RiverNorth
Marketplace Lending Corporation
(Ticker: RSF)
March 23, 2020
This supplement contains information which amends, supplements
or modifies certain information contained in the Statement of Additional Information (“SAI”) of RiverNorth Marketplace
Lending Corporation (the “Fund”), dated October 29, 2018. Capitalized terms used in this supplement have the same meanings
as in the SAI, unless otherwise stated herein.
Effective March 23, 2020, the Fund will change
its name to “RiverNorth Specialty Finance Corporation.”
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2.
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Management of the Fund
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Fred G. Steingraber and James G. Kelley are
no longer Directors of the Fund’s Board of Directors. Accordingly, all references to Fred G. Steingraber and James G. Kelley
in the SAI are hereby removed.
The table following the section entitled
“Board Members and Officers” beginning on page 22 of the SAI is hereby
deleted in its entirety and replaced with the following:
Name, Address
and Year
of Birth
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Position(s)
Held with
Registrant
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Term of
Office and
Length of
Time
Served
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Principal Occupation(s)
During Past 5 Years
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Number of
Funds in
Fund
Complex(1)
Overseen
by
Director
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Other
Directorships(2)
Held by Director
During Past 5 Years
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INDEPENDENT DIRECTORS
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John K. Carter
(1961)
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Director
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Class I, term expires 2021. Has served since 2016.
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Partner, Law Office of Carter Reymann Law, P.A. (a general practice and corporate law firm) (2018 to present); Law Office of John K. Carter, P.A. (a general practice and corporate law firm) (2015 to 2018); Managing Partner, Global Recruiters of St. Petersburg (a financial services consulting and recruiting firm) (2012 to 2015).
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8
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Rivernorth Managed Duration Municipal Income Fund, Inc. (1 fund) (2019 to present); RiverNorth Opportunistic Municipal Income Fund (1 fund) (2018-present); RiverNorth Funds (3 funds) (2013 to present); RiverNorth/ DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2016 to present); RiverNorth Opportunities Fund, Inc. (1 fund) (2013 to present).
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Name, Address
and Year
of Birth
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Position(s)
Held with
Registrant
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Term of
Office and
Length of
Time
Served
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Principal Occupation(s)
During Past 5 Years
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Number of
Funds in
Fund
Complex(1)
Overseen
by
Director
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Other
Directorships(2)
Held by Director
During Past 5 Years
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John S. Oakes (1943)
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Director
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Class I, term expires 2021. Has served since 2016.
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Principal, Financial Search and Consulting (a recruiting and consulting firm) (2013 to present); Regional Vice President, Securities America (a broker-dealer) (2007 to 2013).
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8
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Rivernorth Managed Duration Municipal Income Fund, Inc. (1 fund) (2019 to present); RiverNorth Opportunistic Municipal Income Fund (1 fund) (2018-present); RiverNorth Funds (3 funds) (2010 to present); RiverNorth/ DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2016 to present); RiverNorth Opportunities Fund, Inc. (1 fund) (2013 to present).
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J. Wayne Hutchens
(1944)
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Director
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Class II, term expires 2022. Has served since 2018.
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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.
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3
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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).
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Name, Address
and Year
of Birth
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Position(s)
Held with
Registrant
|
Term of
Office and
Length of
Time
Served
|
Principal Occupation(s)
During Past 5 Years
|
Number of
Funds in
Fund
Complex(1)
Overseen
by
Director
|
Other
Directorships(2)
Held by Director
During Past 5 Years
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David M. Swanson
(1957)
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Director
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Class II, term expires 2022. Has served since 2018.
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Founder & Managing Partner of SwanDog Strategic Marketing (marketing consulting firm) (2006 to present).
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8
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RiverNorth Managed Duration Municipal Income Fund Inc. (1 fund) (2019 to present); RiverNorth Funds (3 funds) (2018 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2018 to present); RiverNorth Opportunities Fund, Inc. (1 fund) (2013 to present); RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); Managed Portfolio Series (39 funds) (2011 to present); ALPS Variable Investment Trust (9 funds) (2006 to present).
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INTERESTED DIRECTORS
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Jerry Raio(4)
(1965)
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Director
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Class III, term expires 2022. Has served since 2018.
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Managing Director - Head of Retail Origination, Wells Fargo (2005 to 2018).
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4
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RiverNorth Opportunistic Municipal Income Fund, Inc. (1 fund) (2018 to present); RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2018 to present); RiverNorth Managed Duration Municipal Income Fund, Inc. (2019 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
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Principal Occupation(s)
During Past 5 Years
|
Number of
Funds in
Fund
Complex(1)
Overseen
by
Director
|
Other
Directorships(2)
Held by Director
During Past 5 Years
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Patrick W. Galley(3)
(1975)
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Director, Chairman and President
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Class III, term expires 2022. Has served since 2016.
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Chief Investment Officer, RiverNorth Capital Management, LLC (2004 to present).
