s responsibilities under certain provisions of USA PATRIOT Act, Sarbanes-Oxley Act, Title V of Gramm Leach Bliley Act, Securities Act of 1933, Securities and Exchange Act of 1934, and 1940 Act, including, inter alia, Rule 38a-1, by complying with Compliance +TM, a compliance program that focuses on certain business processes that represent key activities of the transfer agent/service provider function (the “Compliance + Program”), a copy of which has hitherto been made available to Fund. These business processes are anti-money laundering, certificate processing, correspondence processing, fingerprinting, lost securityholder processing, reconciliation and control, transaction processing, customer identification, transfer agent administration and safeguarding fund assets and securities. DST reserves the right to make changes thereto as experience suggests alternative and better ways to perform the affected function. DST shall provide the Fund with written notice of any such changes.

 

(2) DST shall perform the procedures set forth in the Compliance + Program, as amended by DST from time to time, which pertain to DST’s performance of those transfer agency services in accordance with the terms and conditions set forth in this Agreement, (ii) implement and maintain internal controls and procedures reasonably necessary to insure that our employees act in accordance with the Compliance + Program, and (iii) provide the Fund with written notice of any material changes made to the Program as attached hereto.

 

(3) Notwithstanding the foregoing, DST’s obligations shall be solely as are set forth in this Section and in the Compliance + Program, as amended, and any of obligations under the enumerated Acts and Regulations that DST has not agreed to perform on the Fund’s behalf under the Compliance + Program or under this Agreement shall remain the Fund’s sole obligation.

 

M. In connection with the enactment of the Red Flags Regulations (the “Regulations”) promulgated jointly by the Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS); National Credit Union Administration (NCUA); and Federal Trade Commission (FTC or Commission) implementing section 114 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act) and final rules implementing section 315 of the FACT Act:

 

 

 

(1) DST shall assist the Fund to fulfill the Funds’ responsibilities under certain provisions of the Regulations that focus on certain business processes that represent key activities of the transfer agent/service provider function, as set forth in the DST identity theft program (the “Identity Theft Program”), a current copy of which has hitherto been made available to Fund. These business processes are set forth in the Identity Theft Program. DST reserves the right to make changes thereto as experience suggests alternative and better ways to perform the affected function. DST shall provide Fund with written notice of any such changes thereto.

 

(2) DST shall: (i) perform the procedures set forth in the Identity Theft Program, as amended by DST from time to time, which pertain to DST’s performance of those transfer agency services in accordance with the terms and conditions set forth in this Agreement, (ii) implement and maintain internal controls and procedures reasonably necessary to insure that DST’s employees act in accordance with the Identity Theft Program, and (iii) provide Fund with written notice of any material changes made to the Identity Theft Program.

 

(3) Notwithstanding the foregoing, DST’s obligations shall be solely as are set forth in this Section 20.M. and in the Identity Theft Program and any obligations under the Regulations that DST has not agreed to perform under such Identity Theft Program or under this Agreement shall remain the sole obligation of the Fund(s) or the Fund, as applicable.

 

(4) With respect to the Identity Theft Program, DST will permit duly authorized governmental and self-regulatory examiners to make periodic inspections of its operations as such would involve Fund and the Funds to obtain, inter alia, information and records relating to DST’s performance of its obligations under the Identity Theft Program and to inspect DST’s operations for purposes of determining DST’s compliance with the Identity Theft Program. Any costs imposed by such examiners in connection with such examination (other than fines or other penalties arising solely out of DST’s failure to fulfill its obligations under the Identity Theft Program) shall be paid by Fund.

 

 

 

N. DST shall establish on behalf of the Fund banking relationships for the conduct of the business of the Fund in accordance with the terms set forth in Section 20.D. of this Agreement.

 

20. Provisions Relating to Dividend Disbursing and Paying Agency (as well as the receipt, deposit and payment of funds by the Transfer Agent in connection with the purchase and redemption of Funds shares).

 

A. DST will perform the following dividend disbursing services:

 

(1) upon receipt of a written notice from an officer of the Fund declaring the payment of a dividend or distribution, DST shall prepare and disburse such dividend and distribution payments; provided that in advance of such payment the Fund furnishes DST with sufficient funds. The payment of such funds to DST for the purpose of being available for the payment of dividends or distributions from time to time is not intended by the Fund to confer any rights in such funds on the Fund’s shareholders whether in trust or in contract or otherwise;

 

(2) the Fund hereby authorizes DST to stop payment of checks issued in payment of dividends, but not presented for payment, when the payees thereof allege either that they have not received the checks or that such checks have been mislaid, lost, stolen, destroyed or, through no fault of theirs, are otherwise beyond their control and cannot be produced by them for presentation and collection, and DST shall issue and deliver duplicate checks in replacement thereof, and the Fund shall indemnify DST against any loss or damage resulting from reissuance of the checks; and

 

(3) DST is hereby authorized to deduct from all dividends or distributions declared by the Fund and disbursed by DST, as dividend disbursing agent, the tax required to be withheld pursuant to the Internal Revenue Code of 1986, as amended, or by any Federal or State statutes subsequently enacted, and to make the necessary return and payment of such tax in connection therewith.

 

 

 

B. DST will perform the following dividend reinvestment plan agent services:

 

(1) act as agent for shareholders pursuant to dividend reinvestment plans, and other investment programs as amended from time to time in accordance with the terms of the agreements relating thereto to which DST is or will be a party; and

 

(2) receive all payments made to the Fund or DST under any dividend reinvestment plan and make all payments required to be made under such plan, including all payments required to be made to the Fund.

 

C. DST will, at the expense of the Fund, provide a special form of check containing the imprint of any device or other matter desired by the Fund. Said checks must, however, be of a form and size convenient for use by DST.

 

D. If the Fund desires to include additional printed matter, financial statements, etc., with the dividend checks, the same will be furnished DST within a reasonable time prior to the date of mailing of the dividend checks, at the expense of the Fund.

 

E. If the Fund desires its distributions mailed in any special form of envelopes, sufficient supply of the same will be furnished to DST but the size and form of said envelopes will be subject to the approval of DST. If stamped envelopes are used, they must be furnished by the Fund; or if postage stamps are to be affixed to the envelopes, the stamps or the cash necessary for such stamps must be furnished by the Fund.

 

F. DST, acting as agent for the Fund, is hereby authorized (1) to establish in the name of, and to maintain on behalf of, the Fund, on the usual terms and conditions prevalent in the industry, including limits or caps based on fees paid over some period of time on the maximum liability of such Banks, as hereinafter defined, one or more deposit accounts at a nationally or regionally known banking institution (the “Bank”) into which DST shall deposit the funds DST receives for payment of dividends, distributions, purchases of Fund’s shares, transfers of Fund shares, redemptions of Fund shares, commissions, corporate re-organizations (including recapitalizations or liquidations) or any other disbursements made by DST on behalf of the Fund provided for in this Agreement, (2) to draw checks upon such accounts, to issue orders or instructions to the Bank for the payment out of such accounts as necessary or appropriate to accomplish the purposes for which such funds were provided to DST, and (3) to establish, to implement and to transact Fund business through Automated Clearinghouse (“ACH”), Draft Processing, Wire Transfer and any other banking relationships, arrangements and agreements with such Bank as are necessary or appropriate to fulfill DST’s obligations under this Agreement. DST, acting as agent for the Fund, is also hereby authorized to execute on behalf and in the name of the Fund, on the usual terms and conditions prevalent in the industry, including limits or caps based on fees paid over some period of time on the maximum liability of such Banks, agreements with banks for ACH, wire transfer, draft processing services, as well as any other services which are necessary or appropriate for DST to utilize to accomplish the purposes of this Agreement. In each of the foregoing situations the Fund shall be liable on such agreements with the Bank as if it itself had executed the agreement. DST shall not be liable for any Adverse Consequences arising out of or resulting from errors or omissions of the Bank provided, however, that DST shall have acted in good faith, with due diligence and without negligence. Notwithstanding anything herein to the contrary, in the event that the Fund shall determine that the charges and expenses imposed by such Bank are excessive or not customary, and the Fund can arrange to have an alternative Bank that is reasonably acceptable to DST to provide the same services, the Fund shall assume the cost of implementing similar and the same degree of automation between the Fund’s selected bank and DST as that currently existing between the DST selected bank and DST, and, after the implementation of such automated processes between DST and the Fund selected bank, DST shall utilize the Bank designated by the Fund.

 

 

 

GE. DST is authorized and directed to stop payment of checks theretofore issued hereunder, but not presented for payment, when the payees thereof allege either that they have not received the checks or that such checks have been mislaid, lost, stolen, destroyed or through no fault of theirs, are otherwise beyond their control, and cannot be produced by them for presentation and collection, and, to issue and deliver duplicate checks in replacement thereof.

 

 

 

21. Assumption of Duties By the Fund or Agents Designated By the Fund.

 

A. The Fund or its designated agents other than DST may assume certain duties and responsibilities of DST or those services of Transfer Agent and Dividend Disbursing Agent as those terms are referred to in Section 4.D. of this Agreement including but not limited to answering and responding to telephone inquiries from securityholders and brokers, accepting securityholder and broker instructions (either or both oral and written) and transmitting orders based on such instructions to DST, preparing and mailing confirmations, obtaining certified TIN numbers, classifying the status of securityholders and securityholder accounts under applicable tax law, establishing securityholder accounts on the TA2000 System and assigning social codes and Taxpayer Identification Number codes thereof, and disbursing monies of the Fund, said assumption to be embodied in writing to be signed by both parties.

 

B. To the extent the Fund or its agent or affiliate assumes such duties and responsibilities, DST shall be relieved from all responsibility and liability therefor and is hereby indemnified and held harmless against any liability therefrom and in the same manner and degree as provided for in Section 8 hereof.

 

C. Initially the Fund or its designees shall be responsible for the following: (i) answer and respond to phone calls from securityholders and broker-dealers, and (ii) scan items into DST's AWDTM System as such calls or items are received by the Fund, and (iii) enter and confirm wire order trades.

 

22. Termination of Agreement.

 

A. This Agreement shall be in effect upon execution by both the Fund and DST and shall continue in full force and effect for an initial period of three (3) years from the Effective Date (the “Initial Term”) and thereafter may be terminated by either party as of the last day of the then current term by the giving to the other party of at least six (6) months’ prior written notice, provided, however, that the effective date of any termination shall not occur during the period from December 15 through March 30 of any year to avoid adversely impacting year end. If such notice is not given by either party to the other at least six (6) months prior to the end of the then current term, this Agreement shall automatically extend for a new one year term, each such successive term or period, as applicable, being a new “term” of this Agreement, upon the expiration of any term hereof unless terminated as hereinafter provided in Section 22. B.

 

 

 

B. Each party, in addition to any other rights and remedies, shall have the right to terminate this Agreement forthwith upon the occurrence at any time of any of the following events with respect to the other party:

 

(1) The bankruptcy of the other party or its assigns or the appointment of a receiver for the other party or its assigns; or

 

(2) a material breach of this Agreement by the other party, which breach continues for thirty (30) days after receipt of written notice from the first party; or

 

(3) Failure by the Fund to pay Compensation and Expenses as they become due, which failure continues for thirty (30) days after receipt of written notice from DST.

 

C. In the event of termination, the Fund will promptly pay DST all amounts due to DST hereunder and DST will use its reasonable efforts to transfer the records of the Fund to the designated successor transfer agent, to provide reasonable assistance to the Fund and its designated successor transfer agent, to be responsive on a timely basis to reasonable requests and other communications from the Fund or its designated successor transfer agent and to provide other information relating to its services provided hereunder (subject to the recompense of DST for such assistance at its standard rates and fees for personnel then in effect at that time); provided, however, as used herein "reasonable assistance" and "other information" shall not include assisting any new service or system provider to modify, alter, enhance, or improve its system or to improve, enhance, or alter its current system, or to provide any new, functionality or to require DST to disclose any DST Confidential Information, as hereinafter defined, or any information which is otherwise confidential to DST.

 

 

 

23. Confidentiality and Fund Data Security.

 

A. DST agrees that, except as provided in the last sentence of Section 19.J. hereof, as otherwise required by law, as necessary or appropriate (in the opinion of counsel) to fulfill DST’s obligations under this Agreement or at the request or with the consent of the Fund, DST will keep confidential all Fund Confidential Information, as hereinafter defined, and will not disclose the same to any person not an affiliate of DST except as necessary to fulfill DST’s obligations under this Agreement. As used herein, the term “Fund Confidential Information” shall mean (i) securityholder transaction information collected by, provided to or obtained by DST from the Fund in connection with the Services provided by DST pursuant to this Agreement including, without limitation, keyed input and electronic capture of such information by such Services and all reports and all other output of such Services containing such information in a form or content that contains Personal Information that identifies a securityholder or securityholders; and (ii) Personal Information. As used herein the term “Personal Information” shall mean (i) all records, files, reports and other data relating to the Fund’s customers (including but not limited to all securityholders), provided to DST by or on behalf of the Fund or (ii) all records, files, reports and other data relating to the Fund’s employees, representatives or agents provided to DST, each of (i) and (ii) having been provided or obtained in connection with the Services provided by DST pursuant to this Agreement and including but not limited to, accounts, names, phone numbers, addresses and social security numbers, as well as any information derived therefrom which would reasonably identify an individual. Without limiting the foregoing, Personal Information includes “personally identifiable information”, as that term is defined under any applicable law, and includes any information that may be used to track, locate or identify the Fund’s securityholders (including, without limitation, names, addresses, and account numbers that is collected for, provided to or obtained for DST by or on behalf of the Fund in connection with the Services provided by DST pursuant to this Agreement), DST acknowledges that disclosure or misappropriation of Fund Confidential Information in contravention of DST’s obligations under this Agreement may give rise to an irreparable injury to the Fund inadequately compensable in damages. Accordingly, the Fund may seek (without the posting of any bond or other security) injunctive relief against the breach of the foregoing undertaking of confidentiality and nondisclosure, in addition to any other legal remedies which may be available, and DST consents to the obtaining of such injunctive relief upon a proper showing of the occurrence of a breach of confidentiality by DST or of -a course of behavior on DST’s part which, if not altered, would result in such a breach.

 

 

 

i. DST may disclose the Fund Confidential Information, on a need-to-know basis, to the DST affiliates, representatives and to third party vendors performing Services for the Fund, provided that DST shall inform, in DST’s reasonable discretion, each such DST representative to whom any Fund Confidential Information is so communicated of the duty of confidentiality regarding that information under this Agreement and impose on that DST representative the obligation to maintain the confidentiality of the Fund Confidential Information in accordance with this Section 23.

 

ii. Unless otherwise required in order to fulfill DST’s obligations under this Agreement or permitted in writing by the Fund, the parties agree that the Fund Confidential Information shall not be: (i) used by DST or any DST representative other than in connection with providing the Services described in this Agreement, (ii) aggregated or commingled by DST or any DST representative with DST or third party data (provided the Fund acknowledges and agrees Fund Confidential Information is not physically segregated from the data of other DST clients), (iii) disclosed, sold, assigned, leased or otherwise provided to third parties by DST or any DST representative, or (iv) commercially exploited by or on behalf of DST or any DST representative, without Fund’s prior written consent in each instance (such consent to be provided in Fund’s sole discretion).

 

iii. Notwithstanding the provisions of Section 23(A)(i), each Party may disclose any Confidential Information of the other Party that is required to be disclosed by law, judicial or arbitration process, or by governmental authorities (including, without limitation, any required disclosures to the SEC or equivalent bodies in other countries); provided that the disclosing Party gives the other Party an opportunity to (i) comment in a reasonable period of time in advance on the form of disclosure to be made by the disclosing Party and (ii) to seek a court order prohibiting such disclosure (at the expense of the Party whose Confidential Information is being considered for disclosure). Nothing in the foregoing is intended to, nor does it, prohibit or deny to the disclosing Party the right to disclose information requested by the disclosing Party’s public accountants or counsel (subject to an appropriate confidentiality obligation) retained by the disclosing Party to assist the disclosing Party in the disclosing Party’s performance of Services or fulfillment of its obligations, as appropriate, hereunder.

 

 

 

B. Without limiting the foregoing provisions of Section 23(A)(iii), the Fund agrees that it will keep confidential all DST financial statements and other financial or operational records received from DST, the terms and provisions of this Agreement, all accountant’s reports relating to DST, and all manuals, systems and other technical information and data, relating to DST’s operations and programs furnished to it by DST pursuant to this Agreement and will not disclose the same to any person except at the request or with the consent of DST.

 

C. Governmental Disclosures. If a party is required to file this Agreement or any portion thereof with, or to provide any information pertaining to this Agreement to, any state or federal agency or regulatory body, it shall notify the other party sufficiently in advance for the parties to work together to redact such provisions and to keep confidential such information as the other party deems sensitive. The Fund acknowledges that at a minimum DST considers all monetary provisions, service levels and damage limitation and formulas in this Agreement as confidential. Each party shall use its best commercially reasonable efforts to advance the position of the other party with the governmental agency or regulatory body that such provisions or information should not be provided or should not be made publicly available, and each party shall keep the other party apprised of any decision by the agency or regulatory body in this regard. Each party shall provide the other party with copies of all written communications with the agency or regulatory body pertaining to the services to be provided hereunder or to this Agreement.

 

 

 

D. (i) The Fund acknowledges that DST has proprietary rights in and to the TA2000 System used to perform services hereunder including, but not limited to the maintenance of securityholder accounts and records, processing of related information and generation of output, including, without limitation any changes or modifications of the TA2000 System and any other DST programs, data bases, supporting documentation, or procedures (collectively "DST Confidential Information") which the Fund's access to the TA2000 System or computer hardware or software may permit the Fund or its employees or agents to become aware of or to access and that the DST Confidential Information constitutes confidential material and trade secrets of DST. The Fund agrees to maintain the confidentiality of the DST Confidential Information.

 

(ii) The Fund acknowledges that any unauthorized use, misuse, disclosure or taking of DST Confidential Information which is confidential as provided by law, or which is a trade secret, residing or existing internal or external to a computer, computer system, or computer network, or the knowing and unauthorized accessing or causing to be accessed of any computer, computer system, or computer network, may be subject to civil liabilities and criminal penalties under applicable state law. The Fund will advise all of its employees and agents who have access to any DST Confidential Information or to any computer equipment capable of accessing DST or DST hardware or software of the foregoing.

 

(iii) The Fund acknowledges that disclosure of the DST Confidential Information may give rise to an irreparable injury to DST inadequately compensable in damages. Accordingly, DST may seek (without the posting of any bond or other security) injunctive relief against the breach of the foregoing undertaking of confidentiality and nondisclosure, in addition to any other legal remedies which may be available, and the Fund consents to the obtaining of such injunctive relief upon a proper showing of the occurrence of a breach of confidentiality by the Fund or of a course of behavior on the Fund’s part which, if not altered, would result in such a breach.. All of the undertakings and obligations relating to confidentiality and nondisclosure, whether contained in this Section or elsewhere in this Agreement shall survive the termination or expiration of this Agreement for a period of ten (10) years; provided that, to the extent Confidential Information includes information that is also a Trade Secret as defined by the Uniform Trade Secrets Act, the obligation to protect such Trade Secrets shall survive the termination of this Agreement and shall remain for so long as such Confidential Information constitutes a Trade Secret, as defined by the Uniform Trade Secrets Act.

 

 

 

E. The provisions of this Section 23 shall not apply to any information if and to the extent such information was (i) independently developed by the receiving party as evidenced by documentation in such party’s possession, (ii) lawfully received by it free of restrictions from another source having the right to furnish the same, (iii) generally known or available to the public without breach of this Agreement by the receiving party or (iv) known to the receiving party free of restriction at the time of such disclosure. The parties agree that immediately upon termination of this Agreement, without regard to the reason for such termination, the parties shall forthwith return to one another or destroy all written materials and computer software which are the property of the other party and provide certification to the other party thereof.

 

F. Each party shall use at least the same degree of care in maintaining the confidentiality of the other party’s Confidential Information as such party uses with respect to its own highly important proprietary or confidential information of a similar nature, and in no event less than reasonable care.

 

G. In the event the Fund obtains information from DST or the TA2000 System which is not intended for the Fund, the Fund agrees to (i) immediately, and in no case more than twenty-four (24) hours later, notify DST that unauthorized information has been made available to the Fund; (ii) after identifying that such information is not intended for the Fund, not review, disclose, release, or in any way, use such unauthorized information; (iii) provide DST reasonable assistance in retrieving such unauthorized information and/or destroy such unauthorized information; and (iv) deliver to DST a certificate executed by an authorized officer of the Fund certifying that all such unauthorized information in the Fund’s possession or control has been delivered to DST or destroyed as required by this provision. In the event that DST has knowledge that Fund information has been provided to or received by another person for whom it was not intended, DST or the TA2000 System, as the case may be, shall promptly provide notice to the Fund of such unauthorized information and reasonably seek to obtain from such unauthorized recipient similar confirmations as provided above.

 

 

 

24. Changes and Modifications.

 

A. During the term of this Agreement DST will use on behalf of the Fund without additional cost all modifications, enhancements, or changes which DST may make to the TA2000 System in the normal course of its business and which are applicable to functions and features offered by the Fund, unless substantially all DST clients are charged separately for such modifications, enhancements or changes, including, without limitation, substantial system revisions or modifications necessitated by changes in existing laws, rules or regulations. The Fund agrees to pay DST promptly for modifications and improvements that are charged for separately at the rate provided for in DST's standard pricing schedule which shall be identical for substantially all clients, if a standard pricing schedule shall exist. If there is no standard pricing schedule, the parties shall mutually agree upon the rates to be charged.

 

B. DST shall have the right, at any time and from time to time, to alter and modify any systems, programs, procedures or facilities used or employed in performing its duties and obligations hereunder; provided that the Fund will be notified as promptly as possible prior to implementation of such alterations and modifications and that no such alteration or modification or deletion shall materially adversely change or affect the operations and procedures of the Fund in using or employing the TA2000 System or DST Facilities hereunder or the reports to be generated by such system and facilities hereunder, unless the Fund is given thirty (30) days prior notice to allow the Fund to change its procedures and DST provides the Fund with revised operating procedures and controls.

 

 

 

C. All enhancements, improvements, changes, modifications or new features added to the TA2000 System however developed or paid for shall be, and shall remain, the confidential and exclusive property of, and proprietary to, DST.

 

25. Third Party Vendors.

 

Nothing herein shall impose any duty upon DST in connection with or make DST liable for the actions or omissions to act of the following types of unaffiliated third parties: (a) courier and mail services including but not limited to Airborne Services, Federal Express, UPS and the U.S. Mails, (b) telecommunications companies including but not limited to AT&T, Sprint, MCI and other delivery, telecommunications and other such companies not under the party’s reasonable control, and (c) third parties not under the party’s reasonable control or subcontract relationship providing services to the financial industry generally, such as, by way of example and not limitation, the National Securities Clearing Corporation (processing and settlement services), Fund custodian banks (custody and fund accounting services) and administrators (blue sky and Fund administration services), and national database providers such as Choice Point, Acxiom, TransUnion or Lexis/Nexis and any replacements thereof or similar entities, provided, if DST selected such company, DST shall have exercised due care in selecting the same. Such third party vendors are not, nor shall they be deemed, subcontractors for purposes of this Agreement.

 

26. Limitations on Liability.

 

A. If the Fund is comprised of more than one Portfolio, each Portfolio shall be regarded for all purposes hereunder as a separate party apart from each other Portfolio. Unless the context otherwise requires, with respect to every transaction covered by this Agreement, every reference herein to the Fund shall be deemed to relate solely to the particular Portfolio to which such transaction relates. Under no circumstances shall the rights, obligations or remedies with respect to a particular Portfolio constitute a right, obligation or remedy applicable to any other Portfolio. The use of this single document to memorialize the separate agreement of each Portfolio is understood to be for clerical convenience only and shall not constitute any basis for joining the Portfolios for any reason.

 

 

 

B. Notice is hereby given that a copy of the Fund's Articles of Incorporation and all amendments thereto is on file with the Secretary of State of the state of its organization; that this Agreement has been executed on behalf of the Fund by the undersigned duly authorized representative of the Fund in his/her capacity as such and not individually; and that the obligations of this Agreement shall only be binding upon the assets and property of the Fund and shall not be binding upon any trustee, officer or securityholder of the Fund individually.

 

27. Miscellaneous.

 

A. This Agreement shall be construed according to, and the rights and liabilities of the parties hereto shall be governed by, the laws of the State of Delaware, excluding that body of law applicable to choice of law.

 

B. All terms and provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns.

 

C. The representations and warranties, and the indemnification extended hereunder, if any, are intended to and shall continue after and survive the expiration, termination or cancellation of this Agreement.

 

D. No provisions of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by each party hereto.

 

E. The captions in this Agreement are included for convenience of reference only, and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

 

F. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

 

G. If any part, term or provision of this Agreement is by the courts held to be illegal, in conflict with any law or otherwise invalid, the remaining portion or portions shall be considered severable and not be affected, and the rights and obligations of the parties shall be construed and enforced as if the Agreement did not contain the particular part, term or provision held to be illegal or invalid.

 

 

 

H. Except as otherwise provided herein, this Agreement may not be assigned by the Fund or DST without the prior written consent of the other. DST may assign this Agreement, in whole or in part, or subcontract certain of its obligations hereunder, to any domestic or foreign affiliate of DST; provided, however, that DST shall remain responsible for the performance of such obligations by any such affiliate.

 

I. Neither the execution nor performance of this Agreement shall be deemed to create a partnership or joint venture by and between the Fund and DST. It is understood and agreed that all services performed hereunder by DST shall be as an independent contractor and not as an employee of the Fund. This Agreement is between DST and the Fund and neither this Agreement nor the performance of services under it shall create any rights in any third parties. There are no third party beneficiaries hereto.

 

J. Except as specifically provided herein, this Agreement does not in any way affect any other agreements entered into among the parties hereto and any actions taken or omitted by any party hereunder shall not affect any rights or obligations of any other party hereunder.

 

K. The failure of either party to insist upon the performance of any terms or conditions of this Agreement or to enforce any rights resulting from any breach of any of the terms or conditions of this Agreement, including the payment of damages, shall not be construed as a continuing or permanent waiver of any such terms, conditions, rights or privileges, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred.

 

L. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement, draft or agreement or proposal with respect to the subject matter hereof, whether oral or written, and this Agreement may not be modified except by written instrument executed by both parties.

 

M. All notices to be given hereunder shall be deemed properly given if delivered in person or if sent by U.S. mail, first class, postage prepaid, or if sent by facsimile and thereafter confirmed by mail as follows:

 

If to DST:

 

DST Systems, Inc.

1055 Broadway, 7th Floor

Kansas City, Missouri 64105

Attn: Group Vice President-Full Service

Facsimile No.: 816-435-3455

 

 

 

With a copy of non-operational notices to:

 

DST Systems, Inc.

333 West 11th Street, 5th Floor

Kansas City, Missouri 64105

Attn: Legal Department

Facsimile No.: 816-435-8630

 

If to the Fund:

 

RiverNorth Opportunistic Municipal Income Fund, Inc.

325 North LaSalle Street, St 645

Chicago, Illinois 60654

Attn: General Counsel

Facsimile No.: 312-832-1461

 

or to such other address as shall have been specified in writing by the party to whom such notice is to be given.

 

N. DST and the Fund (including all agents of the Fund) agree that, during any term of this Agreement and for twelve (12) months after its termination, neither party will solicit for employment or offer employment to any employees of the other.

 

O. The representations and warranties contained herein shall survive the execution of this Agreement. The representations and warranties contained in this Section, Section 27.O. and the provisions of Section 8 hereof shall survive the termination of the Agreement and the performance of services hereunder until any statute of limitations applicable to the matter at issues shall have expired.

 

 

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers, to be effective as of the day and year first above written.

 

  DST SYSTEMS, INC.  
       
  By:    
       
  Title:    
       
 

RIVERNORTH OPPORTUNISTIC

MUNICIPAL INCOME FUND, INC.

 

       
  By:    
       
  Title:    

 

 

RFMZ DST ADOPTION AGREEMENT

 

ADOPTION AGREEMENT

 

This Adoption Agreement, dated as of February 25, 2021 (this “Adoption Agreement”), by and among DST SYSTEMS, INC. a Delaware corporation with principal place of business at 333 W 11th Street, 5th Floor, Kansas City, Missouri 64105 (“DST”) , and RIVERNORTH MANAGED DURATION MUNICIPAL INCOME FUND, INC., a Maryland corporation (“RMI”), RIVERNORTH OPPORTUNISTIC MUNICIPAL INCOME FUND, INC., a Maryland corporation (“RMM”), RiverNorth/DoubleLine Strategic Opportunity Fund, Inc., a Maryland company (“OPP”), RIVERNORTH FLEXIBLE MUNICIPAL INCOME FUND II, INC., a Maryland corporation (“RFM”),and RIVERNORTH FLEXIBLE MUNICIPAL INCOME FUND, INC., a Maryland corporation (“RFMZ”) all with their principal place of business at 325 North LaSalle Street, Suite 645, Chicago, Illinois 60654 (excluding RMI, RMM, OPP and RFM, the “Additional Product”).