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8
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Rivernorth Managed Duration Municipal Income Fund, Inc. (1 fund) (2019 to present); RiverNorth Opportunistic Municipal Income Fund (1 fund) (2018-present); RiverNorth Funds (3 funds) (2006 to present); RiverNorth/ DoubleLine Strategic Opportunity Fund, Inc. (1 fund) (2016 to present); RiverNorth Opportunities Fund, Inc. (1 fund) (2013 to present); Board of Managers of RiverNorth Capital Management, LLC (since 2010) and RiverNorth Financial Holdings, LLC (2014 to present) and Board of Directors RiverNorth Holdings, Co. (since 2010).
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OFFICERS
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Jonathan M. Mohrhardt (1974)
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Chief Financial Officer and Treasurer
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Has served since 2015.
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Chief Operating Officer, RiverNorth Capital Management, LLC (2011 to present).
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N/A
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N/A
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Marcus L. Collins (1968)
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Chief Compliance Officer and Secretary
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Has served since 2015.
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General Counsel, RiverNorth Capital Management, LLC (2012 to present), Chief Compliance Officer, RiverNorth Capital Management, LLC (2012 to present).
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N/A
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N/A
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1
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The term “Fund Complex” means two or more registered investment companies that:
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a)
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hold themselves out to investors as related companies for purposes of investment and investor services; or
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b)
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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.
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For Mr. Galley, Mr. Carter and Mr. Oakes, the Fund Complex consists
of the Fund (1 Fund), RiverNorth Managed Duration Municipal Income Fund, Inc. (1 Fund), RiverNorth/DoubleLine Strategic Opportunity
Fund, Inc. (1 Fund), RiverNorth Opportunities Fund, Inc. (1 Fund), RiverNorth Opportunistic 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) and RiverNorth
Opportunities Fund, Inc. (1 Fund). For Mr. Raio, the Fund Complex consists of the Fund (1 Fund) and RiverNorth Opportunistic Municipal
Income Fund, Inc (1 Fund), RiverNorth/DoubleLine Strategic Opportunity Fund, Inc. (1 Fund) and RiverNorth Managed Duration Municipal
Income Fund, Inc. (1 Fund).
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2
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The numbers enclosed in the parentheticals represent the number of funds overseen in each respective directorship held by the
director.
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3
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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.
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4
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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.
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The second and third paragraphs under the
subheading entitled “Board Leadership Structure” beginning on page 24 of the SAI are hereby deleted and replaced with
the following:
The Audit Committee is comprised of Messrs. Carter, Oakes, Hutchens,
and Swanson. 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 August 20, 2019. 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 three meetings.
The Nominating and Corporate Governance Committee is comprised of
Messrs. Carter, Oakes, 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 one meeting.
The following paragraphs are hereby added
after the third paragraph under the subheading entitled “Trustee Qualifications” on page 25 of the SAI:
Mr. Hutchens was President
and CEO of the University of Colorado (CU) Foundation from April 2006 to December 2012 and Executive Director for the CU Real Estate
Foundation from April 2009 to December 2012. Prior to these positions, Mr. Hutchens spent over 30 years in the banking industry,
retiring as Chairman of Chase Bank Colorado. Mr. Hutchens is a graduate of the University of Colorado Boulder’s School of
Business and has done graduate study at Syracuse University and the University of Colorado. He was selected to serve as a Director
of the Fund based on his business and financial services experience.
Mr. Swanson founded SwanDog
Marketing, a marketing consulting firm to asset managers, in 2006. He currently serves as SwanDog’s Managing Partner. He
has over 30 years of senior management and marketing experience, with approximately 20 years in financial services. Before joining
SwanDog, Mr. Swanson most recently served as Executive Vice President and Head of Distribution for Calamos Investments, an investment
management firm. He previously held positions as Chief Operating Officer of Van Kampen Investments, President of CEO of Scudder,
Stevens & Clark, Canada, Ltd. And Managing Director and Head of Global Investment Products at Morgan Stanley. Mr. Swanson holds
a Master of Management from the Kellogg Graduate School of Management at Northwestern University and a Bachelors in Journalism
from Southern Illinois University. He was selected to serve as a Director of the Fund based on his business, financial services
and investment management experience.
Mr. Raio has many years
of experience in the securities industry, including management roles in the banking and investment management industries. He has
more than 15 years of experience in equity capital markets, having worked on the retail syndicate desks at both Citigroup and Morgan
Stanley. He served as the Managing Director and Head of Retail Origination for Wells Fargo from 2005 to 2018. Prior to working
at Wells Fargo he served as Director and Head of Closed-End Funds for Citigroup Asset Management. He was selected to serve as a
Director of the Fund based on his business, financial services and investment management experience.
The table following the subheading entitled
“Compensation” on page 26 of the SAI is hereby deleted in its entirety and replaced with the following:
Name of Board Member
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Aggregate Compensation for the Fund(1)
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Estimated Total Compensation from the Fund and Fund Complex(2)
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INDEPENDENT DIRECTORS
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John Carter
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$22,750
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$158,000
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John Oakes
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$22,750
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$159,250
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J. Wayne Hutchens
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$23,000
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$117,000
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David M. Swanson
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$22,500
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$157,000
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INTERESTED DIRECTORS
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Jerry Raio
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$22,500
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$90,000
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1
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The aggregate compensation paid by the Fund for the fiscal year ended June 30, 2019, for services to the Fund.
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2
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The aggregate compensation paid to the Independent Directors from the Fund and the Fund Complex for the fiscal year ended June
30, 2019.
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The table following the subheading entitled
“Director Ownership in the Fund” on page 27 of the SAI is deleted and replaced in its entirety with the
following:
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, 2019.
Director
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Dollar Range of Beneficial Ownership in Fund
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Aggregate Dollar Range of Ownership in all Funds Overseen by Director in the Fund Complex (1)
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Independent Director:
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John Carter
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None
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$50,001 - $100,000
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John Oakes
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None
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Over $100,000
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J. Wayne Hutchens
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None
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$50,001 - $100,000
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David M. Swanson
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None
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None
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Interested Director:
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Patrick W. Galley
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Over $100,000
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Over $100,000
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Jerry Raio
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None
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$10,001 - $50,000
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1
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The Fund Complex consists of the 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 Managed Duration Municipal Income Fund, Inc.
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3.
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Change in Principal Investment Strategy
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At a meeting held on February 19 – 20,
2020, the Board of Directors of the Fund approved changes, effective as of May 22, 2020, to the principal investment strategy of
the Fund. The Fund’s investment objective, seeking a high level of current income, will remain the same. On May 22, 2020,
the Fund will change its investment strategy from investing, directly or indirectly, at least 80% of its Managed Assets (as defined
below) in marketplace lending investments to investing in credit instruments, including a portfolio of securities of specialty
finance and other financial companies that RiverNorth Capital Management, LLC believes offer attractive opportunities for income.
Accordingly, all references to Marketplace Lending and Marketplace Loans will be replaced with Alternative Credit. “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).
Accordingly, effective on May 22, 2020, the
section entitled “Investment Policies and Techniques” beginning on page 2 of the SAI is deleted, except for the section
entitled “Additional Risks of Investing in the Fund,” and replaced with the following:
Alternative Credit
The Fund’s alternative
credit investments may be made through a combination of: (i) investing in loans to small- and mid-sized companies (“SMEs”);
(ii) investing in notes or other pass-through obligations issued by an alternative credit platform (or an affiliate) representing
the right to receive the principal and interest payments on an Alternative Credit investment (or fractional portions thereof) originated
through the platform (“Pass-Through Notes”); (iii) purchasing asset-backed securities representing ownership in a pool
of Alternative Credit; (iv) investing in private investment funds that purchase Alternative Credit, (v) acquiring an equity interest
in an alternative credit platform (or an affiliate); and (vi) providing loans, credit lines or other extensions of credit to an
alternative credit platform (or an affiliate) (the foregoing listed investments are collectively referred to herein as the “Alternative
Credit Instruments”). The Fund may invest without limit in any of the foregoing types of Alternative Credit Instruments,
except that the Fund will not invest greater than 45% of its Managed Assets in the securities of, or loans originated by, any single
platform (or a group of related platforms) and the Fund’s investments in private investment funds will be limited to no more
than 10% of the Fund’s Managed Assets. The Alternative Credit in which the Fund typically invests are newly issued and/or
current as to interest and principal payments at the time of investment. As a fundamental policy (which cannot be changed without
the approval of the holders of a majority of the outstanding voting securities of the Fund), the Fund does not invest in Alternative
Credit that are of subprime quality at the time of investment. The Fund considers an SME loan to be of “subprime quality”
if the likelihood of repayment on such loan is determined by the Adviser based on its due diligence and the credit underwriting
policies of the originating platform to be similar to that of consumer loans that are of subprime quality. The Fund has no intention
as of the date of this SAI to invest in Alternative Credit originated from lending platforms based outside the United States or
made to non-U.S. borrowers. However, the Fund may in the future invest in such Alternative Credit and, prior to such time, will
amend the Prospectus and/or SAI (as applicable) to provide additional information on such investments, including the associated
risks. See “Additional Investments and Practices of the Fund—Additional Risks of Investing in the Fund.”
The following supplements
the discussion of Alternative Credit contained in the Prospectus and includes additional considerations and risks associated with
the Fund’s investments in Alternative Credit. See “Investment Objective, Strategies and Policies—Alternative
Credit” and “Risks—Alternative Credit Risks” in the Prospectus.
Regulatory Considerations
The following highlights
various laws and regulations impacting alternative credit and its participants.
The Equal Credit Opportunity
Act. This law prohibits discrimination in the extension of all credit (consumer or business) on the basis of certain protected
classes including on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance
or the exercise of any right under the Consumer Credit Protection Act. It also requires notice of adverse action to be given to
applicants who are denied credit.