 

RMI and DST entered into an Agency Agreement dated October 24, 2018 (“Agency Agreement”) wherein DST agreed to provide certain services to RMI in exchange for the RMI warranties, representations and agreement to pay compensation to DST in the amounts delineated in the Agency Agreement. On June 18, 2019, RMM was added to the Agency Agreement by way of a separate Adoption Agreement and Letter Agreement. On December 2, 2020, OPP was added to the Agency Agreement by way of a separate Adoption Agreement and Letter Agreement. On February 19, 2020, RFM was added to the Agency Agreement by way of a separate Adoption Agreement and Letter Agreement. It is now the intent of RiverNorth Capital Management, LLC (“RiverNorth”) to add the Additional Products to the Agency Agreement by way of this Adoption Agreement (subject to the necessary Board of Directors approvals).

 

The Additional Products hereby agree to (a) become a party to the Agency Agreement and (b) be bound by all terms and conditions of the Agency Agreement as a “Fund” (as such term is defined in the Agency Agreement), having such rights, entitlements and obligations as set forth in the Agency Agreement or any ancillary agreements, respectively. By their signatures below, the Additional Products confirm to DST, as of the date hereof, their representations and warranties set forth in the Agency Agreement. The Additional Products acknowledge receipt of a copy of the Agency Agreement.

 

Each of DST, RMI, RMM, OPP, and RFM hereby agree to accept the Additional Products as parties to the Agency Agreement and any ancillary agreements and that the Additional Products shall be a “Fund” or “Customer” (as such terms are defined in the Agency Agreement) under the Agency Agreement, having such rights, entitlements and obligations as set forth in the Agency Agreement.

 

The parties acknowledge that Schedule I attached hereto lists all active Funds under the Agency Agreement.

 

Except as specifically set forth herein, all other terms and conditions of the Agency Agreement shall remain unmodified and in full force and effect, the same being confirmed and republished hereby. In the event of any conflict between the terms of the Agency Agreement and the terms of this Joinder with regard to the subject matter hereof, the terms of this Joinder shall control,

 

This Joinder may be executed by the parties hereto on any number of counterparts, delivery of which may occur by facsimile or as an attachment to an electronic communication, each of which shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

 

(signatures follow on next page)

 

1 

 

RFMZ DST ADOPTION AGREEMENT

 

IN WITNESS WHEREOF, the Parties hereto have caused this Adoption Agreement to be executed as of the day and year first above written by their respective duly authorized officers.

 

RIVERNORTH FLEXIBLE   DST SYSTEMS, INC.  
MUNICIPAL INCOME FUND II, INC.      
         
By: /s/ Marcus L. Collins   By: /s/ Rahul Kanwar  
Print Name: Marcus L. Collins   Print Name: Rahul Kanwar  
Title: Secretary and Chief Compliance Officer   Title: Authorized Representative  
         
RIVERNORTH FLEXIBLE   RIVERNORTH OPPORTUNISTIC  
MUNICIPAL INCOME FUND, INC.   MUNICIPAL INCOME FUND, INC.  
           
By: /s/ Marcus L. Collins   By: /s/ Marcus L. Collins  
Print Name: Marcus L. Collins   Print Name: Marcus L. Collins  
Title: Secretary and Chief Compliance Officer   Title: Secretary and Chief Compliance Officer  
         
RIVERNORTH MANANGED DURATION   RIVERNORTH/DOUBLELINE  
MUNICIPAL INCOME FUND, INC.   STRATEGIC OPPORTUNITY FUND, INC.  
         
By: /s/ Marcus L. Collins   By: /s/ Marcus L. Collins  
Print Name: Marcus L. Collins   Print Name: Marcus L. Collins  
Title: Secretary and Chief Compliance Officer   Title: Secretary and Chief Compliance Officer  

  

2 

 

 RFMZ DST ADOPTION AGREEMENT

 

SCHEDULE I LIST OF FUNDS

 

Name:

 

RIVERNORTH OPPORTUNISTIC MUNICIPAL INCOME FUND, INC. (“RMI”)

 

RIVERNORTH MANAGED DURATION MUNICIPAL INCOME FUND, INC. (“RMM”)

 

RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (“OPP”)

 

RIVERNORTH FLEXIBLE MUNICIPAL INCOME FUND, INC. (“RFM”)

 

RIVERNORTH FLEXIBLE MUNICIPAL INCOME FUND II, INC. (“RFMZ”)

 

3 

 

ADMINISTRATION, BOOKKEEPING AND

PRICING SERVICES AGREEMENT

 

THIS AGREEMENT is made as of February 25, 2021, between RiverNorth Flexible Municipal Income Fund II, Inc., organized as a Maryland corporation (the "Fund"), RiverNorth Capital Management, LLC, a Delaware limited liability company ("RiverNorth"), and ALPS Fund Services, Inc., a Colorado corporation ("ALPS").

 

WHEREAS, the Fund is or will be registered under the Investment Company Act of 1940, as amended ("1940 Act"), as a closed-end management investment company;

 

WHEREAS, RiverNorth is or will be investment adviser to the Fund and is responsible for managing the Fund's business affairs and providing certain clerical, bookkeeping and other administrative and management services;

 

WHEREAS, ALPS provides certain administrative, bookkeeping and pricing services to investment companies; and

 

WHEREAS, the Fund desires to appoint ALPS to perform certain administrative, bookkeeping and pricing services for the Fund, and ALPS has indicated its willingness to so act, subject to the terms and conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter contained, the parties hereto agree as follows.

 

1. ALPS Appointment and Duties.

 

(a) The Fund hereby appoints ALPS to provide the administrative, bookkeeping and pricing services set forth in Appendix A hereto, as amended from time to time, upon the terms and conditions hereinafter set forth. ALPS hereby accepts such appointment and agrees to furnish such specified services. ALPS shall for all purposes be deemed to be an independent contractor and shall, except as otherwise expressly authorized in this Agreement, have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund. The Fund acknowledges that ALPS does not render legal, tax or investment advice and that ALPS is not a registered broker-dealer.

 

(b) ALPS may employ or associate itself with such person(s) or organization(s) as ALPS believes to be desirable in the performance of its duties hereunder; provided that, in such event, the compensation of such person(s) or organization(s) shall be paid by and be the sole responsibility of ALPS, and the Fund shall bear no cost or obligation with respect thereto; and provided further that ALPS shall not be relieved of any of its obligations under this Agreement in such event and shall be responsible for all acts of any such person(s) or organization(s) taken in furtherance of this Agreement to the same extent it would be for its own acts.

 

1 

 

2. ALPS Compensation; Expenses.

 

(a) In consideration for the services to be performed hereunder by ALPS, the Fund will pay ALPS the fees and expenses listed in Appendix B: except that, during all periods that RiverNorth serves as investment adviser to the Fund and is paid a unitary advisory fee from which RiverNorth is responsible for paying substantially all the operating expenses of the Fund ("Unitary Fee Period"), RiverNorth agrees that will be primarily responsible for and will pay the fees and expenses due to ALPS under this Agreement. If RiverNorth fails to pay the fees and expenses described within 30 days of receipt of an ALPS invoice, the Fund will pay such amounts (in addition to any late fees that would be applicable) immediately upon notice of RiverNorth's failure to pay. During the Unitary Fee Period, the Fund and RiverNorth agree that they are jointly and severally liable for all fees and expenses incurred and due to ALPS under this Agreement, and in no respects should RiverNorth's promise to be the primary payor of such fees to ALPS be construed as relieving the Fund of its ultimate liability for any fees, expenses, or other liabilities incurred pursuant to this Agreement.

 

Notwithstanding anything to the contrary in this Agreement, fees billed for the services to be performed by ALPS under this Agreement are based on information provided by the Fund's investment adviser and such fees are subject to renegotiation between the parties to the extent such information is determined by ALPS to be materially different from what the Fund's investment adviser originally provided to ALPS. On each January 1 (pro-rated for a previous partial year), the minimum fees reflected in Appendix B shall be increased by a cost of living adjustment of 3%. ALPS will provide notice to the Fund of the amount of such cost of living increase prior to its implementation.

 

(b) ALPS will bear all expenses in connection with the performance of its services under this Agreement, except as otherwise provided herein and in Appendix B. ALPS will not bear any of the costs of Fund personnel. Other Fund expenses incurred shall be borne by the Fund or its investment adviser, including, but not limited to, initial organization and offering expenses; litigation expenses; requests from or as otherwise required by any regulatory body concerning the Fund's investment adviser; taxes; costs of preferred shares; listing expenses; expenses related to assistance with any tender offers or repurchase offers (if applicable); transfer agency and custodial expenses; interest; Fund trustee or directors' fees; brokerage fees and commissions; state and federal registration fees; advisory fees; insurance premiums; fidelity bond premiums; Fund and investment advisory related legal expenses; costs of maintenance of Fund existence; printing and delivery of materials in connection with meetings of the Fund's directors; printing and mailing of shareholder reports, prospectuses, statements of additional information, other offering documents, supplements, proxy materials and other communications to shareholders; securities pricing data and expenses in connection with electronic filings with the U.S. Securities and Exchange Commission (the "SEC"); fees and expenses upon termination as provided in Section 15(e) hereof.

 

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3. Right to Receive Advice.

 

(a) Advice of the Fund and Service Providers. If ALPS is in doubt as to any action it should or should not take, ALPS may request directions, advice or instructions from the Fund or, as applicable, the Fund's investment adviser, custodian or other service providers.

 

(b) Advice of Counsel. If ALPS is in doubt as to any question of law pertaining to any action it should or should not take, ALPS may request advice from counsel of its own choosing (who may be counsel for the Fund, the Fund's independent board members, the Fund's investment adviser or ALPS, at the option of ALPS).

 

(c) Conflicting Advice. In the event of a conflict between directions, advice or instructions ALPS receives from the Fund or any service provider and the advice ALPS receives from counsel, ALPS may in its sole discretion rely upon and follow the advice of counsel. ALPS will provide the Fund with prior written notice of its intent to follow advice of counsel that is materially inconsistent with directions, advice or instructions from the Fund. Upon request, ALPS will provide the Fund with a copy of such advice of counsel.

 

4. Standard of Care; Limitation of Liability; Indemnification.

 

(a) ALPS shall be obligated to act in good faith and to exercise commercially reasonable care and diligence in the performance of its duties under this Agreement.

 

(b) In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard by ALPS in the performance of its duties, obligations or responsibilities set forth in this Agreement, ALPS and its affiliates, including their respective officers, directors, agents and employees, shall not be liable for, and the Fund agrees to indemnify, defend and hold harmless such persons from, all taxes, charges, expenses, disbursements, assessments, claims, losses, damages, penalties, actions, suits, judgments and liabilities (including, without limitation, attorneys' fees and disbursements and liabilities arising under applicable federal and state laws) arising directly or indirectly from the following:

 

(i) the inaccuracy of factual information furnished to ALPS by the Fund's investment adviser, custodian or other service providers;

 

(ii) any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates;

 

(iii) any actions taken on advice of counsel;

 

(iv) losses, delays, failure, errors, interruption or loss of data occurring directly or indirectly by reason of circumstances beyond its reasonable control, including without limitation, acts of God, action or inaction of civil or military authority, war, terrorism, riot, fire, flood, sabotage, labor disputes, elements of nature or non-performance by a third party;

 

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(v) ALPS' reliance on any instruction, direction, notice, instrument or other information that ALPS reasonably believes to be genuine;

 

(vi) loss of data or service interruptions caused by equipment failure; or

 

(vii) any other action or omission to act which ALPS takes in connection with the provision of services to the Fund.

 

(c) ALPS shall be entitled to rely on information and data provided by third-party service provider(s) (including pricing vendors as directed by the Fund or the Adviser pursuant to Section 13(b)) to the Fund, the Fund's Adviser, or other authorized representative of such parties without further investigation or verification. ALPS shall have no liability and shall be indemnified by the Fund for any losses or claims with respect to such reliance.

 

(d) ALPS shall indemnify and hold harmless the Fund, the Fund's investment adviser and their respective officers, directors, trustees, agents, and employees from and against any and all taxes, charges, expenses, disbursements, assessments, claims, losses, damages, penalties, actions, suits, judgments and liabilities (including, without limitation, attorneys' fees and disbursements and liabilities arising under applicable federal and state laws) arising directly or indirectly from ALPS' willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of its duties, obligations or responsibilities set forth in this Agreement.

 

(e) Notwithstanding anything in this Agreement to the contrary, neither party shall be liable under this Agreement to the other party hereto for any punitive, consequential, special or indirect losses or damages; and (ii) the maximum cumulative amount of liability of ALPS to the Fund arising out of the subject matter of, or in any way related to, this Agreement shall not exceed the aggregate fees paid by the Fund to ALPS under this Agreement for the most recent 24 months immediately preceding the date of the event giving rise to the claim; or, if the Agreement had been effective for less than 24 months, the average monthly fees payable since the Effective Date times a number equal to 24.

 

(f) In any case in which either party (the "Indemnifying Party") may be asked to indemnify or hold the other party (the "Indemnified Party") harmless, the Indemnified Party will notify the Indemnifying Party promptly after identifying any situation which it believes presents or appears likely to present a claim for indemnification against the Indemnifying Party (although the failure to do so shall not prevent recovery by the Indemnified Party) and shall keep the Indemnifying Party advised with respect to all developments concerning such situation. The Indemnifying Party shall have the option to defend the Indemnified Party against any claim which may be the subject of this indemnification, and, in the event that the Indemnifying Party so elects, such defense shall be conducted by counsel chosen by the Indemnifying Party and reasonably satisfactory to the Indemnified Party, and thereupon the Indemnifying Party shall take over complete defense of the claim and the Indemnified Party shall sustain no further legal or other expenses in respect of such claim. The Indemnified Party will not confess any claim or make any compromise in any case in which the Indemnifying Party will be asked to provide indemnification, except with the Indemnifying Party's prior written consent.

 

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5. Activities of ALPS. The services of ALPS under this Agreement are not to be deemed exclusive and ALPS shall be free to render similar services to others. The Fund recognizes that, from time to time, directors, officers and employees of ALPS may serve as directors, officers and employees of other corporations or businesses (including other investment companies) and that such other corporations and businesses may include ALPS as part of their name and that ALPS or its affiliates may enter into administrative, bookkeeping, pricing agreements or other agreements with such other corporations and businesses.

 

6. Accounts and Records. The accounts and records maintained by ALPS shall be the property of the Fund. ALPS shall prepare, maintain and preserve such accounts and records as required by the 1940 Act and other applicable securities laws, rules and regulations. ALPS shall surrender such accounts and records to the Fund, in the form in which such accounts and records have been maintained or preserved, promptly upon receipt of instructions from the Fund. The Fund shall have access to such accounts and records at all times during ALPS' normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by ALPS to the Fund at the Fund's expense. ALPS shall assist the Fund, the Fund's independent auditors, or, upon approval of the Fund, any regulatory body, in any requested review of the Fund's accounts and records and reports by ALPS or its independent accountants concerning its accounting system and internal auditing controls will be open to such entities for audit or inspection upon reasonable request. The Fund agrees to cooperate with ALPS and take delivery of Fund records within 120 days of termination of this Agreement and to pay all reasonable costs associated with the return of Fund records to the Fund.

 

7. Confidential and Proprietary Information. ALPS agrees that it will, on behalf of itself and its officers and employees, treat all transactions contemplated by this Agreement, and all records and information relative to the Fund and its current and former shareholders and other information germane thereto, as confidential and as proprietary information of the Fund. ALPS further agrees that it will not use, sell, transfer or divulge such information or records to any person for any purpose other than performance of its duties hereunder, except after prior notification to and approval in writing from the Fund, which approval shall not be unreasonably withheld. Approval may not be withheld where ALPS may be exposed to civil, regulatory, or criminal proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when requested by the Fund. When requested to divulge such information by duly constituted authorities, ALPS shall use reasonable commercial efforts to request confidential treatment of such information. ALPS shall have in place and maintain physical, electronic, and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, and to prevent unauthorized access to or use of records and information relating to the Fund and its current and former shareholders.

 

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8. Compliance with Rules and Regulations. ALPS shall comply (and to the extent ALPS takes or is required to take action hereunder shall cause the Fund to comply) with all applicable requirements of the 1940 Act and other applicable laws, rules, regulations, orders and codes of ethics, as well as all investment restrictions, policies and procedures adopted by the Fund of which ALPS has knowledge (it being understood that ALPS is deemed to have knowledge of all investment restrictions, policies or procedures set out in the Fund's public filings or otherwise provided to ALPS). Except as set out in this Agreement, ALPS assumes no responsibility for such compliance by the Fund. ALPS shall maintain at all times a program reasonably designed to prevent violations of the federal securities laws (as defined in Rule 38a-1 under the 1940 Act) with respect to the services provided hereunder, and shall provide to the Fund a certification to such effect no less frequently than annually or as otherwise reasonably requested by the Fund. ALPS shall make available its compliance personnel and shall provide at its own expense summaries and other relevant materials relating to such program as reasonably requested by the Fund.

 

Portfolio compliance with: (i) the investment objective and certain policies and restrictions as disclosed in the Fund's prospectus(es) and statement(s) of additional information, as applicable; and (ii) certain SEC rules and regulations (collectively, "Portfolio Compliance") is required daily and is the responsibility of the Fund's advisor or sub-advisor, as applicable. ALPS will perform Portfolio Compliance testing (post-trade, daily on a T+2 basis) to test the Fund's Portfolio Compliance (the "Portfolio Compliance Testing").

 

The frequency and nature of the Portfolio Compliance Testing and the methodology and process in accordance with which the Portfolio Compliance Testing are conducted, are mutually agreed to between ALPS and the Fund. ALPS will report violations, if any, to the Fund and the Fund's Chief Compliance Officer as promptly as practicable following discovery.

 

ALPS independently tests Portfolio Compliance based upon information contained in the source reports received by ALPS' fund accounting department and supplemental data from certain third-party sources. As such, Portfolio Compliance Testing performed by ALPS is limited by the information contained in the fund accounting source reports and supplemental data from third-party sources. The Fund agrees and acknowledges that ALPS' performance of the Portfolio Compliance Testing shall not relieve the Fund's investment adviser of its primary day-to-day responsibility for assuring such Portfolio Compliance, including on a pre-trade basis, and ALPS shall not be held liable for any act or omission of the Fund's investment advisor or sub-advisor, as applicable, with respect to Portfolio Compliance.

 

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9. Representations and Warranties of ALPS. ALPS represents and warrants to the Fund that:

 

(a) It is duly organized and existing as a corporation and in good standing under the laws of the State of Colorado.

 

(b) It is empowered under applicable laws and by its Articles of Incorporation and By-laws to enter into and perform this Agreement.

 

(c) All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement.

 

(d) It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement in accordance with industry standards.

 

10. Representations and Warranties of the Fund. The Fund represents and warrants to ALPS that:

 

(a) It is a corporation duly organized and existing and in good standing under the laws of the state of Maryland and is registered with the SEC as a closed-end management investment company.

 

(b) It is empowered under applicable laws and by its Articles of Incorporation and By-laws (together, the "Organizational Documents") to enter into and perform this Agreement.

 

(c) The Board of Directors of the Fund has duly authorized it to enter into and perform this Agreement.

 

(d) Notwithstanding anything in this Agreement to the contrary, the Fund agrees not to make any modifications to its registration statement or adopt any policies which would affect materially the obligations or responsibilities of ALPS hereunder without the prior written approval of ALPS, which approval shall not be unreasonably withheld or delayed.

 

(e) The (i) execution, delivery and performance of this Agreement by the Fund does not breach, violate or cause a default under any agreement, contract or instrument to which the Fund is a party or any judgment, order or decree to which the Fund is subject; (ii) the execution, delivery and performance of this Agreement by the Fund has been duly authorized and approved by all necessary action; and (iii) upon the execution and delivery of this Agreement by ALPS and the Fund, this Agreement will be a valid and binding obligation of the Fund.

 

(f) The officer position(s) filled by ALPS, to the extent applicable, shall be covered by the Fund's Directors & Officers/Errors & Omissions Policy (the "Policy"), and the Fund shall use reasonable efforts to ensure that such coverage be (i) reinstated should the Policy be cancelled; (ii) continued after such officer(s) cease to serve as officer(s) of the Fund on substantially the same terms as such coverage is provided for the other persons serving as officers of the Fund after such persons are no longer officers of the Fund; or (iii) continued in the event the Fund merges or terminates, on substantially the same terms as such coverage is continued for the other Fund officers (but, in any event, for a period of no less than six years). The Fund shall provide ALPS with proof of current coverage, including a copy of the Policy, and shall notify ALPS immediately should the Policy be cancelled or terminated.

 

7 

 

(g) The Fund's officer position(s) filled by ALPS are named officer(s) in the Fund's corporate resolutions and are subject to the provisions of the Fund's Organizational Documents regarding indemnification of its officers.

 

11. Documents. The Fund has furnished or will furnish, upon request, ALPS with copies of the Fund's Organizational Documents, advisory agreement, sub-advisory agreement (if applicable), custodian agreement, transfer agency agreement, administration agreement, other service agreements, current prospectus, statement of additional information, periodic Fund reports and all forms relating to any plan, program or service offered by the Fund. The Fund shall furnish, within a reasonable time period, to ALPS a copy of any amendment or supplement to any of the above-mentioned documents. Upon request, the Fund shall furnish promptly to ALPS any additional documents necessary or advisable to perform its functions hereunder. As used in this Agreement the terms "registration statement," "prospectus" and "statement of additional information" shall mean any registration statement, prospectus and statement of additional information filed by the Fund with the SEC and any amendments and supplements thereto that are filed with the SEC.

 

12. Consultation Between the Parties. ALPS and the Fund shall regularly consult with each other regarding ALPS' performance of its obligations under this Agreement. In connection therewith, the Fund shall submit to ALPS at a reasonable time in advance of filing with the SEC reasonably final copies of any amended or supplemented registration statement (including exhibits) under the Securities Act of 1933, as amended, and the 1940 Act; provided, however, that nothing contained in this Agreement shall in any way limit the Fund's right to file at any time such amendments to any registration statement and/or supplements to any prospectus or statement of additional information, of whatever character, as the Fund may deem advisable, such right being in all respects absolute and unconditional.

 

13. Liaison with Accountants, Custodians and Pricing Services; Assistance with Regulatory Examinations.

 

(a)       Accountants. ALPS shall act as a liaison with the Fund's independent public accountants and shall provide account analyses, fiscal year summaries, and such other audit-related schedules as may be requested by the Fund's independent public accountants or the Fund with respect to the services provided by ALPS hereunder. ALPS shall take all reasonable action in the performance of its duties under this Agreement to assure that the necessary information is made available to such accountants as reasonably requested or required by the Fund.

 

8 

 

(b)       Pricing Services. ALPS shall utilize one or more pricing services, as directed by the Fund. The Fund shall identify in writing to ALPS the pricing service(s) to be utilized on behalf of the Fund. For those securities where prices are not provided by the pricing service(s), the Fund shall approve, in good faith, the method for determining the fair value of such securities and shall determine or obtain the valuation of the securities in accordance with such method and shall deliver to ALPS the resulting price(s). In the event the Fund desires to provide a price that varies from the price provided by the pricing service(s), the Fund shall promptly notify and supply ALPS with the valuation of any such security on each valuation date. All pricing changes made by the Fund will be provided to ALPS in writing or e-mail and must specifically identify the securities to be changed by security identifier, name of security, new price or rate to be applied, and, if applicable, the time period for which the new price(s) is/are effective.

 

(c)       Custodians. The Fund acknowledges that ALPS may rely on and shall have no responsibility to validate the existence of assets reported by the Fund, the Adviser, or the Fund's custodian, other than ALPS' completion of a reconciliation of the assets reported by the parties. The Fund acknowledges that it is the responsibility of the Fund to validate the existence of assets reported to ALPS. ALPS may rely, and has no duty to investigate the representations of the Adviser, Fund, or the Fund's custodian.

 

(d)       Examinations. ALPS shall provide reasonable assistance in connection with any examination of or inquiry related to the Fund by a regulatory authority that includes a review of Fund records maintained by ALPS.

 

14. Business Continuation Plan. ALPS shall maintain in effect a business continuation plan, and enter into any agreements necessary with appropriate parties making reasonable provisions for emergency use of electronic data processing equipment customary in the industry. In the event of equipment failures, ALPS shall, at no additional expense to the Fund, take commercially reasonable steps to minimize service interruptions.

 

15. Duration and Termination of this Agreement.

 

(a) Initial Term. This Agreement shall become effective as of the date first written above (the "Start Date") and shall continue thereafter throughout the period that ends three (3) years after the Start Date (the "Initial Term").

 

(b) Renewal Term. If not sooner terminated, this Agreement shall renew at the end of the Initial Term and shall thereafter continue for successive annual periods (each a "Renewal Term" and collectively, with the Initial Term, a "Term") until terminated by either party upon not less than sixty (60) days' written notice prior to the expiration of the then current renewal term or for cause pursuant to Section 15(c) hereof. This Agreement may only be terminated upon the end of the then applicable Term or for cause pursuant to Section 15(c) hereof.

 

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(c) Cause. Notwithstanding anything to the contrary elsewhere in this Agreement, the Fund may terminate this Agreement for cause immediately at any time, without penalty, without default and without the payment of any liquidated damages, upon written notice to ALPS which shall describe the specific details of the circumstances upon which the termination under this Section 15(c) is based. For purposes of this Section 15, "cause" shall mean:

 

(i) willful misfeasance, bad faith, gross negligence or reckless disregard on the part of ALPS in the performance of its duties, obligations and responsibilities set forth in this Agreement;

 

(ii) in the event ALPS is no longer permitted to perform its duties, obligations, or responsibilities hereunder pursuant to applicable law, or regulatory, administrative or judicial proceedings against ALPS which result in a determination that ALPS has violated, or has caused the Fund to violate, in any material respect any applicable law, rule, regulation, order or code of ethics, or any material investment restriction, policy or procedure adopted by the Fund of which ALPS had knowledge (it being understood that ALPS is deemed to have knowledge of all investment restrictions, policies or procedures set out in the Fund's public filings or otherwise provided to ALPS); or

 

(iii) financial difficulties on the part of ALPS which are evidenced by the authorization or commencement of, or involvement by way of pleading, answer, consent or acquiescence in, a voluntary or involuntary case under Title 11 of the United States Code, as from time to time in effect, or any applicable law other than said Title 11, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors.

 

(d) Deliveries Upon Termination. Upon termination of this Agreement, ALPS agrees to cooperate in the orderly transfer of administrative duties and shall deliver to the Fund or as otherwise directed by the Fund (at the expense of the Fund) all records and other documents made or accumulated in the performance of its duties for the Fund hereunder. In the event ALPS gives notice of termination under this Agreement, it will continue to provide the services contemplated hereunder after such termination at the contractual rate for up to 120 days, provided that the Fund uses all reasonable commercial efforts to appoint such replacement on a timely basis.

 

(e) Fees and Expenses Upon Termination. Should either party exercise its right to terminate, all reasonable out-of-pocket expenses or costs associated with the movement of records and material will be borne by the Fund. Additionally, the Fund agrees to pay to ALPS a reasonable fee determined by ALPS for ALPS' services provided in connection with the Fund liquidating or converting to another service provider.

 

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16. Assignment. This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and permitted assigns; provided, however, that this Agreement shall not be assignable by the Fund without the prior written consent of ALPS, or by ALPS without the prior written consent of the Fund.

 

17. Governing Law. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Colorado and the 1940 Act and the rules thereunder. To the extent that the laws of the State of Colorado conflict with the 1940 Act or such rules, the latter shall control.

 

18. Names. The obligations of the Fund entered into in the name or on behalf thereof by any director, shareholder, representative, or agent thereof are made not individually, but in such capacities, and are not binding upon any of the directors, shareholders, representatives or agents of the Fund personally, but bind only the property of the Fund, and all persons dealing with the Fund must look solely to the property of such Fund for the enforcement of any claims against the Fund.

 

19. Amendments to this Agreement. This Agreement may only be amended by the parties in writing.

 

20. Notices. All notices and other communications hereunder shall be in writing, shall be deemed to have been given when received or when sent by electronic mail or facsimile, and shall be given to the following addresses (or such other addresses as to which notice is given):

 

To ALPS:
   
  ALPS Fund Services, Inc.
  1290 Broadway, Suite 1000
  Denver, Colorado 80203
  Attn: General Counsel
  notices@sscinc.com
   
  To the Fund:
   
  RiverNorth Flexible Municipal Income Fund II, Inc.
  c/o RiverNorth Capital Management, LLC
  Attn: General Counsel
  325 N. LaSalle St.
  Suite 645 Chicago, IL 60654
  mcollins@rivernorth.com

 

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To RiverNorth:
   
  RiverNorth Capital Management, LLC
  Attn: General Counsel
  325 N. LaSalle St.
  Suite 645 Chicago, IL 60654
  mcollins@rivernorth.com

 

21. Counterparts. This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

 

22. Entire Agreement. This Agreement embodies the entire agreement and understanding among the parties and supersedes all prior agreements and understandings relating to the subject matter hereof; provided, however, that ALPS may embody in one or more separate documents its agreement, if any, with respect to delegated duties and oral instructions.