OFAC, USA Patriot Act
and Bank Secrecy Act. Certain participants in alternative credit, including the platforms through which the Fund may invest
in Alternative Credit, may be required to comply with various anti-money laundering and related regulations. The Fund is not able
to control or monitor such compliance. Moreover, in the Fund’s participation with the platforms, it is subject to compliance
with OFAC (Office of Foreign Assets Control), the USA PATRIOT Act and Bank Secrecy Act regulations applicable to all businesses,
which, for the Fund, generally involves cooperation with authorities in investigating any purported improprieties. Any material
failure to comply with OFAC and other similar anti-money laundering restrictions or any investigation relating thereto could result
in fines or penalties. Such fines or penalties could have a material adverse effect on the Fund directly for amounts owed for fines
or penalties or indirectly as a negative consequence of the decreased demand for Alternative Credit from the platforms in violation
of such requirements resulting from the adverse publicity and other reputation risks associated with any such fines and penalties
assessed against the platforms or other industry participants.
Federal Trade Commission
Act. Section 5 of this law (as well as analogous state laws) prohibits unfair and deceptive acts or practices in or affecting
commerce. The FTC’s Holder in Due Course Rule allows borrowers in certain circumstances to assert any claim or defense they
have against a seller of goods or services obtained with the proceeds of a loan against the originator or subsequent purchaser
of the loan.
CAN-SPAM Act and Telemarketing
Sales Rule. These laws and analogous state laws govern the marketing of credit and other products and services by use of email
or telephone marketing and would affect programs of alternative credit platforms marketing by these means.
Electronic Signatures
in Global and National Commerce Act. This law, along with analogous state laws including the Uniform Electronic Transactions
Acts, which authorize the creation of legally binding and enforceable agreements electronically and utilizing electronic records
and signatures govern the circumstances in which a person may electronically be provided disclosures otherwise required to be in
writing. Alternative Credit Lenders must obtain consent to conduct business electronically from applicants and borrowers.
Bankruptcy Code.
This law limits the extent to which creditors may seek to enforce debts against borrowers who have filed for bankruptcy protection.
In addition, funding banks
are subject to banking laws and regulations and the supervision by federal and/or state banking agencies and such laws and regulators
could impose restrictions on the funding bank.
Alternative Credit lenders
may not always be in compliance with these laws and borrowers may make counterclaims regarding the enforceability of their obligations
under borrower laws after collection actions have been commenced or otherwise seek damages under these laws.
Registration with the
SEC. Pass-Through Notes are typically offered through private offerings and thus may not be registered under the Securities
Act of 1933, as amended (the “1933 Act”). In addition, platforms are not registered as investment companies under the
1940 Act. If a platform (or an affiliate thereof) were to fail to comply with a private offering exemption under the 1933 Act,
or if it were fail to maintain an exemption from registration as an investment company under the 1940 Act, it (or such affiliate)
could become subject to regulatory actions and/or significant civil liabilities. Although a platform (or its affiliate) may intend
to operate in compliance with all applicable securities laws, these laws are complex and sometimes subject to alternative interpretations
and any failure by a platform (or such affiliate) to comply with applicable securities laws could adversely affect its (or such
affiliate’s) ability to make payments on the Pass-Through Notes.
Trust Indenture Act
of 1939. Any Pass-Through Note offering made in reliance on an exemption from registration pursuant to Section 4(a)(2) of the
1933 Act will not be subject to the Trust Indenture Act of 1939. Consequently, holders of Pass-Through Notes will not have the
protection of an indenture setting forth obligations of the Pass-Through Note issuers for the protection of the Pass-Through Note
holders or a trustee appointed to represent their interests.
State Usury Laws. Some
platforms (or their affiliates) may attempt to take advantage of policies in certain states that allow lenders to make Alternative
Credit investments at advantageous interest rates by incorporating choice of law provisions into Alternative Credit agreements
that hold that the agreements are to be governed by the laws of those lender-friendly states. This is sometimes the case in the
origination of business as opposed to consumer loans. In the event that a borrower or state regulator successfully invalidates
such choice-of-law clause, platforms (of their affiliates) may not be able to collect some or all of the interest and principal
due on such Alternative Credit Instruments, such loans may not be found to be enforceable or the platforms (or their affiliates)
could become subject to penalties and damages. Other platforms may engage in arrangements with funding banks where the platform
assists the bank in originating loans that are funded by the bank. In some cases, the loans are sold to the platforms and the platforms
as assignees of the bank under applicable law and precedent utilize the bank’s rate and fee exportation authority. At least
one federal circuit has cast doubt upon this theory and other litigation challenges the ability of assignees to utilize a bank’s
exportation authority as an assignee of the bank’s loans. Legislation is also pending in Congress that would validate an
assignee’s ability to utilize the rates and fees of the originating lender.
Tax Treatment of Pass-Through
Notes. There are no statutory provisions, regulations, published rulings or judicial decisions that address the characterization
of Pass-Through Notes or other Alternative Credit Instruments substantially similar to Pass-Through Notes for U.S. federal income
tax purposes and the proper tax characterization of Pass-Through Notes for U.S. federal income tax purposes is uncertain. To address
this concern, some Pass-Through Note issuers require investors to agree to treat the Pass-Through Notes as debt of the Pass-Through
Note issuer for federal, state and local income and franchise tax purposes. Further, prospective Pass-Through Note holders should
be aware that a Pass-Through Note issuer may intend to treat (and report) the Pass-Through Notes as debt instruments that have
original issue discount (“OID”) for U.S. federal income tax purposes. As a result, Pass-Through Note holders will be
required to include OID in income as it accrues under a constant yield method, regardless of such note holder’s regular method
of tax accounting, and so may be required to include OID in income in advance of the receipt of cash attributable to the related
Note interest or principal.
Pass-Through Note holders
also should be aware that the Internal Revenue Service (“IRS”) and the courts are not bound by the Pass-Through Note
issuer’s characterization of the Pass-Through Notes, and may take a different position with respect to the Pass-Through Notes’
proper characterization. For example, if the Pass-Through Notes were treated as equity in the Pass-Through Note issuer, (i) the
issuer would be subject to U.S. federal income tax on income, including interest, accrued on the underlying loans but would not
be entitled to deduct interest or OID on the Pass-Through Notes, and (ii) payments on the Pass-Through Notes would be treated by
the Pass-Through Note holder as dividends (that may be ineligible for reduced rates of U.S. federal income taxation or the dividends
received deduction) for U.S. federal income tax purposes to the extent of the issuer’s earnings and profits. Alternatively,
the IRS could determine that, in substance, each Pass-Through Note holder owns a proportionate interest in the underlying loans
for U.S. federal income tax purposes, or it could instead seek to treat the Pass-Through Notes as some other financial instrument
or contract (including a derivative financial instrument). Such different characterizations could significantly reduce the amount
available to the Pass-Through Note issuer to pay interest on the Pass-Through Notes, and could significantly affect the amount,
timing, and character of income, gain or loss recognized in respect of a Pass-Through Note.
Risk of Including Foreign
Investors. An issuer of Pass-Through Notes may accept investors who are non-U.S. persons, in which case interest payments made
to such an investor by the issuer could be subject to withholding taxes. In the event that the issuer fails to properly withhold
on such payments, it could remain liable for a non-U.S. person’s individual tax liabilities. There is a further risk that
a non-U.S. person investor could be named on the Department of the Treasury’s list of “Specially Designated Nationals,”
“Blocked Persons,” or “Sanctioned Countries or Individuals,” which, if undiscovered, could result in an
enforcement action against the issuer.
Additional Risk Considerations
Bankruptcy Risk. In
the event that a platform (or its affiliate) or its service providers become subject to a bankruptcy, the Fund’s investments
in Pass-Through Notes issued by such platform (or affiliate) may be negatively impacted.
Although many of the platforms
(or their affiliates) through which the Fund invests may have been organized and operated in a manner that is intended to minimize
the likelihood that such platforms (or affiliates) will become subject to a bankruptcy or similar proceeding, if the platforms
(or their affiliates) were to become subject to bankruptcy proceedings, payments on the Pass-Through Notes issued by such platforms
(or their affiliates) could be substantially delayed or reduced, and any interest accrued on those obligations may never be paid.
Platforms (or their affiliates)
may have arrangements with servicers who monitor payments by the borrowers of the Alternative Credit and take action to enforce
the platforms’ (or affiliates’) rights to payment. Arrangements for back-up servicing are limited. If a platform’s
(or affiliate’s) servicer fails to maintain operations or the agreement between the platform (or affiliate) and the servicer
is rejected or terminated in a bankruptcy of the servicer, the Fund may experience delays in the distribution of loan proceeds
and increased costs in connection with its investments through such platform (or its affiliate). In some instances, the platform
operator and its affiliates may be unable to collect and process payments from underlying borrowers and thus the Fund may not realize
its expected return on investment on those instruments.
Platforms (or their affiliates)
may have arrangements with administrators who manage the daily operations of the platforms (and/or their affiliates). Among other
duties, an administrator may calculate the amounts payable by the platform operator or its affiliates on any outstanding Pass-Through
Notes and supervise the platform’s (or affiliate’s) payment of such amounts. If the administrator were to become subject
to bankruptcy proceedings and its agreement with the platform operator or its affiliates were terminated for any reason, the platform
(or affiliate) would endeavor to locate a replacement administrator but there is no assurance that it would be able to do so. Accordingly,
any termination of an administration agreement that occurs in connection with a bankruptcy of the administrator may impair the
platform’s (or affiliate’s) ability to continue to make timely payments on the Pass-Through Notes. This could also
prevent the platform operator or its affiliates from issuing any additional Pass-Through Notes until another administrator was
located.
Chargeback Risk. The
Fund may invest in Alternative Credit Instruments through securities issued by private investment funds that operate accounts with
an independent bank whereby investors, such as the Fund, may deposit funds for the purchase of such securities and receive the
proceeds from borrower payments on the underlying loans. These accounts may be affected by “borrower chargebacks.”