 

23. Severability. Any covenant, provision, agreement or term contained in this Agreement that is prohibited or that is held to be void or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without in any way invalidating, effecting or impairing the other provisions hereof.

 

24. Survival. The provisions of Sections 4, 6, 10(f), 10(g), 15(e), 17, 23 and this Section 24 hereof shall survive termination of this Agreement.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

 

RIVERNORTH FLEXIBLE MUNICIPAL INCOME FUND II, INC.
   
  By: /s/ Marcus L. Collins  
  Name: Marcus L. Collins
  Title: Secretary and Chief Compliance Officer
   
  RIVERNORTH CAPITAL MANAGEMENT, LLC
   
  By: /s/ Marcus L. Collins  
  Name: Marcus L. Collins
  Title: General Counsel and Chief Compliance Officer
   
  ALPS FUND SERVICES, INC.
   
  By: /s/ Michael Sleightholme  
  Name: Michael Sleightholme  
  Title: Authorized Representative  

 

 

 

APPENDIX A

 

SERVICES

 

The below services to be performed by ALPS are included in the compensation noted on Appendix B.

 

Fund Administration

 

Prepare annual and semi-annual financial statements
o Utilizing templates for standard layout and printing
Prepare Forms N-CEN1, N-CSR, and 24F-2
File Form N-CEN1
Host annual audits
Prepare required reports for quarterly Board meetings
Monitor expense ratios
Maintain budget vs. actual expenses
Manage fund invoice approval and bill payment process
Assist with placement of Fidelity Bond and E&O insurance
Prepare initial draft of routine and scheduled distribution press releases

 

Fund Accounting

 

Calculate net asset values as required by the Fund and in conformance with generally accepted accounting principles ("GAAP"), SEC Regulation S-X (or any successor regulation) and the Internal Revenue Code
Transmit net asset values to the advisor, NASDAQ, Transfer Agent & other third parties
Reconcile cash & investment balances with the custodian
Provide data and reports to support preparation of financial statements and filings
Prepare required Fund Accounting records in accordance with the 1940 Act
Apply security valuations as directed and determined by the Fund consistent with the Fund's pricing and valuation policies
Participate, when requested, in Fair Value Committee meetings as a non-voting member
Calculate monthly SEC standardized total return performance figures
Coordinate reporting to outside agencies including Morningstar, etc

Prepare and file Form N-PORT1

 

Legal Administration

 

File Forms N-CSR and N-PX
Coordinate EDGARization and filing of SEC documents
Coordinate annual shareholder proxy filing and mailing process
Compile and distribute board materials for quarterly board meetings
Attend quarterly board meetings telephonically and prepare first draft of quarterly minutes
On the direction from the Fund, assist and coordinate the filing of routine or regular notices, reports, and similar filings required by NYSE rules and regulations (including the annual written affirmations). Coordination of Assistance with any supplemental listing applications and other non-routine and substantial filings with the NYSE may be provided upon the prior request of the Fund and will be billed at ALPS' standard rates.

 

Compliance Administration

 

Perform daily prospectus & SAI, SEC investment restriction monitoring
Provide warning/Alert notification with supporting documentation
Provide quarterly compliance testing certification to Board of Directors

 

 

 

Tax Administration

 

Calculate dividend and capital gain distribution rates
Prepare ROCSOP and required tax designations for Annual Report
Prepare and coordinate filing of income and excise tax returns
o Audit firm to sign all returns as paid preparer
Calculate/monitor book-to-tax differences
Provide quarterly Subchapter M compliance monitoring and reporting
Provide tax re-allocation data for shareholder 1099 reporting
Prepare and distribute 19a-1 filings, as required

 

SS&C Portal

 

Document Management/Sharing
Initiate requests or provide feedback
Retrieval of current and up to 15 months of historical reports
Access to daily fund accounting data and static reports
Portfolio compliance alerting with drill-down capability
Portfolio data warehouse with reporting engine
Investor data warehouse with ad hoc query builder
Investor document image retrieval (i.e. correspondence, applications, checks)
Sales and advertising workflow that connects client, compliance analyst and FINRA through an entire review process
Selling agreement review
Trustee access that facilitates access to board materials and other relevant documents
Printed material fulfillment requests (i.e. prospectuses, annual reports, applications)

 

1 - See Appendix C for additional terms applicable to these services.

 

Revisions to, or the addition of new services to the services listed above (including but not limited to new or revised services related to regulatory changes or special projects) shall be subject to additional fees and will be billed at ALPS' standard rates.

 

 

 

APPENDIX C

 

ADDITIONAL TERMS APPLICABLE TO REPORT MODERIZATION SERVICES

 

In addition to the terms and conditions otherwise contained in the Agreement, the following terms and conditions apply to the "Preparation of and Filing of Forms N-PORT and N-CEN" (referred to as "Report Mod. Services").

 

1. Provision of Services.

 

i. ALPS may engage persons or organizations (referred to as a "supplier") to assist in the provision of its duties of providing the Report Mod. Services; provided that, in such event, ALPS shall not be relieved of any of its obligations otherwise applicable under the Agreement. Except as to provide the Data (hereafter defined) utilized in the provision of the Report Mod. Services, or as otherwise agreed to by the parties, the cost of third parties engaged by ALPS will be the responsibility of ALPS. All uses of the term "supplier" in Section 2 of this Appendix C shall include any third party Data supplier otherwise selected by the Fund, if applicable.

 

2. Use of Data; No Warranty; Termination of Rights.

 

i. As part of the provision of the Report Mod. Services, ALPS may provide or utilize security including issuer level reference data, risk metrics calculations, taxonomy data and other similar holdings classifications (collectively, the "Data") that may be supplied by ALPS or one of its suppliers, or a supplier selected by the Fund. Any Data being provided to the Fund by ALPS or the suppliers are being supplied to the Fund for the sole purpose of completion of the Report Mod. Services. The Fund may use the Data only for purposes necessary for the Report Mod. Services. The Fund does not have any license or right to use the Data for purposes beyond the Report Mod. Services including, but not limited to, resale to other users or use to create any type of historical database. Data cannot be passed to or shared with any other non-affiliated entity.

 

The Fund acknowledges the proprietary rights that ALPS and the suppliers have in the Data.

 

ii. ALPS and the suppliers shall have no liability to the Fund, or a third party, for errors, omissions or malfunctions in the Data or related services, other than the obligation of ALPS to endeavor, upon receipt of notice from the Fund, to correct a malfunction, error, or omission in any Data or related services.

 

iii. The Fund acknowledges that the Data and related services are intended for use as an aid to institutional investors, registered brokers or professionals of similar sophistication in making informed judgments concerning securities, in connection to the Report Mod. Services. The Fund accepts responsibility for, and acknowledges it exercises its own independent judgment in, its selection of the Data and related services, its selection of the use or intended use of such, and any results obtained. Nothing contained herein shall be deemed to be a waiver of any rights existing under applicable law for the protection of investors.

 

iv. The Fund shall indemnify ALPS and the suppliers against and hold ALPS harmless from any and all losses, damages, liability, costs, including attorney's fees, resulting directly or indirectly from any claim or demand against ALPS or its suppliers by a third party arising out of or related to the accuracy or completeness of any Data or related services received by the Fund, or any data, information, service, report, analysis or publication derived therefrom. Neither ALPS nor its suppliers shall be liable for any claim or demand against the Fund by a third party related to the Data or provision of the Report Mod. Services.

 

 

 

v. ALPS and the suppliers, nor the Fund shall be liable for (i) any special, indirect or consequential damages (even if advised of the possibility of such), (ii) any delay by reason of circumstances beyond its control, including acts of civil or military authority, national emergencies, labor difficulties, fire, mechanical breakdown, flood or catastrophe, acts of God, insurrection, war, riots, or failure beyond its control of transportation or power supply, or (iii) any claim that arose more than one year prior to the institution of suit therefor.

 

vi. THE FUND HEREBY ACCEPTS THE DATA AS IS, WHERE IS, ALPS AND ITS SUPPLIERS MAKE NO WARRANTIES, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY, FITNESS OR ANY OTHER MATTER.

 

 

STRUCTURING FEE AGREEMENT

 

[●], 2021

 

UBS Securities LLC
1285 Avenue of the Americas
New York, New York 10019

 

Ladies and Gentlemen:

 

This agreement (the “Agreement”) is between RiverNorth Capital Management, LLC (including any successor or assign by merger or otherwise, the “Company”) and UBS Securities LLC (“UBS”) with respect to the RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”).  Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement dated [●], 2021, by and among the Fund, the Company and the Underwriters named therein (the “Underwriting Agreement”).

 

1.         Fee.  In consideration of certain financial advisory services that UBS has provided to the Company in assisting the Company in structuring, designing and organizing the Fund as well as services related to the sale and distribution of the shares of common stock, par value $0.0001 per share (the “Common Shares”), of the Fund, it being understood that the ultimate decision with respect to the structure, design and organization of the Fund shall rest with the Company, the Company shall pay a fee to UBS in the aggregate amount of $[●] (the “Fee”).  The Fee shall be paid on or before [●], 2021 or as otherwise agreed to by the parties. In the event the Offering does not proceed, UBS will not receive any fees under this Agreement; however, for the avoidance of doubt, accountable expenses actually incurred may be payable to UBS pursuant to the terms of the Underwriting Agreement.

 

2.         Term.  This Agreement shall terminate upon the payment of the entire amount of the Fee, as specified in Section 1 hereof, or upon termination of the Underwriting Agreement without the Shares having been delivered and paid for. Notwithstanding the foregoing, Sections 4, 5, 8, 9 and 10 of this Agreement and the Indemnification Agreement attached hereto shall survive the termination of this Agreement.

 

3.         Indemnification.  The Company agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.

 

4.         Confidential Advice.  Except (a) to the extent legally required (after consultation with, and approval as to form and substance by, UBS and its counsel), none of (i) the name of UBS, (ii) any advice rendered by UBS to the Company, or (iii) the terms of this Agreement or any communication from UBS, each in connection with the services performed by UBS pursuant to this Agreement, will be quoted or referred to orally or in writing, or in the case of (ii) and (iii), reproduced or disseminated, by the Company or any of its affiliates or any of its agents, without UBS’ prior written consent.

- 1

 

5.         Information.  The Company recognizes and confirms that UBS (a) has used and relied primarily on the information provided by the Company and on information available from generally recognized public sources in performing the services contemplated by this Agreement without having assumed responsibility for independently verifying the same, (b) has not assumed responsibility for the accuracy, completeness or reasonableness of such information and (c) has not made an appraisal of any assets or liabilities (contingent or otherwise) of the Fund.  The information provided by the Company contained in the Registration Statement, the Prospectus and the Sales Materials was true and correct in all material respects and did not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading.  The Company will promptly notify UBS if it learns of any material inaccuracy or misstatement in, or material omission from, any information provided by the Company to UBS pursuant to this Section 5.

 

6.         Not an Investment Adviser.  The Company acknowledges that UBS has not provided any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund’s portfolio. The Company acknowledges and agrees that UBS has been retained to act solely as an adviser to the Company, and the Company’s engagement of UBS is not intended to confer rights upon any person (including the Fund or any shareholders, employees or creditors of the Company or the Fund) not a party hereto as against UBS or its affiliates, or their respective directors, officers, employees or agents, successors, or assigns. UBS has acted as an independent contractor under this Agreement, and not in any other capacity including as a fiduciary, and any duties arising out of its engagement shall be owed solely to the Company.

 

7.         Not Exclusive.  Nothing herein shall be construed as prohibiting UBS or its affiliates from acting as an underwriter or financial adviser or in any other capacity for any other persons (including other registered investment companies or other investment managers).

 

8.         Amendment; Waiver.  No provision of this Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.

 

9.         Governing Law.  This Agreement and any claim, counterclaim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Agreement (“Claim”), directly or indirectly, shall be governed by and construed in accordance with the laws of the State of New York. No Claim may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have exclusive jurisdiction over the adjudication of such matters, and the Company and UBS consent to the jurisdiction of such courts and personal service with respect thereto. EACH OF UBS AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT.

 

10.       Successors and Assigns.  This Agreement shall be binding upon the Company and UBS and their respective successors and assigns and any successor or assign of any substantial portion of the Company’s or UBS’ respective businesses and/or assets.

 

11.       Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.

 

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[Signature Page Follows]

- 3

 

This Agreement shall be effective as of the date first written above.

 

 

RIVERNORTH CAPITAL MANAGEMENT, LLC

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

Agreed and Accepted:

 

 

 

 

UBS SECURITIES LLC

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

- 4

 

Indemnification Agreement

 

[●], 2021

 

UBS Securities LLC
1285 Avenue of the Americas
New York, New York 10019

 

Ladies and Gentlemen:

 

In connection with the engagement of UBS Securities LLC (“UBS”) to advise and assist the undersigned (including any successor or assign by merger or otherwise, the “Company”) with the matters set forth in the Structuring Fee Agreement, dated [●], 2021, between the Company and UBS (the “Agreement”), in the event that UBS becomes involved in any capacity in any claim, suit, action, proceeding, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a “Proceeding”) in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, including, without limitation, related services and activities provided prior to the date of the Agreement, the Company agrees to indemnify, defend and hold UBS harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, including, without limitation, related services and activities provided prior to the date of the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that such losses, claims, damages, liabilities and expenses resulted solely from the gross negligence or willful misconduct of UBS. In addition, in the event that UBS becomes involved in any capacity in any Proceeding in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, the Company will reimburse UBS for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by UBS in connection therewith.  If such indemnification were not to be available for any reason, the Company agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Company and its stockholders and affiliates and other constituencies, on the one hand, and UBS, on the other hand, in connection with the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and its stockholders and affiliates and other constituencies, on the one hand, and the party entitled to contribution, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Company and its stockholders and affiliates and other constituencies, on the one hand, and the party entitled to contribution, on the other hand, in connection with the matters contemplated by the Agreement shall be deemed to be in the same proportion that the total value received or paid or contemplated to be received or paid by the Company or its stockholders or affiliates and other constituencies, as the case may be, as a result of or in connection with the matters (whether or not consummated) for which UBS has been retained to perform financial services bears to the fees paid to UBS under the Agreement; provided that, in no event shall the Company contribute less than the amount necessary to assure that UBS is not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by UBS pursuant to the Agreement. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by the Company or other conduct by the Company (or its employees or other agents), on the one hand, or by UBS, on the other hand. The Company will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not UBS is an actual or potential party to such Proceeding, without UBS’ prior written consent. For purposes of this Indemnification Agreement, UBS shall include UBS Securities LLC, any of its affiliates, each other person, if any, controlling UBS or any of its affiliates, their respective officers, current and former directors, employees and agents, and the successors and assigns of all of the foregoing persons. The foregoing indemnity and contribution agreement shall be in addition to any rights that any indemnified party may have at common law or otherwise.

- 1

 

The Company agrees that neither UBS nor any of its affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of either UBS’ engagement under the Agreement or any matter referred to in the Agreement, including, without limitation, related services and activities provided prior to the date of the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted solely from the gross negligence or willful misconduct of UBS in performing the services that are the subject of the Agreement.

 

THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT (“CLAIM”), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.  EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND UBS CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO.  THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST UBS OR ANY INDEMNIFIED PARTY.  EACH OF UBS AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT.  THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.

 

The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of UBS’ engagement. This Indemnification Agreement shall be binding upon the Company and UBS and their respective successors and assigns and any successor or assign of any substantial portion of the Company’s or UBS’ respective businesses and/or assets. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

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[Signature Page Follows]

- 3

 

 

Very truly yours,

 

 

 

 

 

 

RIVERNORTH CAPITAL MANAGEMENT, LLC

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

Agreed and Accepted:

 

 

 

 

UBS SECURITIES LLC

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

- 4 -

 

STRUCTURING FEE AGREEMENT

 

[●], 2021

 

Wells Fargo Securities, LLC
500 West 33rd Street

New York, New York 10001

 

Ladies and Gentlemen:

 

Reference is made to the Underwriting Agreement dated [●], 2021 (the “Underwriting Agreement”), by and among RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”), RiverNorth Capital Management, LLC (the “Adviser”), MacKay Shields LLC (the “Sub-Adviser”) and each of the Underwriters named therein (the “Underwriters”), severally, with respect to the issue and sale of the Fund’s shares of common stock, $0.0001 par value per share (the “Common Shares”), as described therein (the “Offering”). Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement.

 

1.   Fee.

 

In consideration of your services assisting the Adviser with respect to the structure and design of the Fund and the organization of the Fund as well as services related to the sale and distribution of the Fund’s Common Shares, the Adviser shall pay a fee to you in the aggregate amount of $[●] (the “Fee”). The Fee shall be paid on the Closing Date (as defined in the Underwriting Agreement). The Fee shall be paid by wire transfer to the order of Wells Fargo Securities, LLC. The Fee paid to you shall not exceed [●]% of the total price to the public of the Firm Shares sold by the Fund in the Offering. In the event the Offering does not proceed, you will not receive any fees under this Agreement; however, for the avoidance of doubt, you may be reimbursed for accountable out-of-pocket expenses actually incurred by you pursuant to the terms of the Underwriting Agreement and in accordance with FINRA Rule 5110(f)(2)(D).

 

2.   Term. This Agreement shall terminate upon the payment of the entire amount of the Fee, as specified in Section 1 hereof or upon the termination of the Underwriting Agreement without the Shares having been delivered and paid for.

 

3.   Indemnification.

 

The Adviser agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.

 

4.   Not an Adviser; No Fiduciary Duty. The Adviser acknowledges that you are not providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund’s portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of you, and you are not agreeing hereby, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities; or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services. The Adviser hereby acknowledges that your engagement under this Agreement is as an independent contractor and not in any other capacity, including as a fiduciary. Furthermore, the Adviser agrees that it is solely responsible for making its own judgment in connection with the matters covered by this Agreement (irrespective of whether you have advised or are currently advising the Adviser on related or other matters).

 

 

5.   Not Exclusive. Nothing herein shall be construed as prohibiting you or your affiliates from acting as an underwriter or financial adviser or in any other capacity for any other persons (including other registered investment companies or other investment advisers).

 

6.   Assignment. This Agreement may not be assigned by either party without prior written consent of the other party.

 

7.   Amendment; Waiver. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.

 

8.   Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

9.   Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Agreement by facsimile or electronic transmission shall be effective as delivery of a manually executed counterpart hereof.

 

 

This Agreement shall be effective as of the date first written above.

 

 

RIVERNORTH CAPITAL MANAGEMENT, LLC

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

Agreed and Accepted:

 

 

 

 

WELLS FARGO SECURITIES, LLC

 

 

 

 

By:

 

Name:

 

Title:

 

 

[Signature Page to Structuring Fee Agreement]

 

 

Indemnification Agreement

 

[●], 2021

 

Wells Fargo Securities, LLC
500 West 33rd Street

New York, New York 10001

 

Ladies and Gentlemen:

 

In connection with the engagement of Wells Fargo Securities, LLC (the “Bank”) to assist the undersigned, RiverNorth Capital Management, LLC, together with its affiliates and subsidiaries (the “Company”) with respect to the matters set forth in the Structuring Fee Agreement dated [●], 2021 between the Company and the Bank (the “Agreement”), in the event that the Bank, any of its affiliates, each other person, if any, controlling the Bank or any of its affiliates, their respective officers, current and former directors, employees and agents, or the successors or assigns of any of the foregoing persons (the Bank and each such other person or entity being referred to as an “Indemnified Party”) becomes involved in any capacity in any claim, suit, action, proceeding, litigation, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a “Proceeding”) with respect to the services performed pursuant to and in accordance with the Agreement, the Company agrees to indemnify, defend and hold each Indemnified Party harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses, including the fees and expenses of counsel to the Indemnified Parties, with respect to the services performed pursuant to and in accordance with the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted primarily from the gross negligence or willful misconduct of such Indemnified Party. In addition, in the event that an Indemnified Party becomes involved in any capacity in any Proceeding with respect to the services performed pursuant to and in accordance with the Agreement, the Company will reimburse such Indemnified Party for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by such Indemnified Party in connection therewith. Promptly as reasonably practicable after receipt by an Indemnified Party of notice of the commencement of any Proceeding, such Indemnified Party will, if a claim in respect thereof is to be made under this paragraph, notify the Company in writing of the commencement thereof; but the failure so to notify the Company (i) will not relieve the Company from liability under this paragraph to the extent each is not materially prejudiced as a result thereof and (ii) in any event shall not relieve the Company from any liability which it may have otherwise than on account of this Indemnification Agreement. Counsel to the Indemnified Parties shall be selected by the Bank. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the Indemnified Parties) also be counsel to the Indemnified Party. No indemnifying party shall, without the prior written consent of the Indemnified Parties, settle or compromise or consent to the entry of any judgment with respect to any Proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought hereunder (whether or not the Indemnified Parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each Indemnified Party from all liability arising out of such Proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party.

 

 

If such indemnification were not to be available for any reason, the Company agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Company and its owners and affiliates, on the one hand, and the Indemnified Parties, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and its owners and affiliates, on the one hand, and the Indemnified Parties, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Company and its owners and affiliates, on the one hand, and the party entitled to contribution, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received or paid or contemplated to be received or paid by the Company or its owners or affiliates, as the case may be, as a result of or in connection with the transaction (whether or not consummated) for which the Bank has been retained to perform services bears to the fees paid to the Bank under the Agreement; provided, that in no event shall the Company contribute less than the amount necessary to assure that the Indemnified Parties are not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by the Bank pursuant to the Agreement. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by the Company or other conduct by the Company (or its employees or other agents), on the one hand, or by the Bank, on the other hand. Notwithstanding the provisions of this paragraph, an Indemnified Party shall not be entitled to contribution from the Company if it is determined that such Indemnified Party was guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933, as amended) and the Company were not guilty of such fraudulent misrepresentation. The Company will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not an Indemnified Party is an actual or potential party to such Proceeding, without the Bank’s prior written consent (which consent shall not be unreasonably withheld). The foregoing indemnity and contribution agreement shall be in addition to any rights that any Indemnified Party may have at common law or otherwise.

 

The Company agrees that no Indemnified Party shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company with respect to the services performed pursuant to and in accordance with the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted primarily from the gross negligence or willful misconduct of the Bank in performing the services that are the subject of the Agreement.

 

THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER WITH RESPECT TO THE SERVICES PERFORMED PURSUANT TO AND IN ACCORDANCE WITH THE AGREEMENT (“CLAIM”), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND THE INDEMNIFIED PARTIES CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENT TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST THE BANK OR ANY INDEMNIFIED PARTY. EACH INDEMNIFIED PARTY AND THE COMPANY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.

 

 

The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of the Bank’s engagement under the Agreement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

 

 

RIVERNORTH CAPITAL MANAGEMENT, LLC

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

Agreed and Accepted:

 

 

 

 

WELLS FARGO SECURITIES, LLC

 

 

 

 

By:

 

Name:

Title:

 

 

[Signature Page to Indemnification Agreement]

 

 

STRUCTURING FEE AGREEMENT

 

[●], 2021

 

RBC Capital Markets, LLC
200 Vesey Street
New York, New York 10281-8098

 

Ladies and Gentlemen:

 

Reference is made to the Underwriting Agreement dated [●], 2021 (the “Underwriting Agreement”), by and among RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”), RiverNorth Capital Management, LLC (the “Adviser”), MacKay Shields LLC (the “Sub-Adviser) and each of the Underwriters named therein (the “Underwriters”), severally, with respect to the issue and sale of the Fund’s shares of common stock, $0.0001 par value per share (the “Common Shares”), as described therein (the “Offering”). Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement.

 

1.     Fee.

 

In consideration of your services in offering advice relating to the distribution of the Fund’s Common Shares, the Adviser shall pay a fee to you in the aggregate amount of $[●] (the “Fee”). The Fee shall be paid on or before the Closing Date (as defined in the Underwriting Agreement). The payment shall be made by wire transfer to the order of RBC Capital Markets, LLC. The Adviser acknowledges that the Fee is in addition to any compensation you earn in connection with your role as an underwriter to the Fund in the Offering, which services are distinct from and in addition to the marketing services rendered in connection with the advice described above. The Fee paid to you shall not exceed [●]% of the total price to the public of the Firm Shares sold by the Fund in the Offering. In the event the Offering does not proceed, you will not receive any fees under this Agreement; however, for the avoidance of doubt, accountable expenses actually incurred may be payable to you pursuant to the terms of the Underwriting Agreement and in accordance with FINRA Rule 5110(f)(2)(D).

 

2.     Term.

 

This Agreement shall terminate upon the payment of the entire amount of the Fee, as specified in Section 1 hereof, or upon the termination of the Underwriting Agreement without the Common Shares having been delivered and paid for, except as provided in Section 3.

 

3.     Indemnification.

 

The Adviser agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.

 

 

4. Not an Investment Adviser; No Fiduciary Duty.

 

The Adviser acknowledges that you are not providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund’s portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of you, and you are not agreeing hereby, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities; or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services. Neither this Agreement nor the performance of the services contemplated hereunder shall be considered to constitute a partnership, association or joint venture between you and the Adviser. In addition, nothing in this Agreement shall be construed to constitute you as the agent or employee of the Adviser or the Adviser as your agent or employee, and neither party shall make any representation to the contrary. It is understood that you are engaged hereunder as an independent contractor solely to provide the services described above to the Adviser and that you are not acting as an agent or fiduciary of, and you shall not have any duties or liability to, the current or future partners, members or equity owners of the Adviser or any other third party in connection with its engagement hereunder, all of which are hereby expressly waived to the extent the Adviser has the authority to waive such duties and liabilities. Furthermore, the Adviser agrees that it is solely responsible for making its own judgments in connection with the matters covered by this Agreement (irrespective of whether you have advised or are currently advising the Adviser on related or other matters).

 

5. Not Exclusive.

 

Nothing herein shall be construed as prohibiting you or your affiliates from acting as an underwriter or financial adviser or in any other capacity for any other persons (including other registered investment companies or other investment managers).

 

6. Assignment.

 

This Agreement may not be assigned by either party without prior written consent of the other party.

 

7. Amendment; Waiver.

 

No provision of this Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.

 

8. Governing Law.

 

This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

9. Counterparts.

 

This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Agreement by facsimile or other electronic transmission that accurately depicts a manual signature shall be effective as delivery of a manually executed counterpart hereof.

 

 

10.          Applicability to the Fund.

 

Nothing in this Agreement is intended to, or shall be deemed to bind, the Fund, and the Fund shall have no obligation or liability under, or in respect of, this Agreement or the transaction contemplated hereby.

 

[END OF TEXT]

 

 

This Agreement shall be effective as of the date first written above.

 

 

RIVERNORTH CAPITAL MANAGEMENT, LLC

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

Agreed and Accepted:

 

RBC CAPITAL MARKETS, LLC

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

[Signature Page to Structuring Fee Agreement]

 

 

Indemnification Agreement

 

[●], 2021

 

RBC Capital Markets, LLC
200 Vesey Street
New York, New York 10281-8098

 

Ladies and Gentlemen:

 

In connection with the engagement of RBC Capital Markets, LLC ( “RBCCM”) to advise and assist the undersigned, RiverNorth Capital Management, LLC, together with its affiliates and subsidiaries (the “Adviser”), with respect to the matters set forth in the Structuring Fee Agreement dated [●], 2021 between the Adviser and RBCCM (the “Agreement”), in the event that RBCCM, any of its affiliates, each other person, if any, controlling RBCCM or any of its affiliates, their respective officers, current or former directors, employees and agents, or the successors or assigns of any of the foregoing persons (RBCCM and each such other person or entity being referred to as an “Indemnified Party”) becomes involved in any capacity in any claim, suit, action, proceeding, litigation, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a “Proceeding”) with respect to the services performed under the Agreement, the Adviser agrees to indemnify, defend and hold each Indemnified Party harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses, including fees and expenses of counsel to the Indemnified Parties, with respect to the services performed under the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted primarily from the gross negligence or willful misconduct (including bad faith) of such Indemnified Party. In addition, in the event that an Indemnified Party becomes involved in any capacity in any Proceeding with respect to the Agreement, the Adviser will reimburse such Indemnified Party for legal and other expenses (including the cost of any investigation and preparation) as such expenses are reasonably incurred by such Indemnified Party in connection therewith, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted primarily and directly from the gross negligence or willful misconduct of such Indemnified Party. Counsel shall be selected by RBCCM. In no event shall the Adviser be liable for the fees and expenses of more than one counsel (in addition to any local counsel reasonably required) separate from their own counsel for the Indemnified Parties. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the Indemnified Parties) also be counsel to the indemnified party. As promptly as reasonably practicable after receipt by an Indemnified Party of notice of the commencement of any Proceeding, such Indemnified Party will, if a claim in respect thereof is to be made under this paragraph, notify the Adviser in writing of the commencement thereof; but the failure so to notify the Adviser (i) will not relieve the Adviser from liability under this paragraph to the extent it is not materially prejudiced as a result thereof and (ii) in any event shall not relieve the Adviser from any liability which it may have otherwise on account of this Indemnification Agreement. The Adviser may participate at its own expense in the defense of any such action; provided, however, that counsel to the Adviser shall not (except with the consent of the Indemnified Parties) also be counsel to the Indemnified Parties. The Adviser shall not, without the prior written consent of the Indemnified Parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought hereunder (whether or not the Indemnified Parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each Indemnified Party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party. No Indemnified Party shall, without the prior written consent of the Adviser (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought hereunder when the Adviser is an actual named party thereto, unless such settlement, compromise or consent (i) includes an unconditional release of the Adviser from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of the Adviser.