A borrower chargeback is a process by which a borrower who has made a payment on an underlying loan has its bank cancel the payment
or request a refund of that payment. If a borrower successfully processes a chargeback on a loan payment after proceeds have been
distributed to such accounts, the issuer will deduct the amount of that payment from each account where the proceeds were deposited.
To offset this risk, issuers utilizing this system may refrain from distributing borrower loan proceeds to these accounts for a
period of time after a borrower payment on a loan. In the event that a borrower chargeback is executed after the proceeds of that
payment have been distributed to investor accounts and an account holder has withdrawn those distributed proceeds, a negative cash
balance may result. Amounts that would otherwise be credited to an investor’s account (including amounts deposited or that
are payable on other notes) are subject to set-off against any such negative cash balance.
Risk of Inadequate Resources
Devoted to the Collection of Alternative Credit. A substantial amount, if not all, of a platform operator’s revenues
may be derived from origination fees or loan rate “spreads” generated through making and arranging Alternative Credit
and offering related Pass-Through Notes. As a result, it has an incentive to originate as many loans as possible to maximize the
amount of origination fees it is able to generate. Increased loan volumes increases the demands on a platform’s management
resources and its ability to devote adequate attention and resources to the collection of corresponding Alternative Credit. The
ability of a platform and its affiliates to collect the payments due from borrowers and/or to make timely payments on their Pass-Through
Notes may be adversely affected in the event that they take on loan volumes that exceed their ability to service outstanding Alternative
Credit.
Risk of Platform Failure
to Meet Certain Obligations. Platforms might incur indemnification and repurchase obligations with respect to the Alternative
Credit they originate that exceed their projections, in which case they might not have sufficient capital to meet such obligations.
There can be no assurances that platforms can meet their repurchase and indemnification obligations and, if they are unable to
do so, the Fund may incur losses related to payments on the affected Alternative Credit Instruments in which it invests.
Risks Associated With
“Balloon” Payments. Some of the Alternative Credit may be interest-only loans providing for relatively small monthly
payments with a large “balloon” payment of principal due at the end of the term. Borrowers may be unable to repay such
balloon payments out of their own funds and will be compelled to refinance or sell their property. Fluctuations in real estate
values, interest rates and the unavailability of mortgage funds could adversely affect the ability of borrowers to refinance their
loans at maturity or successfully sell the property for enough money to pay off the corresponding Alternative Credit Instrument.
Servicer Autonomy.
A platform (or its affiliate) may have an arrangement with a servicer that authorizes the servicer to waive or modify any non-material
term of an Alternative Credit Instrument or consent to the postponement of strict compliance with any such term or in any manner
grant a non-material indulgence to any borrower. In addition, if an Alternative Credit Instrument is in default, or the servicer
determines that default is reasonably foreseeable or otherwise determines that such action is consistent with its servicing obligation,
the servicer may be permitted to waive or modify any material term of an Alternative Credit Instrument, to accept payment of an
amount less than the principal balance in final satisfaction of an Alternative Credit Instrument and to grant any indulgence to
a borrower, provided that the servicer has reasonably determined that such action will not be materially adverse to the
interests of the holder of such Alternative Credit or of the holders of any corresponding Pass-Through Note.
Subprime Borrower Risk.
Although the Fund will not invest in Alternative Credit that is of subprime quality at the time of investment, loans held by the
Fund may, subsequent to their purchase, become of subprime quality. The risks associated with an investment in Alternative Credit
(as disclosed in the Prospectus and this SAI) are heightened for such loans that have been made to subprime borrowers, particularly
with respect to the risk of default. In addition, loans to subprime borrowers could be subject to increased regulatory scrutiny.
Tax Considerations.
The ability of a platform (or its affiliate) to pay principal and interest on a Pass-Through Note may be affected by its ability,
for U.S. federal income tax purposes, to match the timing of income it receives from an underlying Alternative Credit Instrument
that it holds and the timing of deductions that it may be entitled to in respect of payments made on the Pass-Through Notes that
it issues. For example, if the Pass-Through Notes are treated as contingent payment debt instruments for U.S. federal income tax
purposes but the corresponding Alternative Credit Instruments are not, there could be a potential mismatch in the timing of the
Pass-Through Note issuer’s income and deductions for U.S. federal income tax purposes, and the Pass-Through Note issuer’s
resulting tax liabilities could affect its ability to make payments on the Pass-Through Notes.
Additional Considerations
with Regard to Real Estate Alternative Credit Instruments
Construction, Rehabilitation,
Home Improvement and Entitlement Loans. Real estate-related loans may include construction, rehabilitation, home improvement
and entitlement loans for various types of properties, including single family residential, condominiums, multi-family residential,
industrial, small commercial, foreclosed (REO), unimproved land with entitlements and small tract properties. The loan underwriting
for construction, rehabilitation and unimproved land with entitlement loans is typically based upon a determined “as completed”
value, i.e., the projected value of the property after the completion of the construction or rehabilitation of a property.