 

 

If such indemnification were not to be available for any reason, other than a final judicial determination of RBCCM’s gross negligence, bad faith, or willful misconduct in performing the services that are the subject of the Agreement, the Adviser agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Adviser and its members and affiliates, on the one hand, and the Indemnified Parties, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Adviser and its members and affiliates, on the one hand, and the Indemnified Parties, on the other hand, as well as any other relevant equitable considerations. The Adviser agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Adviser and its members and affiliates, on the one hand, and the Indemnified Parties, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received by or paid to or contemplated to be received by or paid to the Adviser or its members or affiliates, as the case may be, as a result of or in connection with the transaction (whether or not consummated) for which RBCCM has been retained to perform services bears to the fees paid to RBCCM under the Agreement; provided, that in no event shall the Adviser contribute less than the amount necessary to assure that the Indemnified Parties are not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by RBCCM pursuant to the Agreement. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by the Adviser or other conduct by the Adviser (or its employees or other agents), on the one hand, or by RBCCM (or its employees or other agents), on the other hand. Notwithstanding the provisions of this paragraph, an Indemnified Party shall not be entitled to contribution from the Adviser if it is determined that such Indemnified Party was guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933, as amended) and the Adviser was not guilty of such fraudulent misrepresentation, or that any losses, claims, damages, liabilities (or expenses related thereto) are determined to have resulted from the gross negligence, willful misconduct or bad faith of any Indemnified Party and that any such losses, claims, damages, liabilities (or expenses relating thereto) are determined not to have resulted from any gross negligence, willful misconduct or bad faith of the Adviser. The Adviser will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not an Indemnified Party is an actual or potential party to such Proceeding, without the RBCCM’s prior written consent (which consent shall not be unreasonably withheld). The foregoing Indemnification Agreement shall be in addition to any rights that any Indemnified Party may have at common law or otherwise.

 

 

The Adviser agrees that no Indemnified Party shall have any liability to the Adviser or any person asserting claims on behalf of or in right of the Adviser with respect to the matters contemplated by the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses reasonably incurred by the Adviser resulted primarily from the gross negligence or willful misconduct (including bad faith) of RBCCM or any of its affiliates, directors, employees or controlling persons in performing the services that are the subject of the Agreement. For clarification, the parties to this Indemnification Agreement agree that the term “affiliate,” as used in the definition of “Adviser” herein, does not include any registered investment company for which the Adviser or any of its affiliates serve as investment adviser.  Nothing in this Indemnification Agreement is intended to, or shall be deemed to bind, RiverNorth Flexible Municipal Income Fund, Inc. (the “Fund”), and the Fund shall have no obligation or liability under or in respect of this Indemnification Agreement or the transaction contemplated hereby.

 

THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER WITH RESPECT TO THE MATTERS CONTEMPLATED BY THE AGREEMENT (“CLAIM”), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE ADVISER AND THE INDEMNIFIED PARTIES CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE ADVISER HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS INDEMNIFICATION AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST RBCCM OR ANY INDEMNIFIED PARTY. EACH INDEMNIFIED PARTY AND THE ADVISER WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS INDEMNIFICATION AGREEMENT. EACH OF THE INDEMNIFIED PARTIES AND THE ADVISER AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS INDEMNIFICATION AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE INDEMNIFIED PARTIES AND THE ADVISER AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE INDEMNIFIED PARTIES AND THE ADVISER, AS THE CASE MAY BE, ARE OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT OR OTHER AVAILABLE JUDICIAL PROCESS.

 

 

Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Agreement.

 

 

The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of RBCCM’s engagement under the Agreement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

 

 

Very truly yours,

 

 

 

RIVERNORTH CAPITAL MANAGEMENT, LLC

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

Agreed and Accepted:

 

RBC CAPITAL MARKETS, LLC

 

   

By:

 

 

 

Name:

 

 

Title:

 

 

[Signature Page to Indemnification Agreement]

 

 

STRUCTURING FEE AGREEMENT

 

[●], 2021

 

Stifel, Nicolaus & Company, Incorporated

One South Street, 15th Floor

Baltimore, MD 21202

 

Ladies and Gentlemen:

 

Reference is made to the Underwriting Agreement dated [●], 2021 (the “Underwriting Agreement”), by and among RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”), RiverNorth Capital Management, LLC (the “Adviser”), MacKay Shields LLC (the “Sub-Adviser”), Stifel, Nicolaus & Company, Incorporated (“Stifel”) and the several other Underwriters named therein, severally, with respect to the issue and sale of the Fund’s shares of common stock, $0.0001 par value per share (the “Common Shares”), as described therein (the “Offering”). Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement.

 

1.      Services; Fee. Stifel has provided services to the Adviser to assist the Adviser in the structure and design of the Fund and the organization of the Fund as well as services related to the sale and distribution of the Fund’s Common Shares (the “Services”). In consideration of the Services to the Adviser, subject to and conditioned upon the completion of the Offering, the Adviser shall pay a fee to Stifel in the aggregate amount of $[●] (the “Fee”) on the Closing Date, by wire transfer to the order of Stifel, Nicolaus & Company, Incorporated. The Fee paid to Stifel shall not exceed [●]% of the total price to the public of the Firm Shares sold by the Fund in the Offering. In the event the Offering does not proceed, Stifel will not receive any fees under this Agreement; however, for the avoidance of doubt, you may be reimbursed for accountable out-of-pocket expenses actually incurred by Stifel pursuant to the terms of the Underwriting Agreement and in accordance with FINRA Rule 5110(f)(2)(D). This Agreement shall terminate upon the payment of the entire amount of the Fee, as specified in Section 1 hereof or upon the termination of the Underwriting Agreement without the Shares having been delivered and paid for.

 

2.      Indemnification. The Adviser agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.

 

3.      Confidential Advice. Except to the extent legally required (after consultation with, and, in the case of Stifel’s advice, approval (not to be unreasonably withheld) as to form and substance by Stifel and its counsel), none of (i) the name of Stifel, (ii) any advice rendered by Stifel to the Adviser, or (iii) the terms of this Agreement or any communication from Stifel in connection with the services performed by Stifel pursuant to this Agreement will be quoted or referred to orally or in writing, or in the case of (ii) and (iii), reproduced or disseminated, by the Adviser or any of its affiliates or any of their agents, without Stifel’s prior written consent, which consent will not be unreasonably withheld in the case of clause (i) and (iii) (but not (ii)).

 

 

4.      Information. The Adviser recognizes and confirms that Stifel (a) has used and relied primarily on the information provided by the Adviser and on information available from generally recognized public sources in performing the services contemplated by this Agreement without having assumed responsibility for independently verifying the same, (b) has not assumed responsibility for the accuracy, completeness or reasonableness of such information and (c) has not made an appraisal of any assets or liabilities (contingent or otherwise) of the Fund.

 

5.      Not an Investment Adviser; No Fiduciary Duty. The Adviser acknowledges that Stifel is not providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund’s portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of Stifel, and Stifel is not agreeing hereby, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities; or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services. The Adviser hereby acknowledges that Stifel’s engagement under this Agreement is as an independent contractor and not in any other capacity, including as a fiduciary. Furthermore, the Adviser agrees that it is solely responsible for making its own judgments in connection with the matters covered by this Agreement (irrespective of whether Stifel has advised or are currently advising the Adviser on related or other matters).

 

6.      Not Exclusive. Nothing herein shall be construed as prohibiting Stifel or its affiliates from acting as an underwriter or financial adviser or in any other capacity for any other persons (including other registered investment companies or other investment advisers).

 

7.      Assignment. This Agreement may not be assigned by either party without prior written consent of the other party.

 

8.      Amendment; Waiver. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.

 

9.      Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. This Agreement together with the Indemnification Agreement constitutes the final and entire agreement and understanding between the parties to this Agreement relative to the subject matter of this Agreement and supersedes all prior agreements and understandings (whether written or oral) between such parties concerning the subject matter of this Agreement.

 

10.    Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.

 

[Signature Page Follows]

 

 

This Agreement shall be effective as of the date first written above.

 


 

Very truly yours,

 

 

 

 

 

RIVERNORTH CAPITAL MANAGEMENT, LLC

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

Agreed and Accepted:

 

 

 

STIFEL, NICOLAUS & COMPANY, INCORPORATED

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

[Signature Page to Structuring Fee Agreement]

 

 

Indemnification Agreement

 

[●], 2021

 

Stifel, Nicolaus & Company, Incorporated

One South Street, 15th Floor

Baltimore, MD 21202

 

Ladies and Gentlemen:

 

In connection with the engagement of Stifel, Nicolaus & Company, Incorporated (the “Bank”) to assist the undersigned, RiverNorth Capital Management, LLC, together with its affiliates and subsidiaries (the “Adviser”), with respect to the matters set forth in the Structuring Fee Agreement dated [●], 2021 between the Adviser and the Bank (the “Agreement”), in the event that the Bank, any of its affiliates, each other person, if any, controlling the Bank or any of its affiliates, their respective officers, current and former directors, employees and agents, or the successors or assigns of any of the foregoing persons (the Bank and each such other person or entity being referred to as an “Indemnified Party”) becomes involved in any capacity in any claim, suit, action, proceeding, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a “Proceeding”) with respect to the services performed pursuant to and in accordance with the Agreement, the Adviser agrees to indemnify, defend and hold each Indemnified Party harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses, including the fees and expenses of counsel to the Indemnified Parties, with respect to the services performed pursuant to and in accordance with the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted solely from the gross negligence or willful misconduct of such Indemnified Party. In addition, in the event that an Indemnified Party becomes involved in any capacity in any Proceeding with respect to the services performed pursuant to and in accordance with the Agreement, the Adviser will reimburse such Indemnified Party for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by such Indemnified Party in connection therewith. Promptly as reasonably practicable after receipt by an Indemnified Party of notice of the commencement of any Proceeding, such Indemnified Party will, if a claim in respect thereof is to be made under this paragraph, notify the Adviser in writing of the commencement thereof; but the failure so to notify the Adviser (i) will not relieve the Adviser from liability under this paragraph to the extent it is not materially prejudiced as a result thereof and (ii) in any event shall not relieve the Adviser from any liability which it may have otherwise than on account of this Indemnification Agreement. The indemnifying party, upon request of the Indemnified Party, shall retain counsel reasonably satisfactory to the indemnified party to represent the Indemnified Party and shall pay the reasonably incurred fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the indemnifying party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. No indemnifying party shall, without the prior written consent of the Indemnified Parties (which may not be unreasonably withheld, delayed or deferred), settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought hereunder (whether or not the Indemnified Parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each Indemnified Party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party.

 

 

If such indemnification were not to be available for any reason, the Adviser agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Adviser and its owners and affiliates, on the one hand, and the Indemnified Parties, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Adviser and its owners and affiliates, on the one hand, and the party entitled to contribution, on the other hand, as well as any other relevant equitable considerations. Adviser agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Adviser and its owners and affiliates, on the one hand, and the party entitled to contribution, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received or paid or contemplated to be received or paid by the Adviser or its owners and affiliates, as the case may be, as a result of or in connection with the transaction (whether or not consummated) for which the Bank has been retained to perform services bears to the fees paid to the Bank under the Agreement; provided, that in no event shall the Adviser contribute less than the amount necessary to assure that the Indemnified Parties are not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by the Bank pursuant to the Agreement. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by the Adviser or other conduct by the Adviser (or its employees or other agents), on the one hand, or by the Bank, on the other hand. Notwithstanding the provisions of this paragraph, an Indemnified Party shall not be entitled to contribution from the Adviser if it is determined that such Indemnified Party was guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933, as amended) and the Adviser or the Fund was not guilty of such fraudulent misrepresentation. The Adviser will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not an Indemnified Party is an actual or potential party to such Proceeding, without the Bank’s prior written consent (which consent shall not be unreasonably withheld). The foregoing indemnity and contribution agreement shall be in addition to any rights that any Indemnified Party may have at common law or otherwise.

 

The Adviser agrees that no Indemnified Party shall have any liability to the Adviser or any person asserting claims on behalf of or in right of the Adviser with respect to the services performed pursuant to and in accordance with the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Adviser or the Fund resulted solely from the gross negligence or willful misconduct of the Bank in performing the services that are the subject of the Agreement.

 

 

THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER WITH RESPECT TO THE SERVICES PERFORMED PURSUANT TO AND IN ACCORDANCE WITH THE AGREEMENT (“CLAIM”), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE ADVISER AND THE INDEMNIFIED PARTIES CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE ADVISER HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST THE BANK OR ANY INDEMNIFIED PARTY. EACH INDEMNIFIED PARTY AND THE ADVISER WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE ADVISER AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE ADVISER AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE ADVISER IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.

 

This Agreement together with the Structuring Fee Agreement constitutes the final and entire agreement and understanding between the parties to this Agreement relative to the subject matter of this Agreement and supersedes all prior agreements and understandings (whether written or oral) between such parties concerning the subject matter of this Agreement.

 

The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of the Bank’s engagement under the Agreement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

 

 

IN WITNESS WHEREOF, the parties hereto have duly executed this Indemnification Agreement as of the date first above written.

 

 

Very truly yours,

 

 

 

 

 

RIVERNORTH CAPITAL MANAGEMENT, LLC

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

Agreed and Accepted:

 

 

 

STIFEL, NICOLAUS & COMPANY, INCORPORATED

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

[Signature Page to Indemnification Agreement]

 

 

SALES INCENTIVE FEE AGREEMENT

 

[●], 2021

 

Ladies and Gentlemen:

 

Reference is made to the Underwriting Agreement dated [●], 2021 (the “Underwriting Agreement”), by and among RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”), RiverNorth Capital Management, LLC (the “Adviser”), MacKay Shields LLC (the “Sub-Adviser”), and each of the Underwriters named therein (the “Underwriters”), severally, with respect to the issue and sale of the Fund’s shares of common stock, $0.0001 par value per share (the “Common Shares”), as described therein (the “Offering”). Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement.

 

1.     Fee.

 

In consideration of the services of the undersigned related to the sale and distribution of the Fund’s Common Shares, the Adviser shall pay a fee to each of the undersigned in accordance with Schedule I hereto (the “Fee”). The Fee shall be paid on the Closing Date (as defined in the Underwriting Agreement). The Fee shall be paid by wire transfer to the order of each of the undersigned. In the event the Offering does not proceed, you will not receive any fees under this Agreement; however, for the avoidance of doubt, accountable expenses actually incurred may be payable to you pursuant to the terms of the Underwriting Agreement and in accordance with FINRA Rule 5110(f)(2)(D).

 

2.     Term. This Agreement shall terminate upon the payment of the entire amount of the Fee, as specified in Section 1 hereof or upon the termination of the Underwriting Agreement without the Shares having been delivered and paid for.

 

3.     Indemnification.

 

The Adviser agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.

 

4.     Not an Adviser; No Fiduciary Duty. The Adviser acknowledges that you are not providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund’s portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of you, and you are not agreeing hereby, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities; or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services. The Adviser hereby acknowledges that your engagement under this Agreement is as an independent contractor and not in any other capacity, including as a fiduciary. Furthermore, the Adviser agrees that it is solely responsible for making its own judgment in connection with the matters covered by this Agreement (irrespective of whether you have advised or are currently advising the Adviser on related or other matters).

 

5.     Not Exclusive. Nothing herein shall be construed as prohibiting the undersigned or its respective affiliates from acting as an underwriter or financial adviser or in any other capacity for any other persons (including other registered investment companies or other investment advisers), so long as your services to the Adviser are not impaired thereby.

 

 

6.     Assignment. This Agreement may not be assigned by either party without prior written consent of the other party.

 

7.     Amendment; Waiver. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.

 

8.     Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

9.     Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Agreement by facsimile or electronic transmission that accurately depicts a manual signature shall be effective as delivery of a manually executed counterpart hereof.

 

 

This Agreement shall be effective as of the date first written above.

 

 

RIVERNORTH CAPITAL MANAGEMENT, LLC

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

Agreed and Accepted:

 

[●]

 

By:

 

 

Name:

 

Title:

 

 

[Signature Page to Sales Incentive Fee Agreement]

 

 

SCHEDULE I

 

Name

Fee

[●]

$[●]

[●]

$[●]

 

 

Indemnification Agreement

 

[●], 2021

 

Ladies and Gentlemen:

 

In connection with the engagement of the undersigned (the “Banks”) to assist the undersigned, RiverNorth Capital Management, LLC (the “Adviser”), with respect to the matters set forth in the Sales Incentive Fee Agreement dated [●], 2021 between the Adviser and the Banks (the “Agreement”), in the event that the Banks, any of their respective affiliates, each other person, if any, controlling the Banks or any of their respective affiliates, their respective officers, current and former directors, employees and agents, or the successors or assigns of any of the foregoing persons (the Banks and each such other person or entity being referred to as an “Indemnified Party”) becomes involved in any capacity in any claim, suit, action, proceeding, litigation, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a “Proceeding”) with respect to the services performed pursuant to and in accordance with the Agreement, the Adviser agrees to indemnify, defend and hold each Indemnified Party harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses, including the fees and expenses of counsel to the Indemnified Parties, with respect to the services performed pursuant to and in accordance with the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted solely from the gross negligence or willful misconduct (including bad faith) of such Indemnified Party. In addition, in the event that an Indemnified Party becomes involved in any capacity in any Proceeding with respect to the services performed pursuant to and in accordance with the Agreement, the Adviser will reimburse such Indemnified Party for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are reasonably incurred by such Indemnified Party in connection therewith. As promptly as is reasonably practicable after receipt by an Indemnified Party of notice of the commencement of any Proceeding, such Indemnified Party will, if a claim in respect thereof is to be made under this paragraph, notify the Adviser in writing of the commencement thereof; but the failure so to notify the Adviser (i) will not relieve the Adviser from liability under this paragraph to the extent it is not materially prejudiced as a result thereof and (ii) in any event shall not relieve the Adviser from any liability which it may have otherwise than on account of this Indemnification Agreement. Counsel to the Indemnified Parties shall be selected by such Indemnified Party. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the Indemnified Parties) also be counsel to the Indemnified Party. No indemnifying party shall, without the prior written consent of the Indemnified Parties, settle or compromise or consent to the entry of any judgment with respect to any Proceeding, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought hereunder (whether or not the Indemnified Parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each Indemnified Party from all liability arising out of such Proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party.

 

 

If such indemnification were not to be available for any reason, the Adviser agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Adviser and its stockholders, on the one hand, and the Indemnified Parties, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Adviser and its stockholders, on the one hand, and the party entitled to contribution, on the other hand, as well as any other relevant equitable considerations. The Adviser agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Adviser and its stockholders, on the one hand, and the party entitled to contribution, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received or paid or contemplated to be received or paid by the Adviser or its stockholders, as the case may be, as a result of or in connection with the transaction (whether or not consummated) for which the Banks have been retained to perform services bears to the fees paid to the Banks under the Agreement; provided, that in no event shall the Adviser contribute less than the amount necessary to assure that the Indemnified Parties are not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by the Banks pursuant to the Agreement. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by the Adviser or other conduct by the Adviser (or its employees or other agents), on the one hand, or by the respective Bank, on the other hand. Notwithstanding the provisions of this paragraph, an Indemnified Party shall not be entitled to contribution from the Adviser if it is determined that such Indemnified Party was guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933, as amended) and the Adviser was not guilty of such fraudulent misrepresentation. The Adviser will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not an Indemnified Party is an actual or potential party to such Proceeding, without the Indemnified Party’s prior written consent (which consent shall not be unreasonably withheld). The foregoing indemnity and contribution agreement shall be in addition to any rights that any Indemnified Party may have at common law or otherwise.

 

The Adviser agrees that no Indemnified Party shall have any liability to the Adviser or any person asserting claims on behalf of or in right of the Adviser with respect to the services performed pursuant to and in accordance with the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Adviser resulted solely from the gross negligence or willful misconduct (including bad faith) of the Banks in performing the services that are the subject of the Agreement.

 

THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER WITH RESPECT TO THE SERVICES PERFORMED PURSUANT TO AND IN ACCORDANCE WITH THE AGREEMENT (“CLAIM”), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE ADVISER AND THE INDEMNIFIED PARTIES CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE ADVISER HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST ANY BANK OR ANY INDEMNIFIED PARTY. EACH INDEMNIFIED PARTY AND THE ADVISER WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. EACH OF THE BANKS AND THE ADVISER AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON SUCH BANK AND THE ADVISER AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH SUCH BANK AND THE ADVISER, AS THE CASE MAY BE, ARE OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.

 

 

The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of the Bank’s engagement under the Agreement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

 

 

Very truly yours,

 

 

 

 

 

 

RIVERNORTH CAPITAL MANAGEMENT, LLC

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

Agreed and Accepted:

 

[●]

 

By:

 

 

Name:

 

Title:

 

 

[Signature Page to Indemnification Agreement]

 

[C&C Letterhead]

 

February 22, 2021

 

RiverNorth Flexible Municipal Income Fund II, Inc.

325 North LaSalle Street, Suite 645

Chicago, Illinois 60654

 

Re: RiverNorth Flexible Municipal Income Fund II, Inc.

 

Ladies and Gentlemen:

 

We have acted as counsel for RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”) in connection with the registration under the Securities Act of 1933, as amended (the “Act”), of certain of its common stock (the “Shares”) covered by Registration Statement No. 333-239784 on Form N-2, as it is proposed to be amended by Pre-Effective Amendment No. 3 (as proposed to be amended, the “Registration Statement”).

 

In this connection we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate and other records, certificates and other papers as we deemed it necessary to examine for the purpose of this opinion, including the articles of incorporation and by-laws of the Fund, actions of the board of directors of the Fund authorizing the issuance of shares of the Fund and the Registration Statement.

 

We assume that, upon sale of the Shares, the Fund will receive the authorized consideration therefor, which will at least equal the net asset value of the Shares.

 

Based upon the foregoing, we are of the opinion that when the Shares are issued and sold after the Registration Statement has been declared effective and the authorized consideration therefor is received by the Fund, they will be legally issued, fully paid and nonassessable by the Fund.

 

In rendering the foregoing opinion, we have relied upon the opinion of Shapiro Sher Guinot & Sandler, P.A. expressed in their letter to us dated February 22, 2021.

 

We consent to the prospectus discussion of this opinion and the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not admit that we are in the category of persons whose consent is required under section 7 of the Act.

 

  Very truly yours,
   
  /s/ Chapman and Cutler LLP

 

 

February 22, 2021

 

RiverNorth Flexible Municipal Income Fund II, Inc.

325 North LaSalle Street

Suite 645

Chicago, Illinois 60654

 

Re: Registration Statement on Form N-2 (File No. 333-239784)

 

Ladies and Gentlemen:

 

We have acted as special “Maryland law” counsel to RiverNorth Flexible Municipal Income Fund II, Inc., a Maryland corporation (the “Fund”), and a closed-end investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”), in connection with certain matters of Maryland law arising out of the registration of 25,000,000 shares (the “Shares”) of common stock, $0.0001 par value per share, of the Fund (the “Common Stock”), covered by the above-referenced Registration Statement, and all amendments thereto (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”). This opinion is being furnished to you at your request.

 

I. Documents Reviewed and Matters Considered

 

In our capacity as counsel to the Fund and for purposes of this opinion, we have examined the following documents (all of which are collectively called the “Documents”):

 

(i) the Registration Statement and the related form of prospectus included therein in the form in which it was transmitted to the Commission under the 1933 Act;

 

(ii) the charter of the Fund (the “Charter”), certified by the Maryland State Department of Assessments and Taxation (the “SDAT”);

 

(iii) the Bylaws of the Fund (the “Bylaws”), certified as of the date hereof by an officer of the Fund;

 

 

 

RiverNorth Flexible Municipal Income Fund II, Inc.

 

February 22, 2021

Page 2

 

 

(iv) a Certificate of Status of the SDAT to the effect that the Fund is in good standing, dated February 19, 2021;

 

(v) resolutions adopted by the Board of Directors of the Fund relating to the establishment and organization of the Fund and the issuance of stock by the Fund (the “Resolutions”), 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 and appropriate to render the opinions set forth in this letter, subject to the assumptions, qualifications, and limitations noted herein.

 

II. Assumptions

 

In reaching 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) All Documents submitted to us as originals are authentic. All Documents submitted to us as certified, photostatic, or other copies conform to the original documents. All Documents upon which we have relied are accurate and complete. All public records reviewed or relied upon by us or on our behalf are true and complete and remain so as of the date of this letter.

 

(d) 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.

 

(e) All representations, warranties, statements and information contained in the Registration Statement are accurate and complete.

 

(f) All signatures on the Documents submitted to us for examination are genuine.

 

(g) 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.

 

 

 

RiverNorth Flexible Municipal Income Fund II, Inc.

 

February 22, 2021

Page 3

 

 

(h) 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.

 

III. Opinions

 

Based on our review of the foregoing and subject to the assumptions, qualifications, and limitations set forth herein, it is our opinion, as of the date of this letter, that:

 

1. The Fund is a corporation duly incorporated and, based solely on the Certificate of Good Standing issued by the SDAT dated February 19, 2021, the Fund is validly existing and in good standing under the Maryland General Corporation Law (the “MGCL”).

 

2. The issuance of the Shares has been duly authorized and, when and if issued and delivered against payment therefor in accordance with the Charter, the Bylaws, the Resolutions, and the Registration Statement, the Shares will be validly issued, fully paid, and nonassessable.

 

IV. Qualifications and Limitations

 

In addition to the other matters set forth in this letter, the opinions set forth herein are also subject to the following qualifications:

 

(A) We express no opinion as to the laws of any jurisdiction other than the laws of the State of Maryland and as used herein “law” means such laws. We express no opinion as to the principles of conflict of laws of any jurisdiction, including the laws of the State of Maryland.

 

(B) We assume no obligation to supplement our opinions if any applicable law changes after the date of this letter or if we become aware of any facts that might change the opinions expressed in this letter after the date of this letter.

 

(C) The opinions expressed in this letter are limited to the matters set forth in this letter, and no other opinions shall be implied or inferred beyond the matters expressly stated.

 

 

 

RiverNorth Flexible Municipal Income Fund II, Inc.

 

February 22, 2021

Page 4

 

 

(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 prospectus discussion of this opinion, 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.

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the incorporation in this Registration Statement on Form N-2 of our report dated January 20, 2021, relating to the financial statement of RiverNorth Flexible Municipal Income Fund II, Inc. (the “Fund”), as of January 15, 2021, and to the reference to our firm under the heading “Fund Service Providers” in the Statement of Additional Information.

 

/s/ Cohen & Company, Ltd.

COHEN & COMPANY, LTD.

Cleveland, Ohio

February 22, 2021

RiverNorth Flexible Municipal Income Fund II, Inc.

 

Subscription Agreement

 

This Subscription Agreement made as of January 15, 2021 by and between RiverNorth Flexible Municipal Income Fund II, Inc., a Maryland corporation (the “Fund”), and RiverNorth Capital Management, LLC (the “Subscriber”).

 

WITNESSETH:

 

WHEREAS, the Fund has been formed for the purposes of carrying on business as a closed-end management investment company; and

 

WHEREAS, the Subscriber is the investment manager to the Fund; and

 

WHEREAS, the Subscriber wishes to subscribe for and purchase, and the Fund wishes to sell to the Subscriber, 5,000 common shares of beneficial interest, or such other amounts as the officers of the Fund may approve (the “Shares”), for a purchase price of $20.00 per Share, or at such other prices as the officers of the Fund may approve;

 

NOW THEREFORE, IT IS AGREED:

 

1. The Subscriber subscribes for and agrees to purchase from the Fund the Shares for a purchase price of $20.00 per Share and an aggregate purchase price of $100,000.

 

2. The Fund agrees to issue and sell said Shares to the Subscriber promptly upon its receipt of the aggregate purchase price.

 

3. To induce the Fund to accept its subscription and issue the Shares subscribed for, the Subscriber represents that it is informed as follows:

 

(a) That the Shares being subscribed for have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or registered or qualified under the securities laws of any state;

 

(b) That the Shares will be sold by the Fund in reliance on one or a series of exemptions from the registration requirements of the Securities Act;

 

(c) That the Fund’s reliance upon an exemption from the registration requirements of the Securities Act is predicated in part on the representations and agreements contained in this Subscription Agreement;

 

(d) That, when issued, the Shares will be “restricted securities,” as defined in paragraph (a)(3) of Rule 144 of the General Rules and Regulations under the Securities Act (“Rule 144”) and cannot be sold or transferred by Subscriber unless they are subsequently registered under the Securities Act or unless an exemption from such registration is available; and

 

 

 

(e) That there do not appear to be any immediately available exemptions from the registration provisions of the Securities Act available to the Subscriber for resale of the Shares. In the future, certain exemptions may possibly become available, including an exemption for limited sales in accordance with the conditions of Rule 144, which would not be available to an affiliate of the Fund for one year and may be limited by the overall outstanding shares of the Fund, among various limiting factors.