Special builder’s risk insurance, or “course of construction” insurance, may be required by the platform operator
and its affiliates in these cases. This specialized insurance is intended to insure structures while they are under construction.
Materials, fixtures and appliances that are intended to become an integral part of the structure being built are also insured.
The insurance is provided for loss resulting from accidental direct physical damage to the structure under construction. The policies
generally include broad coverage, but exclude earthquake, flood and damage caused by earth movement. Some builder’s risk
policies limit coverage to physical damage caused by specifically named perils, such as fire and theft. These perils would be specifically
listed in the policy.
Risk of Inadequate Revenues
from a Property. The payment schedules with respect to many real estate-related loans are based on projected revenues generated
by the property over the term of the loan. These projections are based on factors such as expected vacancy rates, expense rates
and other projected income and expense figures relating to the property. The actual revenues generated by a property could fall
short of projections due to factors such as lower-than-expected rental revenues, or greater-than-expected vacancy rates or property
management expenses. In such event, the borrower’s cash flow could be inadequate to repay its loan in full.
Risk of Rising Insurance
Costs or Unavailability of Insurance. Real estate properties are typically insured against risk of fire damage and other property
casualties, but are sometimes not covered by severe weather or natural disaster events such as landslides, earthquakes, or floods.
Changes in the conditions affecting the economic environment in which insurance companies do business could affect the borrower’s
ability to continue insuring the property at a reasonable cost or could result in insurance being unavailable altogether. Moreover,
any hazard losses not then covered by the borrower’s insurance policy would result in the Alternative Credit related to the
affected property becoming significantly under secured, which could result in a loss to the investors of any corresponding Pass-Through
Note.
Environmental Risks.
If toxic environmental contamination is discovered to exist on a property underlying an Alternative Credit Instrument, it might
affect the borrower’s ability to repay the Alternative Credit. To the extent that the platform operator and/or its affiliates
are forced to foreclose and/or operate such a property, potential additional liabilities and responsibilities include reporting
requirements, remediation costs, fines, penalties and damages. Of particular concern may be those properties that are, or have
been, the site of manufacturing, industrial or disposal activity. These environmental risks may give rise to a diminution in value
of the security property or liability for clean-up costs or other remedial actions. This liability could exceed the value of the
real property or the principal balance of the related loan. For this reason, the platform operator and its affiliates may choose
not to foreclose on contaminated property rather than risk incurring liability for remedial actions.
Under the laws of certain
states, an owner’s failure to perform remedial actions required under environmental laws may give rise to a lien on mortgaged
property to ensure the reimbursement of remedial costs. In some states this lien has priority over the lien of an existing mortgage
against the real property. Because the costs of remedial action could be substantial, the value of a mortgaged property as collateral
for a real estate-related loan could be adversely affected by the existence of an environmental condition giving rise to a lien.
The state of law is currently
unclear as to whether and under what circumstances clean-up costs, or the obligation to take remedial actions, can be imposed on
a secured lender. If a lender does become liable for cleanup costs, it may bring an action for contribution against the current
owners or operators, the owners or operators at the time of on-site disposal activity or any other party who contributed to the
environmental hazard, but these persons or entities may be bankrupt or otherwise judgment-proof. Furthermore, an action against
the borrower may be adversely affected by the limitations on recourse in the loan documents.
Risk of Declining Property
Value. The value of the real property security for Alternative Credit will be subject to the risks generally incident to the
ownership of improved and unimproved real estate, including changes in general or local economic conditions, increases in interest
rates for real estate financing, physical damage that is not covered by insurance, zoning, entitlements, and other risks. Many
borrowers expect to use resale proceeds to repay their borrower loan. A decline in property values could result in a borrower loan
amount being greater than the property value, which could increase the likelihood of borrower default. The maximum permissible
loan-to-value ratio of the Fund’s real estate-related investments is 80% (determined at the time of investment).
Risks of Construction
and Rehabilitation Loans. Construction and rehabilitation loans involve a number of particular risks, involving, among other
things, the timeliness of the project’s completion, the integrity of appraisal values, whether or not the completed property
can be sold for the amount anticipated, and the length of the sale process. If construction work is not completed (due to contractor
abandonment, unsatisfactory work performance, or various other factors) and all the Alternative Credit funds have already been
expended, then, in the event of a default, the platform operator and its affiliates may have to invest significant additional funds
to complete the construction work. Any such investment would be recuperated by the platform operator and its affiliates prior to
any payment on any corresponding Pass-Through Notes. Default risk also exists where it takes a borrower longer than anticipated
either to construct or then resell the property, or if the borrower does not receive sufficient proceeds from the sale to repay
the corresponding Alternative Credit Instrument in full.
Certain Risks Associated
With Foreclosure. Different property types involve different types of risks in terms of realizing on the collateral in the
event that the borrower defaults. These risks include completion costs in the case of an incomplete project, partial resale for
condominiums and tracts and lease-up (finding tenants) for multi-family residential, small commercial and industrial properties.
The platform operator and its affiliates may not be able to sell a foreclosed commercial property, for example, before expending
efforts to find tenants to make the property more fully leased and more attractive to potential buyers.