 

The Subscriber understands that a primary purpose of the information acknowledged in subparagraphs (a) through (e) above is to put the Subscriber on notice as to certain restrictions on the transferability of the Shares. The Subscriber acknowledges that other restrictions may apply and that none of the Fund or its affiliates has provided any legal, tax or investment advice related to this transaction.

 

4. To further induce the Fund to accept its subscription and issue the Shares subscribed for, the Subscriber:

 

(a) Represents and warrants that the Subscriber is an accredited investor;

 

(b) Represents and warrants that the Shares subscribed for are being and will be acquired for investment for its own account and not on behalf of any other person or persons and not with a view to, or for sale in connection with, any public distribution thereof;

 

(c) Agrees that any certificates representing the Shares subscribed for may bear a legend substantially in the following form:

 

The shares represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933 or any other federal or state securities law. These shares may not be offered for sale, sold or otherwise transferred unless registered under said securities laws or unless some exemption from registration is available;

 

and that in the absence of a certificate, this Subscription Agreement provides the notice and legend required under Rule 144; and

 

(d) Agrees that it will not sell, assign, or transfer the Shares or any interest therein, except upon repurchase or redemption by the Fund, unless and until the Shares have been registered under the Securities Act or it has received an opinion of its counsel that such sale, assignment, or transfer will not violate the provisions of the Securities Act or any rules or regulations promulgated thereunder.

 

(e) Consents, as the sole holder of the Fund’s common shares of beneficial interest and pursuant to Section 23(b)(2) of the Investment Company Act of 1940, to the issuance by the Fund of common shares of beneficial interest at a price per share as set forth in the underwriting agreement relating to the public offering of the common shares of beneficial interest of the Fund.

 

5. This Subscription Agreement and all of its provisions shall be binding upon the legal representatives, heirs, successors and assigns of the parties hereto. This Subscription Agreement may be signed in one or more counterparts, each of which shall be deemed to be an original for all purposes.

 

6. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the Commonwealth of Maryland, without regard to the principles of conflicts of law.

 

 

 

7. The Fund’s Articles of Incorporation, including any amendments thereto, is on file with the Secretary of State of Maryland. This Subscription Agreement is executed on behalf of the Fund by an officer of the Fund as an officer and not individually, and the obligations imposed upon the Fund by this Subscription Agreement are not binding upon any of the Fund’s Trustees, officers or shareholders individually but are binding only upon the assets and property of the Fund.

 

IN WITNESS WHEREOF, this Subscription Agreement has been executed by the parties hereto as of the day and date first above written.

 

RiverNorth Flexible Municipal Income Fund II, Inc.

 

  By:

/s/ Patrick W. Galley
     
  Name: Patrick W. Galley
     
  Title: President

 

RIVERNORTH CAPITAL MANAGEMENT, LLC

 

  By:  /s/ Jonathan M. Mohrhardt
     
  Name: Jonathan M. Mohrhardt
     
  Title: President & Chief Operating Officer

      

 

Section 6 - Code of Ethics

 

This Code of Ethics (the “Code”) is a joint Code for RiverNorth Capital Management, LLC (the “Adviser”), RiverNorth Funds (the “RiverNorth Funds”) and any subsequent funds advised by the Adviser. It reflects the requirements of Section 204A of the Investment Advisers Act of 1940, Rule 204A-1 under that Act, and Rule 17j-1 under the Investment Company Act of 1940. The Adviser and the RiverNorth Funds are often referred to collectively as “RiverNorth”. Access Persons (as defined by the Investment Company Act) of other funds advised or subadvised by the Adviser may be subject to other codes of ethics as well.

 

I. Standards of Conduct and Fiduciary Duty

 

The Adviser has a fiduciary duty to its investment advisory clients. That duty requires each Employee to act solely for the benefit of Adviser’s clients. The conduct of the Adviser and its Employees must recognize that the clients’ interests always have priority over those of the Adviser and its Employees (including with respect to any Employee’s personal trading activity) and is based upon fundamental principles of openness, integrity, honesty and trust.

 

Each Employee is expected to adhere, not only to the Federal Securities Laws (as defined herein), but also to the highest standard of professional and ethical conduct and should be sensitive to situations that may give rise to an actual conflict AND the appearance of a conflict with the Adviser’s clients’ interests. Such conflicts could also have the potential to cause damage to the Adviser’s reputation. Each Employee is also required to comply with all applicable Federal Securities Laws. Each Employee must exercise reasonable care and professional judgment to avoid actions that could put the image or reputation of the Adviser at risk.

 

This Code sets forth the policy regarding Employee conduct in those situations in which conflicts with our clients’ interests are most likely to be present or develop. The Code does not attempt to identify all possible conflicts of interest, and literal compliance with the Code will not shield the Employee from sanctions for personal trading or other conduct that violates a fiduciary duty to clients. It is expected that Employees will embrace and comply with both the letter and the spirit of the Code.

 

Adherence to the Code is a basic condition of employment. If an Employee has any doubt as to the appropriateness of any activity, believes that he or she has violated the Code, or becomes aware of a violation of the Code by another Employee, the Employee is obligated to bring these matters to the attention of the Chief Compliance Officer (“CCO”) or any member of the Compliance Group, as defined herein.

 

II. Definitions

 

“Access Person” means any person who is either an Adviser Access Person or a Fund Access Person.

 

12 

 

 

“Adviser Access Person” means any Employee or any other person identified by the CCO as an Adviser Access Person. The CCO shall designate as an Adviser Access Person any supervised person who (i) has access to non-public information regarding any purchase or sale of securities for an Adviser client, or non-public information regarding the portfolio holdings of any Reportable Fund, or (ii) is involved in making securities recommendations to Adviser clients, or who has access to such recommendations that are non-public. Since providing investment advice is the Adviser’s primary business, all of the Adviser’s members (other than passive investors), officers and employees are presumed to be Adviser Access Persons.

 

“Active Consideration” means the period of time during which an Adviser portfolio manager has a pending order or is considering the purchase or sale of a security for any client account.

 

“Adviser” means RiverNorth Capital Management, LLC.

 

“Advisers Act” means the Investment Advisers Act of 1940, as amended, and rules promulgated thereunder.

 

“Automatic Investment Plan” means a program, including a dividend reinvestment program, in which regular periodic purchases or withdrawals are made automatically in or from investment accounts in accordance with a predetermined schedule and allocation, including automatic rebalances.

 

“Beneficial Ownership” means that a person, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in a security. A “pecuniary interest” in a security means the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in such security. An Employee is presumed to have beneficial ownership in the following: (i) securities owned by an Employee in his or her name; (ii) securities owned by an individual Employee indirectly through an account or investment vehicle for his or her benefit, such as an IRA, family trust, or family partnership; (iii) securities owned in which the Employee has a joint ownership interest, such as a joint brokerage account; (iv) securities in which a member of the Employee’s immediate family (currently defined as one’s spouse, domestic partner, minor children, adult children living at home, other dependent relatives and other adult relatives sharing living arrangements) has a direct, indirect or joint ownership interest if the immediate family member resides in the same household as the Employee; (v) securities owned by a trust, private foundation or other charitable accounts in which the Employee (or a member of the Employee’s immediate family) has both a pecuniary interest and investment discretion and (vi) securities owned by an Investment Club in which the Employee or Employee's immediate family members are participants.. This definition shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934, the text of which is attached as Exhibit A to the Code.

 

“Blackout Period” means a period during which an Access Person is prohibited from engaging in a Personal Securities Transaction in a particular security because (i) a transaction in the same security is pending or anticipated for client accounts; or (ii) a transaction for client accounts is under Active Consideration by a portfolio manager of the Adviser

 

13 

 

 

“CCO” means the Chief Compliance Officer of the Adviser. The CCO may also mean any person designated as the Chief Compliance Officer of any Fund.

 

“Compliance Group” means the Adviser’s compliance committee charged with overseeing the Adviser’s compliance policies and procedures. The committee is comprised of the Chief Compliance Officer and such other persons as may be designated by the Chief Compliance Officer from time to time. A list of the current Compliance Group members is attached as Exhibit B to the Code.

 

“Control” means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company.

 

“Employee” means an employee of the Adviser, a member of the Adviser (other than passive investors who are not employed by the Adviser in another capacity), and any temporary employee or independent contractor of the Adviser who is contracted to work onsite in the offices of the Adviser for more than seven (7) consecutive days (unless steps are taken to prevent such person from gaining access to proprietary or trading information related to the Adviser of its clients). All Employees are deemed to be Access Persons.

 

“ETF” means an exchange traded fund, whether organized as an open-end fund or a unit investment trust.

 

“Exchange Act” means the Securities Exchange Act of 1934.

 

“Exempt Transactions” means transactions in securities that are exempt from the pre-clearance and/or the reporting requirements of this Code. Refer to Exhibit C for a list of security types that fall into this category.

 

“Federal Securities Laws” means the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940, the Investment Advisers Act of 1940, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the SEC under any of these statutes, the Bank Secrecy Act as it applies to Funds and investment advisers, any rules adopted thereunder by the SEC or the Department of the Treasury or the Dodd-Frank Wall Street Reform and Consumer Protection Act to the extent and as it pertains to investments advisers and investment companies.

 

“Frequent Trading” means the frequent trading in shares of an open-end fund in violation of the fund’s prospectus and/or trading policies, including any trading designed to exploit perceived inefficiencies in the prices of Fund shares.

 

“Front Running” means engaging in a Personal Securities Transaction in advance of a transaction in the same security for a client’s account.

 

“Fund” means an investment company registered under the Investment Company Act of 1940.

 

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“Fund Access Person” means any trustee or officer of a Fund managed by the Adviser who is not also an Adviser Access Person.

 

“Independent Trustee/Director” means a trustee or director of a Fund who is not an “interested person” of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940.

 

“Initial Public Offering” or “IPO” means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934.

 

“Insider Trading” is not defined in the Federal Securities Laws, but generally refers to the buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of Material, Non-Public Information about the security.

 

“Investment Company Act” means the Investment Company Act of 1940, as amended and the rules promulgated thereunder.

 

“Late Trading” means the illegal practice of pricing a purchase or redemption order for shares of an open-end Fund with the current day share price even though the order is received after the pricing time established in the Fund’s prospectus. Late trading often involves a coordinated effort by the investor and a broker or service provider for the Fund.

 

“Limited Offering” means an offering (e.g., limited partnership) that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the Securities Act of 1933.

 

“Material, Non-Public Information” or “MNPI” means information for which there is substantial likelihood that a reasonable investor would consider important in making an investment decision, or is reasonably certain to have an effect on the price of the issuer’s security, but which has not been made available to the public, has not been disseminated broadly to the marketplace, or has not had sufficient time post-dissemination for the marketplace to react to the information.

 

“Organizations” means entities, and the individuals that work for them, that provide services, or seek to provide services, to individual clients through the Adviser’s relationship with the client. Examples include brokers, consultants, companies that the Adviser researches for possible investment, and companies in which the Adviser invests for client accounts.

 

“Personal Securities Transaction” means a Reportable Transaction in which an Access Person has Beneficial Ownership in the security.

 

“Reportable Account” means investment accounts in which Reportable Securities are held.

 

“Reportable Fund” means any Fund: (i) for which the Adviser serves as the investment adviser or sub-adviser; or (ii) whose investment adviser or principal underwriter controls the Adviser, is controlled by the Adviser, or is under common control with the Adviser. For purposes of this Code, the Reportable Funds are the RiverNorth Funds, RiverNorth Opportunities Fund, Inc. and RiverNorth Marketplace Lending Corporation.

 

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“Reportable Security” means a Security, except that it does not include any of the following: (i) direct obligations of the government of the United States; (ii) bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; (iii) shares issued by money market Funds; (iv) shares issued by unit investment trusts that are invested exclusively in one or more open-end Funds, none of which are Reportable Funds. The definition of “Reportable Security” also excludes securities held through certain qualified tuition programs established pursuant to Section 529 of the Internal Revenue Code of 1986 (“529 Plans”), provided the Adviser or a control affiliate does not manage, distribute, market or underwrite the 529 Plan or the investments and strategies underlying the 529 Plan. However, ETFs and mutual funds are included in the definition of “Reportable Security” whether held directly with the issuer or its transfer agent or in a brokerage account.

 

“Reportable Transaction” means a transaction by an Access Person in a Reportable Security.

 

“RiverNorth Funds” means RiverNorth Funds, an Ohio business trust and each of its series, as they may be added from time to time. Each series of the RiverNorth Funds may also be referred to individually as a “fund”. See Exhibit D for a list of the current series of the RiverNorth Funds.

 

“RiverNorth Marketplace Lending Corporation” means a Maryland corporation organized as an interval closed-end fund and advised by the Adviser.

 

“RiverNorth Opportunities Fund” means a Delaware corporation organized as a closed-end fund and subadvised by the Adviser.

 

“Rumor” means a statement not based on verified information. An expression of opinion is not a Rumor.

 

“Security” means any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit sharing agreement, collateral trust certificate, reorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any, security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules promulgated thereunder.

 

“Trading Day” means any day on which the New York Stock Exchange is open for regular, unrestricted trading.

 

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Terms not defined above or in this Code have the meaning set forth in the Advisers Act. If terms are ambiguous to any person potentially covered by the Code, it is suggested that the Employee contact the Chief Compliance Officer for clarification before engaging in any conduct or activity that may be covered under the Code.

 

III. Policy on Personal Securities Transactions

 

Each Access Person must comply with the following policies for all of his or her Personal Securities Transactions.

 

A.  Initial Public Offerings
An Adviser Access Person may not participate in an initial public offering without prior approval and unless the IPO falls into one of the following categories:

 

  1. An IPO of securities of a mutual insurance company as a result of the Adviser Access Person’s ownership of an insurance policy; or

 

  2. An IPO of securities of a spinoff company as a result of the Adviser Access Person’s ownership of shares of the company that spins off the issuer of the IPO.

 

  3. An IPO of securities of a closed-end fund to which the Adviser serves as investment adviser or sub-adviser.

 

An Access Person must obtain prior clearance from the CCO when acquiring Beneficial Ownership in securities of an IPO that are subject to either of the three exceptions set forth above. If an Access Person believes participation in an IPO may be appropriate, for example, in situations similar to the three situations identified above, but not covered by those two situations, the Access Person may submit a written request for approval, and the CCO may grant approval if the investment is deemed acceptable.

 

B.  Limited Offerings
An Adviser Access Person may purchase or sell securities in a Limited Offering only with the prior written approval from a member of the Compliance Group. Limited Offerings include investments in private funds managed by the Adviser. The Compliance Group member shall consider the following factors in determining whether to approve a transaction in a Limited Offering:

 

  1. Whether the investment opportunity should be reserved for clients;

 

  2. Whether the Access Person is being offered the investment opportunity due to his or her employment with the Adviser; and

 

  3. Any other relevant factors (e.g., whether the Adviser has any business dealings with the issuer, general partner, or any of the individuals named in the offering documents, or if the Access Person has knowledge of an impending IPO by the issuer).

 

The Compliance Group member may approve a single transaction in a Limited Offering or additional investments in previously-approved Limited Offerings (such as subsequent investments in the same limited partnership). The approval may be subject to limitations, including timing of investments, number of investments, or amount of investments. Additionally, Access Persons should seek approval for transactions in Limited Offerings as far in advance as possible.

 

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C.  Frequent Trading (Open-End Funds)
Frequent Trading can harm shareholders in various ways, including reducing the returns to long-term shareholders by increasing costs to the fund and disrupting portfolio management strategies. Access Persons are required to comply with the policies of any open-end funds in which they invest regarding purchases, redemptions and exchanges, and are prohibited from engaging in Frequent Trading in open-end funds which indicate in their prospectus or statement of additional information that the funds prohibit or restrict Frequent Trading.

 

D.  Late Trading (Open-End Funds)
Late Trading is prohibited by law and, with respect to Reportable Funds, may represent a violation of fiduciary duty. This Code prohibits Access Persons from engaging in or facilitating Late Trading in shares of any open-end Fund.

 

E.  Short-Term Trading (All Securities)
The Adviser considers short-term trading problematic because it (1) may interfere with the Adviser Access Person’s duties, obligations or loyalties to the Adviser or the Adviser’s clients; (2) may be indicative of using Material, Non-Public Information, or (3) may be in violation of applicable laws, rules and regulations or the Adviser’s or issuer’s policies and procedures.

 

Accordingly, all Access Persons are required to hold securities for a minimum of 90 days, to avoid short-term trading practices. The Compliance Group may approve exceptions to the 90-day holding period in certain limited circumstances, for instance to reduce the level of investment losses to the Access Person if the security has significantly decreased in value. The 90-day hold period does not apply to transactions resulting from certain corporate actions or assets attributable to an Automatic Investment Plan.

 

The Compliance Group may impose restrictions on Personal Securities Transactions, or deny a request for prior approval of Personal Securities Transactions, if it believes that the transactions may interfere with the Access Person’s duties, obligations or loyalties to the Adviser or the Adviser’s clients, impose undue burden on the Adviser, or may otherwise be contrary to the interests of the Adviser or the Adviser’s clients.

 

F.  Options Trading
Access Persons are permitted to invest in options. All personal securities transactions involving options must be pre-approved through Schwab Compliance Technologies and are subject to the mandatory 90-day holding period detailed in Section III.E. (unless the strike date of the option is less than 90 days). Access Persons may not take an options position opposite of any options holding in the Adviser’s or a client’s accounts (same underlying security, same strike price, and same expiration).

 

G.  Closed-End Funds, Business Development Companies (BDCs) and Special Purpose Acquisition Companies (SPACs)
Because of the Adviser’s expertise and access to analytic information regarding the closed-end fund markets, business development companies and special purpose acquisition companies, direct investments in these vehicles (excluding those managed by the Adviser) is prohibited. Trading in closed-end funds managed by the Adviser is permitted but limited to a percentage of the average daily trading volume as determined by the Compliance Group and then subject to pre-clearance by the Compliance Group and the fund's adviser.

 

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H.  Marketplace Loans and Related Securities
Because of the Adviser’s expertise and access to analytic and platform-proprietary information regarding marketplace loans, direct investments in marketplace loans, including investments in the platforms themselves is prohibited.

 

I.   Blackout Period
To avoid Front Running or other conflict of interest with client accounts, or the appearance of Front Running or a conflict of interest with client accounts, no Access Person may engage in a Personal Securities Transaction in a security that is in a Blackout Period.

 

Requests for a waiver of the Blackout Period will be considered by a member of the Compliance Group on a case-by-case basis. Factors that may be considered include, but are not limited to, the size of the proposed Personal Securities Transaction in relation to average daily trading volumes, whether transactions for client accounts have been completed, and whether the proposed Personal Securities Transaction is directionally aligned or opposed to transactions for client accounts.

 

J.   De Minimis Exception
Purchases or sales in an amount of less than $50,000 within a thirty (30) business day period in a Reportable Security of an issuer that is a component security in the Standard & Poor’s 500 Index are exempt from the prohibitions with respect to whether the Adviser is trading the same or equivalent security for the accounts of its clients under this Code, and are exempt from the prohibitive sections of the Code.

 

Purchases or sales of broad based index open-ended exchange traded funds (ETFs) with either a market capitalization exceeding $1 billion OR an average daily trading volume exceeding 1 million shares (measured over a 90 day period) are exempt from the prohibitive sections of the Code.

 

However, it should be noted that trades falling within these de minimis exceptions must be submitted for approval and reported in Schwab Compliance Technologies pursuant to the applicable requirements of the Code and are subject to the mandatory 90-day holding period detailed in Section III.E.

 

K.  Prior Approval Required
Access Persons must obtain prior approval for all Personal Securities Transactions (other than Personal Securities Transactions in securities set forth below in Section V.C., ADMINISTRATION OF THE CODE OF ETHICS).

 

L.  Disgorgement of Profits
If, within any 10 calendar day period, an Access Person transacts in a security in a more advantageous manner than a Client account, the Chief Compliance Officer may require disgorgement of the profits realized vis-à-vis the Client account.

 

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Each Access Person is responsible for ensuring that his or her Personal Securities Transactions for which he or she requests prior approval will not violate the Adviser’s policies or applicable Federal Securities Laws.

 

IV. Reporting and Certification Requirements

 

Each Access Person must comply with the following reporting and certification requirements:

 

A.  Initial Holdings Report
Each new Access Person is required to complete and submit an Initial Holdings Report to the CCO or his designee within ten (10) calendar days of becoming an Access Person. The new Access Person must disclose all the security holdings in which he or she may have a Beneficial Interest, including in all Reportable Accounts holding Reportable Securities, including Limited Offerings and Reportable Funds. The new Access Person must also disclose all brokerage accounts and all other accounts in which he or she has a Beneficial Interest that hold Reportable Securities at that time (including IRA accounts and custodial accounts), even if the only securities held in such accounts are Reportable Funds. Personal Securities Transactions are prohibited until the Initial Holdings Report is filed.

 

The Initial Holdings Report must be current as of a date no more than forty-five (45) days prior to the date the person becomes an Access Person. The Initial Holdings Report must contain the following information:

 

  1. The title and type of security, and as applicable the exchange ticker or CUSIP number, number of shares, and principal amount of each Reportable Security in which the Access Person has any direct or indirect Beneficial Ownership when the person became an Access Person;

 

  2. The name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit as of the date the person became an Access Person;

 

  3. The number and title of each account in which the Access Person has any direct or indirect Beneficial Ownership; and

 

  4. The date the Access Person submits the Initial Holdings Report.

 

In addition, an Access Person must notify the Compliance Group within 10 days of the opening of a new investment or brokerage account in which the Access Person has a Beneficial Interest.

 

B.  Duplicate Confirmations
Access Persons may maintain accounts with any broker or brokers of their choosing, but are strongly encouraged to utilize a broker from list of preferred brokers maintained by the Compliance Group. In certain instances, the Compliance Group may require Access Persons to move accounts from existing brokers to a preferred broker. Access Persons must instruct their brokers to send duplicate confirmations for their Reportable Transactions to the CCO. Duplicate confirmations are used to reconcile the Quarterly Transaction Reports submitted by each Access Person. The CCO can provide sample letters requesting duplicate confirmations. Alternatively, a feed of certain data direct from your broker may be acceptable to the Compliance Group.

 

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C.  Initial Conflicts of Interest Questionnaire
Each new Access Person is required to complete and submit an Initial Conflicts of Interest Questionnaire to the CCO or designee within ten (10) calendar days of becoming an Access Person. The CCO may request additional details based upon the information furnished by the Access Person.

 

D.  Quarterly Transaction Report
Each Access Person must complete and submit a Quarterly Transaction Report to the CCO or designee within thirty (30) calendar days following the close of the quarter, even if there were no transactions in Reportable Securities during the period. Such reports may be completed using Schwab Compliance Technologies, a compliance software product.

 

The Quarterly Transaction Report must contain the following information:

 

  1. With respect to any Personal Securities Transaction:

 

  a. The date of the transaction, the title of the security, and as applicable the exchange ticker symbol or CUSIP number, the interest rate and maturity date (if applicable), the number of shares and principal amount of each Reportable Security involved;

 

  b. The nature of the transaction (i.e., purchase, sale, gift or any other type of acquisition or disposition);

 

  c. The price of the security at which the transaction was effected;

 

  d. The name of the broker, dealer or bank with or through which the transaction was effected.

 

  2. Any additions (including the date the account was established), deletions or changes to the securities account information previously provided by the Access Person that are necessary to bring it up to date.

 

  3. The date the Access Person submits the Quarterly Transaction Report.

 

Transactions effected through an Automatic Investment Plan do not need to be reported on a Quarterly Transaction Report, unless the transaction(s) overrides the pre-set schedule or allocations of the Automatic Investment Plan, in which case the transaction(s) must be reported.

 

E.  Annual Holdings Report
Each Access Person is required to complete and submit an Annual Holdings Report to the CCO or designee within thirty (30) calendar days following the close of the calendar year. Such reports may be completed using Schwab Compliance Technologies, a compliance software product.

 

The Annual Holdings Report must be current as of a date no more than forty-five (45) days prior to the date the report is submitted and contain the following information:

 

  1. The title and type of security, and as applicable the exchange ticker or CUSIP number, number of shares, and principal amount of each Reportable Security in which the Access Person has any direct or indirect Beneficial Ownership;

 

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  2. The name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit;

 

  3. The number and title of each account in which the Access Person has any direct or indirect Beneficial Ownership; and

 

  4. The date the Access Person submits the Annual Holdings Report.

 

F. Annual Certifications

Each Access Person is required to certify annually that he or she has received, read, and understands the Code, including any amendments thereto, recognizes that he or she is subject to the Code and will continue to comply with all requirements set forth in the Code.  In addition, each Access Person is required to certify annually that he or she has disclosed or reported all Reportable Transactions.  Certifications may be requested of Access Persons, and may be submitted by Access Persons, manually or electronically.

 

The Adviser will provide each Access Person with a copy of the Code, and any amendments thereto.

 

G. Annual Conflicts of Interest Questionnaire

Each Access Person is required to complete and submit an Annual Conflicts of Interest Questionnaire.  The CCO reviews the information furnished on the Questionnaire and may request additional details based upon the information furnished by the Adviser Access Person.

 

H. Independent Trustees/Directors

An Independent Trustee/Director does not need to provide the following reports or certifications:  Initial or Annual Holdings Reports, Duplicate Confirmations, or Initial or Annual Conflict of Interest Questionnaire.  An Independent Trustee/Director need not file Quarterly Transaction Reports, unless the Independent Trustee/Director knew or, in the ordinary course of fulfilling his or her official duties as an Independent Trustee/Director, should have known that during the 15-day period immediately before or after the Independent Trustee’s/Director's transaction in a Reportable Security,  a Fund purchased or sold the Reportable Security, or the Adviser considered purchasing or selling the Reportable Security.

 

V. Administrationof theCode of Ethics

 

A. Prior Approval Requirements and Procedures

Access Persons must obtain prior approval for Personal Securities Transactions in certain Reportable Securities in accordance with these procedures.  It is encouraged that all Access Persons seek prior approval for all Personal Securities Transactions through Schwab Compliance Technologies, although alternative approval, including written or verbal approval, may be granted.  In the case of verbal approval, the Compliance Group will document the reasons written approval was not possible.

 

Unless the CCO permits or requests a different form, the request must contain the following information:

 

  1. The name of the security;

 

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  2. The exchange ticker or CUSIP number;

 

  3. Whether the transaction is a purchase or sale;

 

  4. The quantity of shares or principal amount; and

 

  5. The account or broker or dealer where the transaction will take place.

 

The Access Person will receive a response from a member of the Compliance Group or Schwab Compliance Technologies. If prior approval is granted, the Access Person must execute his or her Personal Securities Transaction no later than the close of business on the same Trading Day.  Approval expires at the end of the day.  If the Access Person receives prior approval for a Personal Securities Transaction and places a limit order with his or her broker, that limit order must either execute or expire no later than the close of business on the Trading Day.

 

If the Personal Securities Transaction is not executed within the specified timeframe, the Access Person must re-submit his or her prior approval request if he or she still desires to execute the Personal Securities Transaction.

 

An Access Person is prohibited from engaging in a Personal Securities Transaction in advance of receiving written approval, even if he or she expects that approval will be forthcoming.

 

Investments in IPOs and Limited Offerings are governed by Section III of the Code, not the requirements of this section of the Code.

 

Note – transactions in retirement accounts of an Access Person’s immediate family member that can only invest in unaffiliated mutual funds do not require pre-approval or entry in Schwab Compliance Technologies, although periodic reporting may be required and an Access Person may need to periodically certify that the account can only hold unaffiliated mutual funds.

 

B. Some Reasons for Denial of Prior Approval

Access Persons are reminded that engaging in Personal Securities Transactions in Reportable Securities is a privilege and not a right.

 

Although this list is not meant to be exhaustive, an Access Person will be denied prior approval of a Personal Securities Transaction if the security is subject to a Blackout Period.  Approval can also be denied if: the CCO or any member of the Compliance Group believes that the Access Person’s pattern of trading is inconsistent with the spirit of the Code regardless of whether it meets the letter of the Code; if a Reportable Security was the subject of a newly-issued or changed outlook of the Adviser within five (5) business days prior to the request; or to avoid a conflict, or the appearance of a conflict, with the interests of the Adviser’s clients.  Approvals are denied without prejudice, so an Access Person can resubmit his or her request for prior approval for reconsideration at any time.

 

C. Managed Account Exemption

Transactions in accounts holding Reportable Securities in which an Access Person has Beneficial Ownership but over which the Access Person and his or her family members have no direct or indirect influence or control may be exempted from the definition of Reportable Transactions.

 

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An example of an eligible managed account would be an account managed by an independent investment professional that neither consults with nor accepts guidance from the account owner on specific securities transactions prior to execution.

 

Exemption of a managed account from the prior approval and reporting requirements of this Code must be requested in writing by the Access Person to the CCO.

 

D. Written Report to Funds Board

No less frequently than annually, the Adviser must furnish to the Board of the Funds and the Board must consider, a written report that:

 

  1. Describes any issues arising under this Code or procedures since the last report to the Board, including but not limited to information about violations of the Code or procedures or sanctions imposed in response to the violations;

 

  2. Discusses whether any significant conflicts of interest arose during the reporting period, even if the conflicts have not resulted in a violation of the Code;

 

  3. Discusses any waivers that might be considered important by the Board that were granted during the reporting period; and

 

  4. Certifies that the Funds and the Adviser have adopted procedures reasonably necessary to prevent Access Persons from violating the Code.

 

VI. Duty of Confidentiality

 

Confidentiality is a cornerstone of the Adviser’s fiduciary obligation to its clients.  Access Persons owe a duty of confidentiality to both the Adviser and its clients.  Information acquired in the course of employment by the Adviser, including but not limited to information regarding actual or contemplated investment decisions, securities under Active Consideration, portfolio composition, client interests, non-public client information, research, research recommendations, Adviser activities and new business initiatives is confidential.

 

Access Persons must not discuss client business (e.g., strategy, holdings, assets under management, etc.), including the existence of a client relationship, with outsiders except as necessary to perform his or her job responsibilities.

 

In addition, Access Persons should be familiar with the Funds’ Policies and Procedures Regarding Selective Disclosure of Portfolio Holdings, which addresses the requirements for disclosure of the Funds’ portfolio holdings to ensure equality of dissemination.

 

VII. Outside Affiliations

 

The Adviser recognizes that an Access Person has outside affiliations to which he or she dedicates personal time.

 

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A. Directorships

An Access Person who wishes to serve on the Board of Directors of any organization must first obtain approval from the CCO, or another member of the Compliance Group, prior to accepting the position.  The Compliance Group will determine if a new Access Person can continue to serve as a director of an organization if he or she is already in that position prior to joining the Adviser.  In either case, approval will be granted only if the Compliance Group determines that the activity does not present a significant conflict of interest with the Adviser or the Adviser’s clients.

 

The above restrictions and procedures for approval do not apply to unpaid service with a charitable or non-profit organization.

 

B. Outside Employment

Each Access Person is required to disclose whether or not he or she is engaged in any paid employment, business venture or service outside the business of the Adviser.  No paid employment or participation in a venture or service relating to the provision of investment advisory services is permitted without prior approval.

 

These disclosures are required on the Initial Conflicts of Interest and annually thereafter on the Annual Conflicts of Interest Questionnaire available through Schwab Compliance Technologies.

 

VIII. Oversight of the Code of Ethics

 

A. Compliance Group

The Compliance Group, led by the CCO, is responsible for monitoring and oversight of this Code.

 

B. Responsibilities of Each Employee

It is expected that Employees will embrace and comply with both the letter and spirit of the Code and to uphold its fiduciary obligations.

 

Adherence to the Code is a basic condition of employment.  If an Employee has any doubt as to the appropriateness of any activity, believes that he or she has violated the Code, or becomes aware of a violation of the Code by another Employee, the Employee is obligated to bring these matters to the attention of the Compliance Group.

 

C. Enforcement of the Code

Potential violations of the Code will be investigated and considered by the Compliance Group and/or Management of the Adviser.

 

Violations of the Code’s provisions are taken seriously and may result in sanctions or other consequences, including but not limited to the following:

 

  1. A warning;

 

  2. A reversal of a Personal Securities Transaction;

 

  3. Disgorgement of profits from the Personal Securities Transaction;

 

  4. A limitation or restriction on engaging in Personal Securities Transactions;

 

  5. A monetary fine;

 

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  6. Termination of employment; and

 

  7. Referral to civil or criminal authorities.

 

As described above in Section V, ADMINISTRATION OF THE CODE OF ETHICS, violations are reported to the Boards of the Funds no less frequently than annually.

 

Any questions about the Code of Ethics or the existence of a conflict of interest, or the appearance of a conflict of interest, should be brought to the attention of the CCO or other member of the Compliance Group.

 

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Exhibit A - Text of Rule 16a-1(a)(2) of the Securities Exchange Act of 1934

 

Rule 16a-1(a)(2) Other than for purposes of determining whether a person is a beneficial owner of more than ten percent of any class of equity securities registered under Section 12 of the Act, the term beneficial owner shall mean any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the equity securities, subject to the following:

 

(i) The term pecuniary interest in any class of equity securities shall mean the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities.

 

(ii) The term indirect pecuniary interest in any class of equity securities shall include, but not be limited to:

 

(A) Securities held by members of a person's immediate family sharing the same household; provided, however, that the presumption of such beneficial ownership may be rebutted; see also § 240.16a-1(a)(4) ;

 

(B) A general partner's proportionate interest in the portfolio securities held by a general or limited partnership. The general partner's proportionate interest, as evidenced by the partnership agreement in effect at the time of the transaction and the partnership's most recent financial statements, shall be the greater of:

 

(1) The general partner's share of the partnership's profits, including profits attributed to any limited partnership interests held by the general partner and any other interests in profits that arise from the purchase and sale of the partnership's portfolio securities; or

 

(2) The general partner's share of the partnership capital account, including the share attributable to any limited partnership interest held by the general partner.

 

(C) A performance-related fee, other than an asset-based fee, received by any broker, dealer, bank, insurance company, investment company, investment adviser, investment manager, trustee or person or entity performing a similar function; provided, however, that no pecuniary interest shall be present where:

 

(1) The performance-related fee, regardless of when payable, is calculated based upon net capital gains and/or net capital appreciation generated from the portfolio or from the fiduciary's overall performance over a period of one year or more; and

 

(2) Equity securities of the issuer do not account for more than ten percent of the market value of the portfolio. A right to a nonperformance-related fee alone shall not represent a pecuniary interest in the securities;

 

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(D) A person's right to dividends that is separated or separable from the underlying securities. Otherwise, a right to dividends alone shall not represent a pecuniary interest in the securities;

 

(E) A person's interest in securities held by a trust, as specified in § 240.16a-8(b); and

 

(F) A person's right to acquire equity securities through the exercise or conversion of any derivative security, whether or not presently exercisable.

 

(iii) A shareholder shall not be deemed to have a pecuniary interest in the portfolio securities held by a corporation or similar entity in which the person owns securities if the shareholder is not a controlling shareholder of the entity and does not have or share investment control over the entity's portfolio.

 

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Exhibit B - Members of Compliance Group

 

Marc Collins, Chief Compliance Officer
Jon Mohrhardt
Melissa Hale
Justin White

 

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Exhibit C - Exempt Transactions

 

The following transactions shall be exempt from the pre-clearance requirements and other provisions of this Code of Ethics, but the reporting and disclosure requirements of the Code shall apply:

 

A. Non-discretionary Transactions

 

Purchases or sales effected in any account over which an Access Person has no direct or indirect influence or control, or in any account of the Access Person which is managed on a discretionary basis by a person: (a) unrelated to the Access Person; (b) whom the Access Person does not, in fact, influence or control; and (c) with whom the Access Person does not confer or otherwise participate in connection with the purchase and sale of securities in the account.

 

Note: Any registered investment adviser retained by an Access Person shall be pre-approved by the Chief Compliance Officer before the Access Person may rely upon this exemption. For this purpose, transactions effected under a power of attorney or a brokerage account agreement are not eligible for this exemption unless they contain an express delegation of investment discretion.

 

B. Non-volitional Transactions

 

Purchases or sales that are non-volitional on the part of the Access Person, including mergers, recapitalizations or similar transactions. Non-volitional transactions also include gifts of a Reportable Security to an Access Person over which the Access Person has no control of the timing.

 

C. Automatic Investment Plans

 

A program in which regular periodic purchases or sales are made automatically in or from investment accounts in accordance with a predetermined schedule and allocation, including an issuer’s automatic dividend reinvestment plan, including rebalance transaction in such plans.

 

D. Rights Issuances

 

Purchases effected upon the exercise of rights issued by the issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired.

 

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Exhibit D - List of Funds

 

RiverNorth Core Opportunity Fund
RiverNorth/DoubleLine Strategic Income Fund
RiverNorth Equity Opportunity Fund

RiverNorth/Oaktree High Income Fund

 

RiverNorth Opportunities Fund, Inc.

 

RiverNorth Marketplace Lending Corporation

 

 RiverNorth Opportunistic Municipal Income Fund, Inc.

 

RiverNorth Managed Duration Municipal Income Fund, Inc.

 

Revised 11/1/2013
  12/5/2013
  2/28/2014
  11/7/2014
  1/5/2016

 

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Section 6 - Code of Ethics

 

This Code of Ethics (the “Code”) is a joint Code for RiverNorth Capital Management, LLC (the “Adviser”), RiverNorth Funds (the “RiverNorth Funds”) and any subsequent funds advised by the Adviser. It reflects the requirements of Section 204A of the Investment Advisers Act of 1940, Rule 204A-1 under that Act, and Rule 17j-1 under the Investment Company Act of 1940. The Adviser and the RiverNorth Funds are often referred to collectively as “RiverNorth”. Access Persons (as defined by the Investment Company Act) of other funds advised or subadvised by the Adviser may be subject to other codes of ethics as well.

 

I. Standards of Conduct and Fiduciary Duty

 

The Adviser has a fiduciary duty to its investment advisory clients. That duty requires each Employee to act solely for the benefit of Adviser’s clients. The conduct of the Adviser and its Employees must recognize that the clients’ interests always have priority over those of the Adviser and its Employees (including with respect to any Employee’s personal trading activity) and is based upon fundamental principles of openness, integrity, honesty and trust.

 

Each Employee is expected to adhere, not only to the Federal Securities Laws (as defined herein), but also to the highest standard of professional and ethical conduct and should be sensitive to situations that may give rise to an actual conflict AND the appearance of a conflict with the Adviser’s clients’ interests. Such conflicts could also have the potential to cause damage to the Adviser’s reputation. Each Employee is also required to comply with all applicable Federal Securities Laws. Each Employee must exercise reasonable care and professional judgment to avoid actions that could put the image or reputation of the Adviser at risk.

 

This Code sets forth the policy regarding Employee conduct in those situations in which conflicts with our clients’ interests are most likely to be present or develop. The Code does not attempt to identify all possible conflicts of interest, and literal compliance with the Code will not shield the Employee from sanctions for personal trading or other conduct that violates a fiduciary duty to clients. It is expected that Employees will embrace and comply with both the letter and the spirit of the Code.

 

Adherence to the Code is a basic condition of employment. If an Employee has any doubt as to the appropriateness of any activity, believes that he or she has violated the Code, or becomes aware of a violation of the Code by another Employee, the Employee is obligated to bring these matters to the attention of the Chief Compliance Officer (“CCO”) or any member of the Compliance Group, as defined herein.

 

II. Definitions

 

“Access Person” means any person who is either an Adviser Access Person or a Fund Access Person.

 

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“Adviser Access Person” means any Employee or any other person identified by the CCO as an Adviser Access Person. The CCO shall designate as an Adviser Access Person any supervised person who (i) has access to non-public information regarding any purchase or sale of securities for an Adviser client, or non-public information regarding the portfolio holdings of any Reportable Fund, or (ii) is involved in making securities recommendations to Adviser clients, or who has access to such recommendations that are non-public. Since providing investment advice is the Adviser’s primary business, all of the Adviser’s members (other than passive investors), officers and employees are presumed to be Adviser Access Persons.

 

“Active Consideration” means the period of time during which an Adviser portfolio manager has a pending order or is considering the purchase or sale of a security for any client account.

 

“Adviser” means RiverNorth Capital Management, LLC.

 

“Advisers Act” means the Investment Advisers Act of 1940, as amended, and rules promulgated thereunder.

 

“Automatic Investment Plan” means a program, including a dividend reinvestment program, in which regular periodic purchases or withdrawals are made automatically in or from investment accounts in accordance with a predetermined schedule and allocation, including automatic rebalances.

 

“Beneficial Ownership” means that a person, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in a security. A “pecuniary interest” in a security means the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in such security. An Employee is presumed to have beneficial ownership in the following: (i) securities owned by an Employee in his or her name; (ii) securities owned by an individual Employee indirectly through an account or investment vehicle for his or her benefit, such as an IRA, family trust, or family partnership; (iii) securities owned in which the Employee has a joint ownership interest, such as a joint brokerage account; (iv) securities in which a member of the Employee’s immediate family (currently defined as one’s spouse, domestic partner, minor children, adult children living at home, other dependent relatives and other adult relatives sharing living arrangements) has a direct, indirect or joint ownership interest if the immediate family member resides in the same household as the Employee; (v) securities owned by a trust, private foundation or other charitable accounts in which the Employee (or a member of the Employee’s immediate family) has both a pecuniary interest and investment discretion and (vi) securities owned by an Investment Club in which the Employee or Employee's immediate family members are participants.. This definition shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934, the text of which is attached as Exhibit A to the Code.

 

“Blackout Period” means a period during which an Access Person is prohibited from engaging in a Personal Securities Transaction in a particular security because (i) a transaction in the same security is pending or anticipated for client accounts; or (ii) a transaction for client accounts is under Active Consideration by a portfolio manager of the Adviser

 

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“CCO” means the Chief Compliance Officer of the Adviser. The CCO may also mean any person designated as the Chief Compliance Officer of any Fund.

 

“Compliance Group” means the Adviser’s compliance committee charged with overseeing the Adviser’s compliance policies and procedures. The committee is comprised of the Chief Compliance Officer and such other persons as may be designated by the Chief Compliance Officer from time to time. A list of the current Compliance Group members is attached as Exhibit B to the Code.

 

“Control” means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company.

 

“Employee” means an employee of the Adviser, a member of the Adviser (other than passive investors who are not employed by the Adviser in another capacity), and any temporary employee or independent contractor of the Adviser who is contracted to work onsite in the offices of the Adviser for more than seven (7) consecutive days (unless steps are taken to prevent such person from gaining access to proprietary or trading information related to the Adviser of its clients). All Employees are deemed to be Access Persons.

 

“ETF” means an exchange traded fund, whether organized as an open-end fund or a unit investment trust.

 

“Exchange Act” means the Securities Exchange Act of 1934.

 

“Exempt Transactions” means transactions in securities that are exempt from the pre-clearance and/or the reporting requirements of this Code. Refer to Exhibit C for a list of security types that fall into this category.

 

“Federal Securities Laws” means the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940, the Investment Advisers Act of 1940, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the SEC under any of these statutes, the Bank Secrecy Act as it applies to Funds and investment advisers, any rules adopted thereunder by the SEC or the Department of the Treasury or the Dodd-Frank Wall Street Reform and Consumer Protection Act to the extent and as it pertains to investments advisers and investment companies.

 

“Frequent Trading” means the frequent trading in shares of an open-end fund in violation of the fund’s prospectus and/or trading policies, including any trading designed to exploit perceived inefficiencies in the prices of Fund shares.

 

“Front Running” means engaging in a Personal Securities Transaction in advance of a transaction in the same security for a client’s account.

 

“Fund” means an investment company registered under the Investment Company Act of 1940.

 

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“Fund Access Person” means any trustee or officer of a Fund managed by the Adviser who is not also an Adviser Access Person.

 

“Independent Trustee/Director” means a trustee or director of a Fund who is not an “interested person” of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940.

 

“Initial Public Offering” or “IPO” means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934.

 

“Insider Trading” is not defined in the Federal Securities Laws, but generally refers to the buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of Material, Non-Public Information about the security.

 

“Investment Company Act” means the Investment Company Act of 1940, as amended and the rules promulgated thereunder.

 

“Late Trading” means the illegal practice of pricing a purchase or redemption order for shares of an open-end Fund with the current day share price even though the order is received after the pricing time established in the Fund’s prospectus. Late trading often involves a coordinated effort by the investor and a broker or service provider for the Fund.

 

“Limited Offering” means an offering (e.g., limited partnership) that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the Securities Act of 1933.

 

“Material, Non-Public Information” or “MNPI” means information for which there is substantial likelihood that a reasonable investor would consider important in making an investment decision, or is reasonably certain to have an effect on the price of the issuer’s security, but which has not been made available to the public, has not been disseminated broadly to the marketplace, or has not had sufficient time post-dissemination for the marketplace to react to the information.

 

“Organizations” means entities, and the individuals that work for them, that provide services, or seek to provide services, to individual clients through the Adviser’s relationship with the client. Examples include brokers, consultants, companies that the Adviser researches for possible investment, and companies in which the Adviser invests for client accounts.

 

“Personal Securities Transaction” means a Reportable Transaction in which an Access Person has Beneficial Ownership in the security.

 

“Reportable Account” means investment accounts in which Reportable Securities are held.

 

“Reportable Fund” means any Fund: (i) for which the Adviser serves as the investment adviser or sub-adviser; or (ii) whose investment adviser or principal underwriter controls the Adviser, is controlled by the Adviser, or is under common control with the Adviser. For purposes of this Code, the Reportable Funds are the RiverNorth Funds, RiverNorth Opportunities Fund, Inc. and RiverNorth Marketplace Lending Corporation.

 

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“Reportable Security” means a Security, except that it does not include any of the following: (i) direct obligations of the government of the United States; (ii) bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; (iii) shares issued by money market Funds; (iv) shares issued by unit investment trusts that are invested exclusively in one or more open-end Funds, none of which are Reportable Funds. The definition of “Reportable Security” also excludes securities held through certain qualified tuition programs established pursuant to Section 529 of the Internal Revenue Code of 1986 (“529 Plans”), provided the Adviser or a control affiliate does not manage, distribute, market or underwrite the 529 Plan or the investments and strategies underlying the 529 Plan. However, ETFs and mutual funds are included in the definition of “Reportable Security” whether held directly with the issuer or its transfer agent or in a brokerage account.

 

“Reportable Transaction” means a transaction by an Access Person in a Reportable Security.

 

“RiverNorth Funds” means RiverNorth Funds, an Ohio business trust and each of its series, as they may be added from time to time. Each series of the RiverNorth Funds may also be referred to individually as a “fund”. See Exhibit D for a list of the current series of the RiverNorth Funds.

 

“RiverNorth Marketplace Lending Corporation” means a Maryland corporation organized as an interval closed-end fund and advised by the Adviser.

 

“RiverNorth Opportunities Fund” means a Delaware corporation organized as a closed-end fund and subadvised by the Adviser.

 

“Rumor” means a statement not based on verified information. An expression of opinion is not a Rumor.

 

“Security” means any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit sharing agreement, collateral trust certificate, reorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any, security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules promulgated thereunder.

 

“Trading Day” means any day on which the New York Stock Exchange is open for regular, unrestricted trading.

 

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Terms not defined above or in this Code have the meaning set forth in the Advisers Act. If terms are ambiguous to any person potentially covered by the Code, it is suggested that the Employee contact the Chief Compliance Officer for clarification before engaging in any conduct or activity that may be covered under the Code.

 

III. Policy on Personal Securities Transactions

 

Each Access Person must comply with the following policies for all of his or her Personal Securities Transactions.

 

A.  Initial Public Offerings
An Adviser Access Person may not participate in an initial public offering without prior approval and unless the IPO falls into one of the following categories:

 

  1. An IPO of securities of a mutual insurance company as a result of the Adviser Access Person’s ownership of an insurance policy; or

 

  2. An IPO of securities of a spinoff company as a result of the Adviser Access Person’s ownership of shares of the company that spins off the issuer of the IPO.

 

  3. An IPO of securities of a closed-end fund to which the Adviser serves as investment adviser or sub-adviser.

 

An Access Person must obtain prior clearance from the CCO when acquiring Beneficial Ownership in securities of an IPO that are subject to either of the three exceptions set forth above. If an Access Person believes participation in an IPO may be appropriate, for example, in situations similar to the three situations identified above, but not covered by those two situations, the Access Person may submit a written request for approval, and the CCO may grant approval if the investment is deemed acceptable.

 

B.  Limited Offerings
An Adviser Access Person may purchase or sell securities in a Limited Offering only with the prior written approval from a member of the Compliance Group. Limited Offerings include investments in private funds managed by the Adviser. The Compliance Group member shall consider the following factors in determining whether to approve a transaction in a Limited Offering:

 

  1. Whether the investment opportunity should be reserved for clients;

 

  2. Whether the Access Person is being offered the investment opportunity due to his or her employment with the Adviser; and

 

  3. Any other relevant factors (e.g., whether the Adviser has any business dealings with the issuer, general partner, or any of the individuals named in the offering documents, or if the Access Person has knowledge of an impending IPO by the issuer).

 

The Compliance Group member may approve a single transaction in a Limited Offering or additional investments in previously-approved Limited Offerings (such as subsequent investments in the same limited partnership). The approval may be subject to limitations, including timing of investments, number of investments, or amount of investments. Additionally, Access Persons should seek approval for transactions in Limited Offerings as far in advance as possible.

 

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C.  Frequent Trading (Open-End Funds)
Frequent Trading can harm shareholders in various ways, including reducing the returns to long-term shareholders by increasing costs to the fund and disrupting portfolio management strategies. Access Persons are required to comply with the policies of any open-end funds in which they invest regarding purchases, redemptions and exchanges, and are prohibited from engaging in Frequent Trading in open-end funds which indicate in their prospectus or statement of additional information that the funds prohibit or restrict Frequent Trading.

 

D.  Late Trading (Open-End Funds)
Late Trading is prohibited by law and, with respect to Reportable Funds, may represent a violation of fiduciary duty. This Code prohibits Access Persons from engaging in or facilitating Late Trading in shares of any open-end Fund.

 

E.  Short-Term Trading (All Securities)
The Adviser considers short-term trading problematic because it (1) may interfere with the Adviser Access Person’s duties, obligations or loyalties to the Adviser or the Adviser’s clients; (2) may be indicative of using Material, Non-Public Information, or (3) may be in violation of applicable laws, rules and regulations or the Adviser’s or issuer’s policies and procedures.

 

Accordingly, all Access Persons are required to hold securities for a minimum of 90 days, to avoid short-term trading practices. The Compliance Group may approve exceptions to the 90-day holding period in certain limited circumstances, for instance to reduce the level of investment losses to the Access Person if the security has significantly decreased in value. The 90-day hold period does not apply to transactions resulting from certain corporate actions or assets attributable to an Automatic Investment Plan.

 

The Compliance Group may impose restrictions on Personal Securities Transactions, or deny a request for prior approval of Personal Securities Transactions, if it believes that the transactions may interfere with the Access Person’s duties, obligations or loyalties to the Adviser or the Adviser’s clients, impose undue burden on the Adviser, or may otherwise be contrary to the interests of the Adviser or the Adviser’s clients.

 

F.  Options Trading
Access Persons are permitted to invest in options. All personal securities transactions involving options must be pre-approved through Schwab Compliance Technologies and are subject to the mandatory 90-day holding period detailed in Section III.E. (unless the strike date of the option is less than 90 days). Access Persons may not take an options position opposite of any options holding in the Adviser’s or a client’s accounts (same underlying security, same strike price, and same expiration).

 

G.  Closed-End Funds, Business Development Companies (BDCs) and Special Purpose Acquisition Companies (SPACs)
Because of the Adviser’s expertise and access to analytic information regarding the closed-end fund markets, business development companies and special purpose acquisition companies, direct investments in these vehicles (excluding those managed by the Adviser) is prohibited. Trading in closed-end funds managed by the Adviser is permitted but limited to a percentage of the average daily trading volume as determined by the Compliance Group and then subject to pre-clearance by the Compliance Group and the fund's adviser.

 

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H.  Marketplace Loans and Related Securities
Because of the Adviser’s expertise and access to analytic and platform-proprietary information regarding marketplace loans, direct investments in marketplace loans, including investments in the platforms themselves is prohibited.

 

I.   Blackout Period
To avoid Front Running or other conflict of interest with client accounts, or the appearance of Front Running or a conflict of interest with client accounts, no Access Person may engage in a Personal Securities Transaction in a security that is in a Blackout Period.

 

Requests for a waiver of the Blackout Period will be considered by a member of the Compliance Group on a case-by-case basis. Factors that may be considered include, but are not limited to, the size of the proposed Personal Securities Transaction in relation to average daily trading volumes, whether transactions for client accounts have been completed, and whether the proposed Personal Securities Transaction is directionally aligned or opposed to transactions for client accounts.

 

J.   De Minimis Exception
Purchases or sales in an amount of less than $50,000 within a thirty (30) business day period in a Reportable Security of an issuer that is a component security in the Standard & Poor’s 500 Index are exempt from the prohibitions with respect to whether the Adviser is trading the same or equivalent security for the accounts of its clients under this Code, and are exempt from the prohibitive sections of the Code.

 

Purchases or sales of broad based index open-ended exchange traded funds (ETFs) with either a market capitalization exceeding $1 billion OR an average daily trading volume exceeding 1 million shares (measured over a 90 day period) are exempt from the prohibitive sections of the Code.

 

However, it should be noted that trades falling within these de minimis exceptions must be submitted for approval and reported in Schwab Compliance Technologies pursuant to the applicable requirements of the Code and are subject to the mandatory 90-day holding period detailed in Section III.E.

 

K.  Prior Approval Required
Access Persons must obtain prior approval for all Personal Securities Transactions (other than Personal Securities Transactions in securities set forth below in Section V.C., ADMINISTRATION OF THE CODE OF ETHICS).

 

L.  Disgorgement of Profits
If, within any 10 calendar day period, an Access Person transacts in a security in a more advantageous manner than a Client account, the Chief Compliance Officer may require disgorgement of the profits realized vis-à-vis the Client account.

 

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Each Access Person is responsible for ensuring that his or her Personal Securities Transactions for which he or she requests prior approval will not violate the Adviser’s policies or applicable Federal Securities Laws.

 

IV. Reporting and Certification Requirements

 

Each Access Person must comply with the following reporting and certification requirements:

 

A.  Initial Holdings Report
Each new Access Person is required to complete and submit an Initial Holdings Report to the CCO or his designee within ten (10) calendar days of becoming an Access Person. The new Access Person must disclose all the security holdings in which he or she may have a Beneficial Interest, including in all Reportable Accounts holding Reportable Securities, including Limited Offerings and Reportable Funds. The new Access Person must also disclose all brokerage accounts and all other accounts in which he or she has a Beneficial Interest that hold Reportable Securities at that time (including IRA accounts and custodial accounts), even if the only securities held in such accounts are Reportable Funds. Personal Securities Transactions are prohibited until the Initial Holdings Report is filed.

 

The Initial Holdings Report must be current as of a date no more than forty-five (45) days prior to the date the person becomes an Access Person. The Initial Holdings Report must contain the following information:

 

  1. The title and type of security, and as applicable the exchange ticker or CUSIP number, number of shares, and principal amount of each Reportable Security in which the Access Person has any direct or indirect Beneficial Ownership when the person became an Access Person;

 

  2. The name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit as of the date the person became an Access Person;

 

  3. The number and title of each account in which the Access Person has any direct or indirect Beneficial Ownership; and

 

  4. The date the Access Person submits the Initial Holdings Report.

 

In addition, an Access Person must notify the Compliance Group within 10 days of the opening of a new investment or brokerage account in which the Access Person has a Beneficial Interest.

 

B.  Duplicate Confirmations
Access Persons may maintain accounts with any broker or brokers of their choosing, but are strongly encouraged to utilize a broker from list of preferred brokers maintained by the Compliance Group. In certain instances, the Compliance Group may require Access Persons to move accounts from existing brokers to a preferred broker. Access Persons must instruct their brokers to send duplicate confirmations for their Reportable Transactions to the CCO. Duplicate confirmations are used to reconcile the Quarterly Transaction Reports submitted by each Access Person. The CCO can provide sample letters requesting duplicate confirmations. Alternatively, a feed of certain data direct from your broker may be acceptable to the Compliance Group.

 

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C.  Initial Conflicts of Interest Questionnaire
Each new Access Person is required to complete and submit an Initial Conflicts of Interest Questionnaire to the CCO or designee within ten (10) calendar days of becoming an Access Person. The CCO may request additional details based upon the information furnished by the Access Person.

 

D.  Quarterly Transaction Report
Each Access Person must complete and submit a Quarterly Transaction Report to the CCO or designee within thirty (30) calendar days following the close of the quarter, even if there were no transactions in Reportable Securities during the period. Such reports may be completed using Schwab Compliance Technologies, a compliance software product.

 

The Quarterly Transaction Report must contain the following information:

 

  1. With respect to any Personal Securities Transaction:

 

  a. The date of the transaction, the title of the security, and as applicable the exchange ticker symbol or CUSIP number, the interest rate and maturity date (if applicable), the number of shares and principal amount of each Reportable Security involved;

 

  b. The nature of the transaction (i.e., purchase, sale, gift or any other type of acquisition or disposition);

 

  c. The price of the security at which the transaction was effected;

 

  d. The name of the broker, dealer or bank with or through which the transaction was effected.

 

  2. Any additions (including the date the account was established), deletions or changes to the securities account information previously provided by the Access Person that are necessary to bring it up to date.

 

  3. The date the Access Person submits the Quarterly Transaction Report.

 

Transactions effected through an Automatic Investment Plan do not need to be reported on a Quarterly Transaction Report, unless the transaction(s) overrides the pre-set schedule or allocations of the Automatic Investment Plan, in which case the transaction(s) must be reported.

 

E.  Annual Holdings Report
Each Access Person is required to complete and submit an Annual Holdings Report to the CCO or designee within thirty (30) calendar days following the close of the calendar year. Such reports may be completed using Schwab Compliance Technologies, a compliance software product.

 

The Annual Holdings Report must be current as of a date no more than forty-five (45) days prior to the date the report is submitted and contain the following information:

 

  1. The title and type of security, and as applicable the exchange ticker or CUSIP number, number of shares, and principal amount of each Reportable Security in which the Access Person has any direct or indirect Beneficial Ownership;

 

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  2. The name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit;

 

  3. The number and title of each account in which the Access Person has any direct or indirect Beneficial Ownership; and

 

  4. The date the Access Person submits the Annual Holdings Report.

 

F. Annual Certifications

Each Access Person is required to certify annually that he or she has received, read, and understands the Code, including any amendments thereto, recognizes that he or she is subject to the Code and will continue to comply with all requirements set forth in the Code.  In addition, each Access Person is required to certify annually that he or she has disclosed or reported all Reportable Transactions.  Certifications may be requested of Access Persons, and may be submitted by Access Persons, manually or electronically.

 

The Adviser will provide each Access Person with a copy of the Code, and any amendments thereto.

 

G. Annual Conflicts of Interest Questionnaire

Each Access Person is required to complete and submit an Annual Conflicts of Interest Questionnaire.  The CCO reviews the information furnished on the Questionnaire and may request additional details based upon the information furnished by the Adviser Access Person.

 

H. Independent Trustees/Directors

An Independent Trustee/Director does not need to provide the following reports or certifications:  Initial or Annual Holdings Reports, Duplicate Confirmations, or Initial or Annual Conflict of Interest Questionnaire.  An Independent Trustee/Director need not file Quarterly Transaction Reports, unless the Independent Trustee/Director knew or, in the ordinary course of fulfilling his or her official duties as an Independent Trustee/Director, should have known that during the 15-day period immediately before or after the Independent Trustee’s/Director's transaction in a Reportable Security,  a Fund purchased or sold the Reportable Security, or the Adviser considered purchasing or selling the Reportable Security.

 

V. Administrationof theCode of Ethics

 

A. Prior Approval Requirements and Procedures

Access Persons must obtain prior approval for Personal Securities Transactions in certain Reportable Securities in accordance with these procedures.  It is encouraged that all Access Persons seek prior approval for all Personal Securities Transactions through Schwab Compliance Technologies, although alternative approval, including written or verbal approval, may be granted.  In the case of verbal approval, the Compliance Group will document the reasons written approval was not possible.

 

Unless the CCO permits or requests a different form, the request must contain the following information:

 

  1. The name of the security;

 

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  2. The exchange ticker or CUSIP number;

 

  3. Whether the transaction is a purchase or sale;

 

  4. The quantity of shares or principal amount; and

 

  5. The account or broker or dealer where the transaction will take place.

 

The Access Person will receive a response from a member of the Compliance Group or Schwab Compliance Technologies. If prior approval is granted, the Access Person must execute his or her Personal Securities Transaction no later than the close of business on the same Trading Day.  Approval expires at the end of the day.  If the Access Person receives prior approval for a Personal Securities Transaction and places a limit order with his or her broker, that limit order must either execute or expire no later than the close of business on the Trading Day.

 

If the Personal Securities Transaction is not executed within the specified timeframe, the Access Person must re-submit his or her prior approval request if he or she still desires to execute the Personal Securities Transaction.

 

An Access Person is prohibited from engaging in a Personal Securities Transaction in advance of receiving written approval, even if he or she expects that approval will be forthcoming.

 

Investments in IPOs and Limited Offerings are governed by Section III of the Code, not the requirements of this section of the Code.

 

Note – transactions in retirement accounts of an Access Person’s immediate family member that can only invest in unaffiliated mutual funds do not require pre-approval or entry in Schwab Compliance Technologies, although periodic reporting may be required and an Access Person may need to periodically certify that the account can only hold unaffiliated mutual funds.

 

B. Some Reasons for Denial of Prior Approval

Access Persons are reminded that engaging in Personal Securities Transactions in Reportable Securities is a privilege and not a right.

 

Although this list is not meant to be exhaustive, an Access Person will be denied prior approval of a Personal Securities Transaction if the security is subject to a Blackout Period.  Approval can also be denied if: the CCO or any member of the Compliance Group believes that the Access Person’s pattern of trading is inconsistent with the spirit of the Code regardless of whether it meets the letter of the Code; if a Reportable Security was the subject of a newly-issued or changed outlook of the Adviser within five (5) business days prior to the request; or to avoid a conflict, or the appearance of a conflict, with the interests of the Adviser’s clients.  Approvals are denied without prejudice, so an Access Person can resubmit his or her request for prior approval for reconsideration at any time.

 

C. Managed Account Exemption

Transactions in accounts holding Reportable Securities in which an Access Person has Beneficial Ownership but over which the Access Person and his or her family members have no direct or indirect influence or control may be exempted from the definition of Reportable Transactions.

 

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An example of an eligible managed account would be an account managed by an independent investment professional that neither consults with nor accepts guidance from the account owner on specific securities transactions prior to execution.

 

Exemption of a managed account from the prior approval and reporting requirements of this Code must be requested in writing by the Access Person to the CCO.

 

D. Written Report to Funds Board

No less frequently than annually, the Adviser must furnish to the Board of the Funds and the Board must consider, a written report that:

 

  1. Describes any issues arising under this Code or procedures since the last report to the Board, including but not limited to information about violations of the Code or procedures or sanctions imposed in response to the violations;

 

  2. Discusses whether any significant conflicts of interest arose during the reporting period, even if the conflicts have not resulted in a violation of the Code;

 

  3. Discusses any waivers that might be considered important by the Board that were granted during the reporting period; and

 

  4. Certifies that the Funds and the Adviser have adopted procedures reasonably necessary to prevent Access Persons from violating the Code.

 

VI. Duty of Confidentiality

 

Confidentiality is a cornerstone of the Adviser’s fiduciary obligation to its clients.  Access Persons owe a duty of confidentiality to both the Adviser and its clients.  Information acquired in the course of employment by the Adviser, including but not limited to information regarding actual or contemplated investment decisions, securities under Active Consideration, portfolio composition, client interests, non-public client information, research, research recommendations, Adviser activities and new business initiatives is confidential.

 

Access Persons must not discuss client business (e.g., strategy, holdings, assets under management, etc.), including the existence of a client relationship, with outsiders except as necessary to perform his or her job responsibilities.

 

In addition, Access Persons should be familiar with the Funds’ Policies and Procedures Regarding Selective Disclosure of Portfolio Holdings, which addresses the requirements for disclosure of the Funds’ portfolio holdings to ensure equality of dissemination.

 

VII. Outside Affiliations

 

The Adviser recognizes that an Access Person has outside affiliations to which he or she dedicates personal time.

 

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A. Directorships

An Access Person who wishes to serve on the Board of Directors of any organization must first obtain approval from the CCO, or another member of the Compliance Group, prior to accepting the position.  The Compliance Group will determine if a new Access Person can continue to serve as a director of an organization if he or she is already in that position prior to joining the Adviser.  In either case, approval will be granted only if the Compliance Group determines that the activity does not present a significant conflict of interest with the Adviser or the Adviser’s clients.

 

The above restrictions and procedures for approval do not apply to unpaid service with a charitable or non-profit organization.

 

B. Outside Employment

Each Access Person is required to disclose whether or not he or she is engaged in any paid employment, business venture or service outside the business of the Adviser.  No paid employment or participation in a venture or service relating to the provision of investment advisory services is permitted without prior approval.

 

These disclosures are required on the Initial Conflicts of Interest and annually thereafter on the Annual Conflicts of Interest Questionnaire available through Schwab Compliance Technologies.

 

VIII. Oversight of the Code of Ethics

 

A. Compliance Group

The Compliance Group, led by the CCO, is responsible for monitoring and oversight of this Code.

 

B. Responsibilities of Each Employee

It is expected that Employees will embrace and comply with both the letter and spirit of the Code and to uphold its fiduciary obligations.

 

Adherence to the Code is a basic condition of employment.  If an Employee has any doubt as to the appropriateness of any activity, believes that he or she has violated the Code, or becomes aware of a violation of the Code by another Employee, the Employee is obligated to bring these matters to the attention of the Compliance Group.

 

C. Enforcement of the Code

Potential violations of the Code will be investigated and considered by the Compliance Group and/or Management of the Adviser.

 

Violations of the Code’s provisions are taken seriously and may result in sanctions or other consequences, including but not limited to the following:

 

  1. A warning;

 

  2. A reversal of a Personal Securities Transaction;

 

  3. Disgorgement of profits from the Personal Securities Transaction;

 

  4. A limitation or restriction on engaging in Personal Securities Transactions;

 

  5. A monetary fine;

 

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  6. Termination of employment; and

 

  7. Referral to civil or criminal authorities.

 

As described above in Section V, ADMINISTRATION OF THE CODE OF ETHICS, violations are reported to the Boards of the Funds no less frequently than annually.

 

Any questions about the Code of Ethics or the existence of a conflict of interest, or the appearance of a conflict of interest, should be brought to the attention of the CCO or other member of the Compliance Group.

 

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Exhibit A - Text of Rule 16a-1(a)(2) of the Securities Exchange Act of 1934

 

Rule 16a-1(a)(2) Other than for purposes of determining whether a person is a beneficial owner of more than ten percent of any class of equity securities registered under Section 12 of the Act, the term beneficial owner shall mean any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the equity securities, subject to the following:

 

(i) The term pecuniary interest in any class of equity securities shall mean the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities.

 

(ii) The term indirect pecuniary interest in any class of equity securities shall include, but not be limited to:

 

(A) Securities held by members of a person's immediate family sharing the same household; provided, however, that the presumption of such beneficial ownership may be rebutted; see also § 240.16a-1(a)(4) ;

 

(B) A general partner's proportionate interest in the portfolio securities held by a general or limited partnership. The general partner's proportionate interest, as evidenced by the partnership agreement in effect at the time of the transaction and the partnership's most recent financial statements, shall be the greater of:

 

(1) The general partner's share of the partnership's profits, including profits attributed to any limited partnership interests held by the general partner and any other interests in profits that arise from the purchase and sale of the partnership's portfolio securities; or

 

(2) The general partner's share of the partnership capital account, including the share attributable to any limited partnership interest held by the general partner.

 

(C) A performance-related fee, other than an asset-based fee, received by any broker, dealer, bank, insurance company, investment company, investment adviser, investment manager, trustee or person or entity performing a similar function; provided, however, that no pecuniary interest shall be present where:

 

(1) The performance-related fee, regardless of when payable, is calculated based upon net capital gains and/or net capital appreciation generated from the portfolio or from the fiduciary's overall performance over a period of one year or more; and

 

(2) Equity securities of the issuer do not account for more than ten percent of the market value of the portfolio. A right to a nonperformance-related fee alone shall not represent a pecuniary interest in the securities;

 

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(D) A person's right to dividends that is separated or separable from the underlying securities. Otherwise, a right to dividends alone shall not represent a pecuniary interest in the securities;

 

(E) A person's interest in securities held by a trust, as specified in § 240.16a-8(b); and

 

(F) A person's right to acquire equity securities through the exercise or conversion of any derivative security, whether or not presently exercisable.

 

(iii) A shareholder shall not be deemed to have a pecuniary interest in the portfolio securities held by a corporation or similar entity in which the person owns securities if the shareholder is not a controlling shareholder of the entity and does not have or share investment control over the entity's portfolio.

 

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Exhibit B - Members of Compliance Group

 

Marc Collins, Chief Compliance Officer
Jon Mohrhardt
Melissa Hale
Justin White

 

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Exhibit C - Exempt Transactions

 

The following transactions shall be exempt from the pre-clearance requirements and other provisions of this Code of Ethics, but the reporting and disclosure requirements of the Code shall apply:

 

A. Non-discretionary Transactions

 

Purchases or sales effected in any account over which an Access Person has no direct or indirect influence or control, or in any account of the Access Person which is managed on a discretionary basis by a person: (a) unrelated to the Access Person; (b) whom the Access Person does not, in fact, influence or control; and (c) with whom the Access Person does not confer or otherwise participate in connection with the purchase and sale of securities in the account.

 

Note: Any registered investment adviser retained by an Access Person shall be pre-approved by the Chief Compliance Officer before the Access Person may rely upon this exemption. For this purpose, transactions effected under a power of attorney or a brokerage account agreement are not eligible for this exemption unless they contain an express delegation of investment discretion.

 

B. Non-volitional Transactions

 

Purchases or sales that are non-volitional on the part of the Access Person, including mergers, recapitalizations or similar transactions. Non-volitional transactions also include gifts of a Reportable Security to an Access Person over which the Access Person has no control of the timing.

 

C. Automatic Investment Plans

 

A program in which regular periodic purchases or sales are made automatically in or from investment accounts in accordance with a predetermined schedule and allocation, including an issuer’s automatic dividend reinvestment plan, including rebalance transaction in such plans.

 

D. Rights Issuances

 

Purchases effected upon the exercise of rights issued by the issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired.

 

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Exhibit D - List of Funds

 

RiverNorth Core Opportunity Fund
RiverNorth/DoubleLine Strategic Income Fund
RiverNorth Equity Opportunity Fund

RiverNorth/Oaktree High Income Fund

 

RiverNorth Opportunities Fund, Inc.

 

RiverNorth Marketplace Lending Corporation

 

 RiverNorth Opportunistic Municipal Income Fund, Inc.

 

RiverNorth Managed Duration Municipal Income Fund, Inc.

 

Revised 11/1/2013
  12/5/2013
  2/28/2014
  11/7/2014
  1/5/2016

 

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  New York Life Investment
Management Holdings LLC
  Code of Ethics
  September 2018

 

 

 

SECTION 1 GENERAL FIDUCIARY PRINCIPLES AND STANDARDS OF BUSINESS CONDUCT

 

This Code of Ethics (“Code”) has been adopted by New York Life Investment Management Holdings LLC’ (“NYLIM Holdings”) and certain of its divisions, subsidiaries and affiliates (collectively, “New York Life Investments” or the “Company”)1 and is designed to comply with Rule 204A-1 under the Investment Advisers Act of 1940 (“Advisers Act”). The Company has delegated administration and enforcement of this Code to New York Life Investments Compliance (the “Compliance Department”).

 

Pursuant to Section 206 of the Advisers Act, both the Company and its employees are prohibited from engaging in fraudulent, deceptive or manipulative conduct. Compliance with this principal involves more than acting with honesty and good faith alone. It means that the Company has an affirmative duty of utmost good faith to act solely in the best interest of its clients. The Company is committed to promoting the highest ethical standards and practices, while pursuing its business interests.

 

The Code is designed to ensure that Employees comply with all applicable federal securities laws and the conditions in any applicable exemptive relief. It is based upon the principle that the Company and its employees owe a fiduciary duty to our clients to conduct their affairs, including their personal securities transactions, in such a manner as to avoid: (i) serving their own personal interests ahead of clients, (ii) taking inappropriate advantage of their position with the Company,

(iii) making any untrue statement, omitting a material fact, or otherwise being misleading, including the use or misuse of false rumors or (iv) any actual or potential conflicts of interest or any abuse

of their position of trust and responsibility.

 

Each employee has an obligation to make prompt and full disclosure of any situation which may involve a conflict of interest. Potential conflicts that require disclosure include, but are not limited to, outside employment and material business relationships, outside directorships, gifts and entertainment, political activity, or any other arrangement or circumstance, including family or other personal relationships which might dissuade an Employee from acting in the best interest of the Company and its Clients. Employees shall promptly notify the Chief Compliance Officer (“CCO”) or Local Compliance Officer (“LCO”) of any violation or potential violation of the Code.

 

This Code does not attempt to identify all possible conflicts of interest, and literal compliance with each of its specific provisions will not shield Employees from liability for personal trading or other conduct that violates a fiduciary duty to our Clients.

 

Some provisions of the Code, particularly with respect to personal trading, only apply to Access Persons, as defined herein and do not apply to all Employees of the Company. Status as an Access

 

 

1 For purposes of this Code, “New York Life Investments” or the “Company” includes the following NYLIM Holdings entities: GoldPoint Partners LLC, IndexIQ Advisors LLC, IndexIQ LLC, MacKay Shields LLC, New York Life Investment Management LLC, New York Life Investment Management (UK) Limited, NYLIFE Distributors LLC, NYLIM Service Company LLC, and the following New York Life Insurance Company subsidiaries: Credit Value Partners, LLC , Madison Capital Funding LLC, New York Life Trust Company, and NYL Investors LLC. Ausbil Investment Management Limited, Candriam Belgium SA, Candriam S.A. (France), Candriam Luxembourg S.A, NYLIM Asia Limited – Japan Branch, and Private Advisors, LLC, all direct or indirect subsidiaries of New York Life Insurance Company, administer their own Codes of Ethics. Each entity referred to above may be referred to individually as an “Investment Adviser.”

 

 

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Person will depend on a person’s specific title, functions, duties, activities, and access to information. See Section II for the definition of Access Persons.

 

Employees are also required to adhere to the policies relating to the Code, including, but not limited to: Insider Trading and Information Barrier Policy, Conflicts of Interest Policy, Gift and Entertainment Policy, Foreign Corrupt Practices Act/Anti-Corruption Policy, Mutual Fund Selective Disclosure Policy, Personal Political Contributions Policy, and Integrity – Standards of Business Conduct Policy2 (“Related Policies”). These Related Policies have been distributed separately from this Code. Employees of IndexIQ are also subject to the IndexIQ Self-Indexing Policies and Procedures.

 

SECTION 2 DEFINITIONS

 

Access Person - shall have the same meaning as set forth in Rule 204A-1 of the Advisers Act and shall include:

 

- All officers (defined as Managing Director and above) or directors of New York Life Investments;

 

- any “Supervised Person” of New York Life Investments or any other person who has access to non-public information regarding any clients’ purchase or sale of securities, or non- public information regarding the portfolio holdings of any Affiliated Fund, or who is involved in making securities recommendations to clients, or who has access to such recommendations that are non-public;

 

- Includes Index Personnel and Investment Personnel.

 

Affiliated Fund - The MainStay Group of Funds.

 

Automatic Investment Plan –regular periodic purchases (or withdrawals) that are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An automatic investment plan includes dividend reinvestment plans (“DRIPs”) and Employee Stock Purchase Plans (“ESPPs”).

 

Beneficial Ownership - shall be interpreted in the same manner as it would be under Rule 16a- 1(a)(2) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) in determining whether a person is the beneficial owner of a security for purposes of the Exchange Act and the rules and regulations thereunder. A beneficial owner is any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the securities. A pecuniary interest in securities means the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in those securities. A person is presumed to have an indirectpecuniary interestin securities held by members of a person’s Immediate Family who either reside with, or are financially dependent upon, or whose investments are controlled by, that person. A person also has a beneficial interest in securities held: (i) in a trust which he or she is a trustee, has a beneficial interest or is the settlor with a power to revoke; (ii) by another person and he or she has a contract or an understanding with such person that the securities held in that person’s name are for his or her benefit; (iii) in the form of a right to acquisition of such security through the exercise of warrants, options, rights, or conversion rights; (iv) by a partnership of which he or she is a member; (v) by a corporation that he or she uses as a personal trading medium; or (vi) by a holding company that he or she controls.

 

 

2 In certain instances, NYLIC’s Code of Conduct may differ. However, in these cases, employees subject to this Code must meet the requirements of this Code and their firm’s related policies.

 

 

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Buy or Sell Order - an order placed with a broker to buy or sell a security.

 

Cashless Exercise - transactions executed when exercising employee stock options. Essentially, the money is borrowed to exercise the option to purchase shares, the option is exercised and simultaneously the shares are sold to pay for the purchase, taxes, and broker commissions.

 

Chief Compliance Officer (“CCO”) – NYLIM CCO

 

Client - any client of the Company, including a registered investment company (mutual fund) or other person or entity.

 

Covered Security - means any security as defined in Section 202(a)(18) of the Advisers Act, except that it does not include:

- direct obligations of the U.S. Government;
- bankers’ acceptances;
- bank certificates of deposit;
- commercial paper;
- high quality short-term debt instruments, including repurchase agreements;
- shares issued by open-end mutual funds, including the MainStay Funds (shares of exchange traded funds (“ETFs”) or other exchange traded vehicles are not considered open-end mutual funds);
- interests in qualified state college tuition programs (“529 Plans”); and
- cryptocurrencies or digital currencies, such as Bitcoin or Ether, which are a virtual or digital representations of value. However, a virtual currency token offered in an initial or digital coin offering will be deemed a Covered Security for purposes of the Code and subject to preclearance requirements (See Section 3.3 Initial Public Offerings, Private Placements and Initial Coin Offerings).

 

Discretionary Managed Account – an account managed on a discretionary basis by a person (or Robo-Adviser) other than an Employee over which the Employee has no direct or indirect influence or control over the selection or disposition of securities and no advance knowledge of transactions therein.

 

Dividend Reinvestment Plan (DRIPs) – a stock purchase plan offered by a corporation whereby shareholders purchase stock directly from the company (usually through a transfer agent) and allow investors to reinvest their cash dividends by purchasing additional shares or fractional shares.

 

Employee – any person employed by the Company. Temporary employees and consultants may be subject to the Code, as determined by the Compliance Department based on, among other things, contract length, job duties, work location, and other factors, at whatever designation the Compliance Department believes is appropriate.

 

Employee Stock Option Plan – contracts between a company and its employees that give employees the right to buy a specific number of the company’s shares at a fixed price within a certain period of time.

 

 

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Employee Stock Purchase Plan (ESPP) - an organized plan for employees to buy shares of their

company’s stock.

 

Exchange Traded Fund – an exchange-traded fund or ETF is an investment company or unit investment trust that trades like stock. The price of an ETF is derived from and based upon the securities held by the portfolio. An ETF may be passively managed and follow a specified index or actively managed. ETFs are considered covered securities under this Code.

 

Federal Securities Laws - the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940, the Investment Advisers Act of 1940, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the Securities and Exchange Commission (the “Commission”) under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of the Treasury.

 

Front Running - the buying or selling of a security by a person, with the intent of taking advantage of the market impact of a client’s transaction in the underlying security by or on behalf of the Client.

 

Immediate Family - any of the following individuals: child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in- law, sister-in-law, including adoptive relationships who reside in the same household.

The term also includes any related or unrelated individual who resides with, or whose investments are controlled by, or whose financial support is materially contributed to by, the employee, such as a “significant other.”

 

IndexIQ ETFs – each exchange traded fund series of the IndexIQ ETF Trust and IndexIQ Active ETF Trust.

 

IndexIQ Employees – employees of IndexIQ Advisors LLC and IndexIQ LLC.

 

Index Personnel – certain employees of IndexIQ LLC and its affiliates who have responsibility for underlying affiliated indexes and rules based processes, as well as employees of IndexIQ LLC and its affiliates appointed to assist such employees in the performance of his/her duties. Index Personnel also include other employees of the Company that may have access to non-public information with respect to indexes that IndexIQ ETFs seek to track.

 

Index Rebalance - a time period when an IndexIQ ETF or other accounts for which IndexIQ Advisors LLC acts as advisor and/or sub-advisor receives its rebalance or reconstitution information with respect to an underlying index for which (i) IndexIQ LLC or (ii) an unaffiliated entity serves as the index provider.

 

Initial Public Offering - an offering of securities registered under the Securities Act of 1933, the issuer of which immediately before registration was not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.

 

Insider Trading - the purchase or sale of securities of a public company while in possession of material, non-public information or communicating such information to others.

 

 

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Investment Club - a group of two or more people, each of whom contributes monies to an investment pool and participates in the investment making decision process and shares in the investment returns.

 

Investment Personnel - employees who, in connection with their regular functions or duties, make or participate in making recommendations regarding the purchase or sale of securities for Client Accounts (i.e., portfolio managers, traders and analysts).

 

Local Compliance Officer (“LCO”) – CCO or designee of an applicable NYLIM Holdings’ entity.

 

MainStay Funds – each open-end fund series of The MainStay Group of Funds. The term MainStay Funds also include open-end fund series of the IndexIQ Trust.

 

New York Life Investments - includes the following NYLIM Holdings entities: Credit Value Partners LLC, GoldPoint Partners LLC, IndexIQ Advisors LLC, IndexIQ, LLC, MacKay Shields LLC, Madison Capital Funding, New York Life Investment Management LLC, New York Life Investment Management (UK) Limited, NYLIM Service Company LLC, and NYLIFE Distributors LLC, as well as the following New York Life Insurance Company subsidiaries: NYL Investors LLC and New York Life Trust Company.

 

Non-Access Person – employees that do not fall into the definition of Access Person.

 

Private Placement - an offering that is exempt from registration under the Securities Act of 1933 under Sections 4(2) or 4(6), or Rules 504, 505 or 506 thereunder.

 

Reportable Fund: an investment company, whether or not affiliated, advised or subadvised by the Company and any investment company whose investment adviser or principal underwriter is controlled by or under common control with the Company (e.g., IndexIQ funds).

 

Restricted List – a listing of securities maintained by the CCO or LCO in which trading by Access Persons is generally prohibited.

 

Registered Representative - an Employee who is registered as such with a member firm of the Financial Industry Regulatory Authority (“FINRA”).

 

Scalping- buying and selling a security on the same day as a Client and includes, among other transactions, the buying of a security when a client is selling that security, or selling a security when a Client is buying that security, with the intention of taking advantage of the market impact.

 

Supervised Person – an Investment Adviser’s supervised persons are its partners, officers, directors (or other persons occupying a similar status or performing similar functions) and employees, as well as any other persons who provide advice on behalf of the adviser and are subject to the adviser’s supervision and control.

 

SECTION 3 PERSONAL INVESTING ACTIVITIES - RESTRICTIONS AND MONITORING PROCEDURES

 

3.1 General Policy –All Employees

The Company has adopted the following principles governing personal investment activity which apply to all Employees:

 

 

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- All personal securities transactions will be conducted in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual’s position of trust and responsibility;
- Employees may not engage in Insider Trading;
- Employees must not take inappropriate advantage of their positions;
- The interests of Client accounts will at all times be placed first (no Front Running or Scalping);
- Active personal trading (e.g., day trading) is discouraged. While there is currently no limitation on the number of trades that an Employee may execute per quarter or trade requests that an Employee may submit per quarter, the Code grants the CCO and LCO the power to impose such a limitation on any Employee if: (i) it is believed to be in the best interest of the Company or its Clients, or (ii) such trading interferes with an Employee’s professional duties;
- No personal trades may be effected through the Company’s traders;
- Employees may not purchase and sell (or exchange), or sell and purchase (or exchange), shares of the same MainStay Fund within 30 days. The 30-day holding period is measured from the time of the most recent purchase of shares of the relevant MainStay Fund by the Employee. This applies to all MainStay Funds, including shares owned through a 401(K) plan or similar account, or through a variable insurance product. It does not apply to purchases that are effected as part of an automatic dividend reinvestment plan, an automatic investment plan, a payroll deduction plan or program, or transactions in money market funds;
- Employees may not do anything indirectly that, if done directly, would violate the Code. For example, never use a derivative, or any other instrument or technique, to get around a rule. Such actions would be the equivalent of direct Code violations.

 

3.2 Additional Requirements for Access Persons and Investment Personnel

 

If you are designated an Access Person because of your position in the Company or your access to information regarding Client information, you are subject to the following additional requirements.

 

3.2.1 Preclearance of Covered Securities

 

Access Persons must preclear all transactions in Covered Securities. Preclearance of personal securities transactions allows the Company to prevent certain trades that may conflict with Client trading. Each Access Person must submit their requests through the employee preclearance system via the Company’s Intranet. Automated feedback will be provided to the Employee as to whether the request is approved or denied.

 

In the event that the system is unavailable, Access Persons must send a request via an email to the Compliance Department, including the information contained in the hardcopy Preclearance Form (Exhibit C) and receive approval prior to completing any transaction in Covered Securities. The Compliance Department will provide approval or denial via email.

 

 

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The authorization given through the system or by the Compliance Department is effective for the calendar day that the request was submitted and ultimately approved. If your transaction is not executed on that same day, a new request must be submitted.3

 

All stop orders and good to cancel orders are prohibited. Any preclearance request with these instructions will be denied.

 

You must preclear all transactions in IndexIQ ETFs and any non-affiliated ETF which hold less than 30 securities in its portfolio.

 

3.2.2 Holding Period/Short Swing Rule

 

Access Persons may not profit from the purchase and sale or sale and purchase of the same (or equivalent) Covered Security within sixty calendar days. The holding period is measured from the time of the most recent purchase of shares of the relevant Covered Security by the Employee (LIFO method). Violations may result in, among other things, disgorgement of the profit to the Client or to a charity of the Company’s choice. Exceptions may be made by the CCO or LCO to accommodate special circumstances. Notwithstanding the above, an Access person who receives a grant of options through an Employee Stock Option Plan, who chooses to exercise those options in a Cashless Exercise, will be allowed an exception from the sixty-day holding period, but only after obtaining approval from the Compliance Department.

 

3.2.3 Trading /Black-Out Period

 

Access Persons may not purchase or sell a Covered Security on a day when there is a Buy or Sell Order for a Client of their respective Investment Adviser. Access Persons deemed Investment Personnel, IndexIQ Employees and Index Personnel are further restricted in black-out periods. Investment Personnel may not purchase or sell a Covered Security if any purchase or sale of such securities has been made for an Investment Adviser Client account in the prior seven calendar days or can reasonably be anticipated for a Company Client account in the next seven calendar days.

 

3.2.4 Exceptions to Blackout Period

 

Exceptions may be granted to the black-out period set forth in paragraph 3.2.3 above on days when there is no Buy or Sell order for a Client of the Company and the transaction involves one of the following:

 

(i) Securities in the Russell 1000 Index – 2,000 shares or less;

 

(ii) Securities NOT in the Russell 1000 Index –

 

a. Securities with market cap greater than $5 billion – 500 shares or less, or

 

 

3 For employees of New York Life Investments International Ltd., New York Life Investment Management (UK) Limited only, authorization given through the employee preclearance system or by the Compliance Department is effective until the close of local markets on the next business day.

 

 

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b. Securities with market cap less than $5 billion - the smaller of 500 shares or less in the aggregate or less than .001% of the issuer’s market capitalization.

 

The above exceptions will not apply to Index Personnel or IndexIQ Employees during a black-out period resulting from an Index Rebalance.

 

3.2.5 Other Exceptions

 

Requirements pertaining to Sections 3.2.1 through 3.2.4 do not apply to transactions:

- by employees of New York Life Insurance Company who are directors of New York Life Investments or certain other designated departments or persons, who do not have access to information about the Company’s purchases and sales of securities;
- in Discretionary Managed Accounts provided the employee provides the Compliance Department with a copy of the fully executed investment management agreement which provides for the investment advisor’s complete discretion and control over the account, and provided the Employee (and his/her investment advisor) certifies that he/she will not have any direct or indirect influence or control over the account (see Exhibit G). Employees that have Discretionary Managed Accounts managed by an immediate family member are still subject to Sections 3.2.1 through 3.2.4;
- that are non-volitional in nature: e.g., stock splits, stock dividends, exchanges and conversions, mandatory tenders, pro rata distributions to all holders of a class of securities, gifts, inheritances, margin/maintenance calls (where the securities to be sold are not directed by the covered person), and sales pursuant to regulated tender offers;
- in Automatic Investment Plans such as DRIPs, ESPPs or similar accounts;
- in any non-affiliated ETF, which holds 30 or more securities in its portfolio;
- in securities that are not “Covered Securities”;
- in government-sponsored enterprises fixed income securities (e.g., FNMA, FHLMC);
- in variable rate demand notes (“VRDN’s”) and variable rate demand obligations (“VRDO’s”);
- in municipal (“muni”) bonds. This exception will not apply to MacKay Shields Employees; or
- in municipal auction rate securities (“ARS”) with short-term coupon resets (e.g., 7 days) and closed-end municipal auction rate “Preferred” shares. MacKay Shields Employees must preclear these instruments.

 

3.3 Initial Public Offerings Private Placements and Initial Coin Offerings

 

No Access Person (or Employees who are Registered Representatives) may directly or indirectly acquire Beneficial Ownership in any securities in an Initial Public Offering of securities, a Private Placement or a virtual currency token offered in an initial or digital coin offering (also called ICOs or token sales) except with the express written prior approval of the CCO or LCO where applicable, in consultation with Corporate Compliance. Employees may submit a preclearance request using the employee preclearance system or email using Exhibit D.

 

3.4 Restricted List

 

No Access Person may acquire or dispose of any direct or indirect Beneficial Ownership in securities of an issuer listed on the Access Person’s respective Investment Adviser’s Restrictive List. Although transactions in securities of an issuer listed on the Restricted List are generally prohibited, case-by-case exceptions may be granted by the CCO.

 

 

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3.5 Options

 

Investment Personnel are prohibited from trading in options with respect to individual securities covered under this Code. Transactions in index options effected on a broad-based index are permitted. Access Persons trading options on individual securities must ensure that expiration dates meet or exceed the 60-day holding period and short swing rule. Access Persons are also prohibited from trading in uncovered options on individual securities (i.e., trading in a position where the seller of an option contract does not own any, or enough, of the underlying security).

 

3.6 Investment Clubs

 

Access Persons and members of their Immediate Family may not participate in Investment Clubs. In certain limited instances, exceptions may be granted on a case-by-case basis.

 

3.7 Section 16 Requirements

 

Certain Employees are considered “Fund Insiders” pursuant to Section 16 of the Exchange Act with respect to closed-end funds advised or subadvised by an applicable Investment Adviser. Pre- clearance by Fund Insiders is required prior to transacting in closed-end fund shares, including closed-end fund shares purchased or sold in Discretionary Managed Accounts. In addition, transactions in closed-end fund shares by Fund Insiders require additional reporting to the Commission, and are subject to holding periods. Please refer to the MainStay Funds’ Policies and Procedures for Compliance with Section 16 of the Securities Act of 1934 or contact the applicable CCO for more information.

 

SECTION 4 RECORDKEEPING AND REPORTING REQUIREMENTS

 

4.1 Initial Securities Holdings and Account Reports

 

Access Persons must, no later than 10 days after becoming an employee, submit an initial holdings and account report and certification (Exhibit E –Access Persons). The holdings information presented in this report must be current as of 45 days prior to employment. Access Persons must also disclose all broker, dealer or bank accounts in which any Securities (including Covered Securities) are held. Non-Access Persons are only required to disclose where Affiliated or Reportable Fund shares are held. Additionally, each new Employee shall file an “Acknowledgement of Receipt of the Code of Ethics and Related Policies” (via the employee preclearance system or Exhibit A). New employees may only maintain accounts at brokers from which Compliance receives an electronic feed. Contact Compliance for a complete list.

 

4.2 Quarterly Reporting

 

Access Persons must, no later than 30 calendar days following quarter end, certify to all transactions in any Covered Security and Affiliated Funds or, alternatively, must confirm that there were no such transactions in the applicable quarter. This does not apply to transactions in Discretionary Managed Accounts as described in Section 3.2.5. Employees must complete this requirement electronically through the system. In the event that the system is unavailable, Access Persons shall file a “Quarterly Transactions Report” (Exhibit F).

 

 

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4.3 Annual Reporting

 

No later than January 30th each year: (i) all Employees must file an annual certification indicating that the Employee has complied with the Code and Related Policies and (ii) Access Persons must also file an annual holdings report and certify to their brokerage accounts as of year-end.

Employees must complete these requirements through the system.

 

4.4 Opening of Brokerage Accounts

 

Access Persons shall promptly notify the Compliance Department of any new account opened with a broker, dealer or bank including Discretionary Managed Accounts. Access Persons must provide the Compliance Department with sufficient information so that Compliance can arrange for duplicate confirmations and accounts statements to be provided to the Compliance Department, either directly or through an entity engaged to facilitate implementation of the Code of Ethics, at the following address:

 

New York Life Investments

PO Box 468

Jersey City, New Jersey, 07303-0468

Attn: Compliance Department

 

Non-Access Persons are only required to notify the Compliance Department of any new accounts opened with a broker, dealer or bank in which Affiliated Fund shares or Reportable Fund shares are held.

 

New employees deemed Access Persons may only open brokerage accounts with a firm that provides Compliance with an electronic feed of trade confirmations and statements. Contact Compliance for the complete list of firms.

 

4.5 New York Life Investments Recordkeeping

 

The Company is required under the Investment Advisers Act of 1940, as amended, and the Investment Company Act to keep records of certain transactions in which its Employees have direct or indirect Beneficial Ownership.

 

The Compliance Department maintains all records relating to compliance with the Code, such as preclearance requests, exception reports, other internal memoranda relating to non-compliant transactions, and preclearance records, records of violations and any actions taken as a result thereof, written acknowledgements, and the names of Access Persons for a minimum period of eight years. Acknowledgements of the Code will be maintained for eight years after the individual ceases to be an Employee.

 

4.6 Personal Recordkeeping

 

Access Persons should maintain copies of their pre-clearance authorizations, brokerage confirms and brokerage statements, if any. If there is any question as to whether a proposed transaction might involve a possible violation of the Code, the transaction should be discussed in advance with the CCO or LCO.

 

 

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SECTION 5 ADMINISTRATION

 

5.1 Mutual Fund Code of Ethics

 

Certain Employees may owe a specific duty of care to each mutual fund Client based on the Employee’s status as an Access Person of that mutual fund. It has been determined that each Employee’s compliance with the Company’s Code will also satisfy the requirements of Rule 17j-1 of the Investment Company Act as well as any mutual fund that the Company presently advises or subadvises.

 

5.2 Sanctions and Review

 

Upon discovering a violation of the Code, the Company shall take whatever remedial steps it deems necessary and available to correct an actual or apparent conflict (e.g., trade reversal etc.). Following those corrective efforts, the CCO may impose sanctions if, based upon all of the facts and circumstances considered, such action is deemed appropriate. The magnitude of these penalties varies with the severity of the violation, although repeat offenders will likely be subjected to harsher punishment. These sanctions may include, among others, the reversal of trades, disgorgement of profits, suspension of trading privileges or, in more serious cases, inclusion in annual performance evaluations, suspension or termination of employment. It is important to note that violations of the Code may occur without employee fault (e.g., despite preclearance). In those cases, punitive action may not be warranted, although remedial steps may still be necessary.

 

5.3 Review by CCO

 

On a quarterly basis, the CCO will provide the Board of Trustees of the MainStay Funds and IndexIQ ETFs with a report describing issues arising under the Code since its last report, including but not limited to information about material violations of the Code by Access Persons and sanctions imposed in response to such violations. The CCO or LCO may also provide this information to the Compliance Committees of the respective Investment Adviser and other senior management teams.

 

5.4 Monitoring

 

The Company has delegated administration and enforcement of this Code to New York Life Investments Compliance. Compliance, utilizing the system and other methods, conducts reviews of all personal securities transactions and holdings reports with a view towards determining whether Employees have complied with all provisions of the Code. Compliance is responsible for developing and maintaining more detailed standard operating procedures around daily monitoring to detect and prevent violations of this Code.

 

5.5 Acknowledgment and Training

 

Each Employee must certify initially and annually thereafter that he or she has read and understood, is subject to and has complied with the Code and its related polices. Each Employee must attend a Code of Ethics training session conducted by Compliance within a reasonable time of becoming an Employee.

 

 

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5.6 Exceptions

 

The CCO or LCO as applicable, in consultation with Corporate Compliance, may grant written exceptions to provisions of the Code in circumstances which present special hardship. Exceptions shall be structured to be as narrow as is reasonably practicable with appropriate safeguards designed to prevent abuse of the exception. Notwithstanding the foregoing, however, no exception to a provision of the Code shall be granted where such exception would result in a violation of Rule 17j-1 or Rule 204A-1.

 

 

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EXHIBIT A

 

ACKNOWLEDGEMENT OF RECEIPT OF THE CODE OF ETHICS AND RELATED POLICIES

 

NEW YORK LIFE INVESTMENT MANAGEMENT HOLDINGS LLC CODE OF ETHICS

 

NEW YORK LIFE INVESTMENT MANAGEMENT LLC INSIDE INFORMATION AND INFORMATION BARRIER POLICY AND PROCEDURES

 

NEW YORK LIFE INVESTMENT MANAGEMENT CONFLICTS OF INTEREST POLICY

 

NEW YORK LIFE INVESTMENT MANAGEMENT HOLDINGS LLC GIFT & ENTERTAINMENT POLICY

 

POLICY AND PROCEDURES CONCERNING SELECTIVE DISCLOSURE OF MUTUAL FUND PORTFOLIO HOLDINGS

 

NEW YORK LIFE INVESTMENT MANAGEMENT PERSONAL POLITICAL CONTRIBUTIONS POLICY

 

INTEGRITY – STANDARDS OF BUSINESS CONDUCT

 

NEW YORK LIFE INVESTMENT MANAGEMENT FOREIGN CORRUPT PRACTICES ACT/ANTI- CORRUPTION POLICY

 

INDEXIQ SELF-INDEXING POLICIES AND PROCEDURES*

 

NEW YORK LIFE INVESTMENT MANAGEMENT INDEX PERSONNEL COMPLIANCE POLICY AND PROCEDURES**

 

I hereby certify that I have received a copy of the New York Life Investment Management Holdings LLC Code of Ethics and other policies listed above, have read and am subject to the Code and these other policies, and understand the relevant requirements.

 

    Received by:    
         
Signature     Signature    
           
Name     Name    
Title     Title    
Department     Department    
Date     Date    

 

* Applies only to employees of IndexIQ
** Applies to certain employees of the NYLIM Strategic Asset Allocation and Solutions Group

 

This form may also be submitted via the employee preclearance system

 

 

 

EXHIBIT B

 

ANNUAL CERTIFICATION OF COMPLIANCE WITH THE

 

NEW YORK LIFE INVESTMENT MANAGEMENT HOLDINGS LLC CODE OF ETHICS

 

NEW YORK LIFE INVESTMENT MANAGEMENT LLC INSIDE INFORMATION AND INFORMATION BARRIER POLICY AND PROCEDURES

 

NEW YORK LIFE INVESTMENT MANAGEMENT CONFLICTS OF INTEREST POLICY

 

NEW YORK LIFE INVESTMENT MANAGEMENT HOLDINGS LLC GIFT & ENTERTAINMENT POLICY

 

POLICY AND PROCEDURES CONCERNING SELECTIVE DISCLOSURE OF MUTUAL FUND PORTFOLIO HOLDINGS

 

NEW YORK LIFE INVESTMENT MANAGEMENT PERSONAL POLITICAL CONTRIBUTIONS POLICY

 

INTEGRITY – STANDARDS OF BUSINESS CONDUCT

 

NEW YORK LIFE INVESTMENT MANAGEMENT FOREIGN CORRUPT PRACTICES ACT/ANTI- CORRUPTION POLICY

 

INDEXIQ SELF-INDEXING POLICIES AND PROCEDURES*

 

NEW YORK LIFE INVESTMENT MANAGEMENT INDEX PERSONNEL COMPLIANCE POLICY AND PROCEDURES**

 

I hereby certify that I have received read and understood the Code and policies listed above. I further certify that I have complied with and will continue to comply with each of the provisions of the Code and policies to which I am subject.

 

    Received by:    
         
Signature     Signature    
           
Name     Name    
Title     Title    
Department     Department    
Date     Date    

 

* Applies only to employees of IndexIQ
** Applies to certain employees of the NYLIM Strategic Asset Allocation and Solutions Group

 

This form may also be submitted via the employee preclearance system

 

 

 

EXHIBIT C

 

NEW YORK LIFE INVESTMENTS

PERSONAL SECURITIES TRADING PRECLEARANCE REQUEST FORM

 

Employee Name    
Broker    
Brokerage Account #    
Received by/Date Received    

 

TRADES MUST BE MADE ON THE SAME DAY THAT APPROVAL IS RECEIVED.

 

DATE NAME OF
SECURITY
# OF SHRS,
PRINCIPAL
AMOUNT,
ETC.
APPROX
PRICE
SYMBOL
OR
CUSIP #
SEC.
MKT.
CAP.
PURCHASE/SALE DIRECT
OWNERSHIP (D)
FAMILY (F)
CONTROL(C)
APPROVED
DENIED
                 
                 
                 
                 
                 
                 

 

The person indicated above has stated and represents that:

(a) he/she has no inside information (including information relating to planned securities transactions by the Company) relating to the above referenced issuer(s);
(b) there are no conflict of interest in these transactions with respect to Client portfolios (IF A CONFLICT OF INTEREST EXISTS, PLEASE CONTACT THE COMPLIANCE DEPARTMENT IMMEDIATELY); and
(c) these securities are not initial public offerings or private placements.

 

This form may also be submitted via the employee preclearance system

 

 

 

EXHIBIT D

 

NEW YORK LIFE INVESTMENTS HOLDINGS LLC
  IPO/LIMITED OFFERING/Initial Coin Offering
  PRECLEARANCE REQUEST FORM

 

Employee Name      
       
Employee Title      
       
Registered Representative?*      
If yes, transaction must be approved by Distributors CCO also. (YES or NO)  
     
Are you a NYLIC Officer? (YES or NO)      
If yes, please note that in order to invest in certain private funds, there are certain conditions that may need to be satisfied under New York Insurance Law Section 1411(e) in order to make the investment due to insurance law restrictions. Compliance, with the assistance of OGC, will review these restrictions prior to approving your investment.

 

______ Proposed investment in an Initial Public Offering (“IPO”)1

 

Name of Security:  
Estimated Quantity:  
Estimated Trade Date:  
Estimated Price:  
Broker/Dealer (if any):  
Brokerage Account Number:  

I represent that my trading in this investment is not based on material non-public information.

 

______ Proposed investment in a limited offering (e.g., private placement, hedge fund, etc.)

 

Estimated Date of Transaction:  

Name of Private Investment Entity:

*Please provide copy of Offering Memorandum

 
Transaction:

Initial Purchase _______

Additional Purchase _________

 

Amount of Transaction (USD$, number of shares, units, interest, etc.):  

 

 

1 Please note that your Broker/Dealer may have further restrictions on purchasing IPOs if you meet the Restricted Person definition under FINRA Rule 5130

 

 

 

EXHIBIT D (cont.)

 

Conflicts Review:  
Is this Private Fund a fund that is managed or sponsored by NYLIC or an affiliate of NYLIC? Yes ________ No _________

If yes, and you are a NYLIC Officer, then you are prohibited from owning more than 5% of the fund. Compliance will confirm this prior to approving your investment, and will monitor it on an on-going basis.

How did you become aware of the opportunity to invest in this limited offering?  
What is the nature of your relationship with the individual or entity offering the opportunity?  
Are you investing with any special terms? (e.g., less than required minimum amount)  

Are you aware of whether the Firm has any other business dealings with the sponsor or manager of this vehicle?

 

 

I understand that approval for limited offerings will only be in effect for 90 days from the date of the Chief Compliance Officer’s signature.

 

Employee Signature   Date
     
Approved/Denied      
       
       
CCO Signature   Date
     
     
NYLIFE Distributors CCO*    

 

* Required if employee is a registered representative of NY Life Distributors LLC

 

This form may also be submitted electronically in the employee preclearance system.

 

 

 

EXHIBIT E- Access Persons

 

ACCESS PERSON INITIAL/ANNUAL SECURITIES HOLDINGS/

ACCOUNT REPORT AND CERTIFICATION

 

Name    
Initial Report    
Annual Report    

 

As of the date below, the following are each and every Covered Security2 , Affiliated Fund, Reportable Fund, and securities account in which I have a direct or indirect “Beneficial Ownership” interest. For purposes of this report, the term Beneficial Ownership is very broad and includes, but is not limited to, ownership of securities or securities accounts (including Discretionary Managed Accounts) by or for the benefit of a person, or such person’s “immediate family” sharing the same household, including any account in which the Employee or family member of that person holds a direct or indirect beneficial interest, retains discretionary investment authority or exercises a power of attorney. The term “immediate family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in- law, or sister-in-law and also includes adoptive relationships. For a more complete definition of these terms, please consult the New York Life Investment Management Holdings LLC Code of Ethics

 

This report need not disclose Covered Securities held in any account over which the Access Person has no direct or indirect influence or control.

 

Name of Security/Affiliated
Fund /Reportable Fund
Exchange Ticker
Symbol or CUSIP
Broker, Dealer or Bank
where Security Held
No. of Shares and
Principal Amount
Nature of Interest
(Direct Ownership,
Family Member, Control, Etc.)
         
         
         
         
         
         
         
         

 

 

2 Covered Securities do not include bank certificates of deposit, open-end mutual fund shares and U.S. Government obligations.

 

 

 

EXHIBIT E- Access Persons (cont.)

 

Name of any broker, dealer or bank with which I maintain an account in which any securities (including securities that are not Covered Securities and Discretionary Managed Accounts) are held for my direct or indirect benefit (“Securities Account”) as of the date appearing above:

 

Name of Broker, Dealer or
Bank with which Account Is Held
Date Account Established Account Number
     
     
     
     
     
     
     
     

 

I understand that brokerage accounts may only be maintained at brokers where Compliance receives an electronic feed of trade confirmations and statements. I may be required to transfer these accounts to a different broker. I acknowledge that I am responsible for all associated transfer costs.

 

I certify that the securities listed above are the only Covered Securities, Affiliated Funds, and Reportable Funds in which I have a direct or indirect Beneficial Ownership interest. I further certify that the accounts listed above are the only securities accounts in which I have a direct or indirect Beneficial Ownership interest. I also consent to the release of certain personal information (name, home address, social security number and spouse’s first initial) by the Company in order to obtain statements and confirmations for my securities accounts. During this time, the Company will agree that all personal information shall be held in strict confidence and shall not be revealed to any person, corporation or entity (including third parties)(together referred to as "Engaged Parties"), other than any Engaged Parties hired to facilitate implementation of the Code of Ethics, as required by law, a court order or a demand by a regulatory agency having jurisdiction, without prior written consent of the Company and the employee. Any Engaged Parties hired to facilitate implementation of the Code of Ethics will be held to the same standards with respect to maintaining the confidentiality of personal information. Notwithstanding the foregoing, I understand however that the Company is authorized to disclose to its other customers, should they inquire, that I am currently (or have been) employed in some capacity in the securities related/financial services industry without identifying New York Life Investments (or its affiliates) as the employer. Such disclosure would generally take place if I opened a securities account with a client of the Company. These steps are being taken by the Company in its commitment to ensure compliance with federal securities laws.

 

 

 

EXHIBIT E- Access Persons (cont.)

 

Employee Signature    
Date of Submission    
Received By    
Date Received    

 

Return form to:

New York Life Investments

P.O. Box 468

Jersey City, New Jersey, 07302-0468

Attn: Compliance Department

 

 

 

EXHIBIT E –Non-Access Persons

 

NON-ACCESS PERSON INITIAL/ANNUAL ACCOUNT

REPORT AND CERTIFICATION

 

Name    
Initial Report    
Annual Report    

 

As of the date below, the following are each and every securities account in which I have a direct or indirect “Beneficial Ownership” interest that holds Affiliated Funds and/or Reportable Funds. For purposes of this report, the term Beneficial Ownership is very broad and includes, but is not limited to, ownership of securities or securities accounts (including Discretionary Managed Accounts) by or for the benefit of a person, or such person’s “immediate family” sharing the same household, including any account in which the Employee or family member of that person holds a direct or indirect beneficial interest, retains discretionary investment authority or exercises a power of attorney. The term “immediate family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in- law, or sister-in-law and also includes adoptive relationships. For a more complete definition of these terms, please consult the New York Life Investment Management Holdings LLC Code of Ethics:

 

Name of Broker, Dealer or
Bank with which Account Is Held
Date Account Established Account Number
     
     
     
     
     
     
     
     

 

I certify that the securities accounts listed above are the only securities accounts in which I have a direct or indirect “Beneficial Ownership” interest that holds Affiliated Funds and/or Reportable Funds. I also consent to the release of certain personal information (name, home address, social security number and spouse’s first initial) by the Company in order to obtain statements and confirmations for my securities accounts. During this time, the Company will agree that all personal information shall be held in strict confidence and shall not be revealed to any person, corporation or entity (including third parties) (together referred to as "Engaged Parties"), other than any Engaged Parties hired to facilitate implementation of the Code of Ethics, without prior written consent of the Company and the employee. Any Engaged Parties hired to facilitate implementation of the Code of Ethics, as required by law, a court order or a demand by a regulatory agency having jurisdiction, will be held to the same standards with respect to maintaining the confidentiality of personal information.

 

 

 

EXHIBIT E –Non-Access Persons (cont.)

 

Notwithstanding the foregoing, I understand however that the Company is authorized to disclose to its other customers, should they inquire, that I am currently (or have been) employed in some capacity in the securities related/financial services industry without identifying New York Life Investments (or its affiliates) as the employer. Such disclosure would generally take place if I opened a securities account with a client of the Company. These steps are being taken by the Company in its commitment to ensure compliance with federal securities laws.

 

Employee Signature    
Date of Submission    
Received By    
Date Received    

 

Return form to:

New York Life Investments

P.O. Box 468

Jersey City, New Jersey, 07302-0468

Attn: Compliance Department

 

This form may also be submitted via the employee preclearance system.

 

 

 

EXHIBIT F

 

QUARTERLY TRANSACTIONS REPORT

 

Name    
Quarter Ending    

 

As of the date appearing below, the following are each and every transaction in a Covered Security, Affiliated Fund and Reportable Fund in which I have a direct or indirect “Beneficial Ownership” interest For a more complete definition of these terms, please consult the New York Life Investment Management Holdings LLC Code of Ethics. This report need not disclose transactions in Covered Securities and Affiliated Fund Shares in any account over which the Employee has no direct influence or control.

 

Name of Security/
Affiliated
Fund/Reportable
Fund
Amount
(#
Shares
or
Principal
Amount)
Exchange
Ticker
Symbol or
CUSIP
 
Interest
Rate/
Maturity
Date (if
applicable)
Trade
Date
Nature of
Transaction
(Purchase,
Sale, Etc.)
Price Nature of Interest
(Direct
Ownership,
Spouse, Control,
Etc.)
Firm Through
Which
Transaction
Was Effected
 
                 
                 
                 
                 
                 

 

If no transactions in Covered Securities, Affiliated Fund Shares or Reportable Fund Shares occurred, please insert “NONE” here:

 

In connection with any purchases or sales of securities for Clients during the quarter, I disclosed to the Company any material interests in my Covered Securities, Affiliated Fund Shares, and Reportable Fund Shares which might reasonably have been expected to involve a conflict with the interests of Clients. Also, I have disclosed all my Covered Securities, Affiliated Fund Shares and Reportable Fund shares holdings to the Company.

 

Employee Signature    
Date of Submission    
Received By    
Date Received    

 

This form may also be submitted via the employee preclearance system

 

 

 

EXHIBIT G

 

New York Life Investments Holdings LLC

Employee Certification – Third-Party Discretionary Managed Account(s)

 

I currently hold the position of ________________ at ____________ (the “Firm”),

 

and I am requesting an exemption from the pre-clearance and reporting requirements of the NYLIM Holdings LLC Code of Ethics with respect to the below listed account(s) for which I have retained a third-party manager with complete investment discretion.

 

Third Party Management Firm:  
Financial Advisor Name and Contact Information:  
Do you have any personal or family relationship with the Financial Advisor?  
Account Number(s):  

 

I understand in making this request that I must agree/certify to the following:

 

I have provided the Compliance Department with a copy of the fully executed investment management agreement which is currently in effect.
Such agreement provides for the manager’s complete discretion and control over the account.
I will not have any direct or indirect influence or control over the account, including but not limited to:
o I will not suggest that the manager make any particular purchases or sales of securities;
o I will not direct the manager to make any particular purchases or sales of securities;
o I will not consult with the manager as to the particular allocation of specific investments
o I will not ask the manager about intended purchases or sales ahead of time;
o I will not participate in any manner in the manager’s specific investment decision- making.
I will not engage in an initial public offering or private placement via the discretionary agreement.
I will not discuss with my Financial Advisor any Firm related investment activity in advance.
I further understand that the Compliance Department will, upon receipt of all required information, seek approval from the Chief Compliance Officer and notify me of the decision.

 

 

 

EXHIBIT G (cont.)

 

If for any reason it becomes necessary for me to become involved in the trading activity conducted by my Financial Advisor, I will notify the Compliance Department ahead of time.
I will arrange for my Financial Advisor to provide promptly account statements upon request.
If my Financial Advisor is an immediate family member, trading activity will be subject to preclearance. Duplicate trade confirmations and statements must be provided to Compliance.
To the best of my knowledge, I have provided the Compliance Department with all information relevant to this request; and I have not failed to disclose any relevant information concerning this request or concerning the discretionary managed account relationship.
I agree to notify the Compliance Department immediately if there is any material change to the information set forth in this certification.

 

       
    Employee Signature  
       
Name  
       
  Date    

 

 

 

EXHIBIT G (cont.)

 

Third-Party Investment Manager/Financial Advisor Certification

 

As a third-party investment manager (“Manager”), we certify that we will have full discretion over the account(s) listed below, and that Mr./Ms                 (the “Employee”) will not have any direct or indirect influence or control over the account(s), including but not limited to:

 

o The Employee will not suggest that the Manager make any particular purchases or sales of securities
o The Employee will not direct the Manager to make any particular purchases or sales of securities
o The Employee will not consult with the Manager as to the particular allocation of specific investments
o The Employee will not ask the Manager about intended purchases or sales ahead of time
o The Employee will not participate in any manner in the manager’s specific investment decision-making.
We will provide copies of account statements to the Compliance Department promptly upon request in the future.
We understand that the Employee is requesting an exemption from applicable Code of Ethics requirements pursuant to which the Employee will not be required to seek prior approval for or otherwise report securities transactions in the account(s). If the Manager is an immediate family member of the employee, preclearance of transactions and the provision of account statements and trade confirmations will be required.
We agree to notify the Compliance Department immediately if there is any material change to the information set forth in this certification.

 

 

Signature   Date
Name      
Title      
Name of Firm      
Account Number(s)      
Account Name(s)      

 

Internal Use Only          
           
Chief Compliance Officer     Date