Moreover, foreclosure statutes
vary widely from state to state. Properties underlying defaulted loans will need to be foreclosed upon in compliance with the laws
of the state where such property is located. Many states require lengthy processing periods or the obtaining of a court decree
before a mortgaged property may be sold or otherwise foreclosed upon. Further, statutory rights to redemption and the effects of
anti-deficiency and other laws may limit the ability for a platform operator (and its affiliates) to timely recover the value of
a loan in the event of borrower default.
Certain Risks Associated
With Bankruptcy. If a borrower enters bankruptcy, an automatic stay of all proceedings against the borrower’s property
will be granted. This stay will prevent platforms and their affiliates from foreclosing on such property unless relief from the
stay can be obtained from the bankruptcy court, and there is no guarantee that any such relief will be obtained. Significant legal
fees and costs may be incurred in attempting to obtain relief from a bankruptcy stay from the bankruptcy court and, even if such
relief is ultimately granted, it may take several months or more to obtain. In such event, the platform operator and its affiliates
will be unable to promptly exercise their foreclosure remedy and realize any proceeds from a property sale.
In addition, bankruptcy
courts have broad powers to permit the sale of any real property free of any lien that a platform operator or its affiliate may
have, to compel the platform operator and its affiliates to accept an amount less than the balance due under a loan and to permit
the borrower to repay the loan over a term which may be substantially longer than the original term of the loan.
Additional Investments
and Practices of the Fund
The Fund may invest in
income-producing securities of any maturity and credit quality, including below investment grade, and equity securities, including
exchange-traded funds and registered closed-end funds. Below investment grade securities are commonly referred to as “junk”
or “high yield” securities and are considered speculative with respect to the issuer’s capacity to pay interest
and repay principal. Such income-producing securities in which the Fund may invest may include, without limitation, corporate debt
securities, U.S. government debt securities, short-term debt securities, asset backed securities, exchange-traded notes, loans,
including secured and unsecured senior loans, Alternative Credit (as defined below), collateralized loan obligations (“CLOs”)
and other structured finance securities, and cash and cash equivalents. The following describes these instruments in which the
Fund may, but is not required to, invest, and certain of the risks associated with an investment in such instruments, and supplements
the discussion from the Prospectus. See “Risks—Other Investment-Related Risks” in the Prospectus. It is possible
that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically
feasible or effective for their intended purposes in all markets. Certain practices, techniques or instruments may not be principal
activities of the Fund but, to the extent employed, could from time to time have a material impact on the Fund’s performance.
Asset-Backed Securities.
Asset-backed securities represent direct or indirect participations in, or are secured by and payable from, pools of assets such
as, among other things, motor vehicle installment sales contracts, installment loan contracts, leases of various types of real
and personal property, and receivables from revolving credit (credit card) agreements or a combination of the foregoing. These
assets are securitized through the use of trusts and special purpose entities. Credit enhancements, such as various forms of cash
collateral accounts or letters of credit, may support payments of principal and interest on asset-backed securities. Although these
securities may be supported by letters of credit or other credit enhancements, payment of interest and principal ultimately depends
upon individuals paying the underlying loans or accounts, which payment may be adversely affected by general downturns in the economy.
Asset-backed securities are subject to prepayment risk. There is risk that recovery on repossessed collateral might be unavailable
or inadequate to support payments on the underlying investments.
Below Investment Grade
Securities. The Fund may invest in securities of any credit quality, including securities that are rated below investment grade.
Below investment grade securities are rated below “BBB-“ by Standard & Poor’s Ratings Group, a division of
The McGraw-Hill Companies, or Fitch Ratings, Inc., below “Baa” by Moody’s Investors Service, Inc. or comparably
rated by another nationally recognized statistical rating organization (“NRSRO”) or, if unrated, determined by the
Adviser to be of comparable credit quality at the time of purchase. Below investment grade securities are commonly referred to
as “junk” or “high yield” securities and are considered speculative with respect to the issuer’s
capacity to pay interest and repay principal. Ratings assigned by an NRSRO are not absolute standards of credit quality and do
not evaluate market risk or the liquidity of securities. Consequently, securities with the same maturity, duration, coupon and
rating may have different yields. Any shortcomings or inefficiencies in an NRSRO’s processes for determining credit ratings
may adversely affect the credit ratings of securities held by the Fund and, as a result, may adversely affect those securities’
perceived or actual credit risk. See “Additional Risks of Investing in the Fund—Below Investment Grade Securities Risk.”
Commercial Paper. Commercial
paper represents short-term unsecured promissory notes issued in bearer form by corporations such as banks or bank holding companies
and finance companies. The rate of return on commercial paper may be linked or indexed to the level of exchange rates between the
U.S. dollar and a foreign currency or currencies.
Corporate Debt Securities.
Corporate debt securities are debt obligations issued by U.S. and foreign corporations and other business entities to borrow
money from investors. Corporate debt securities may be either secured or unsecured. Collateral used for secured debt includes,
but is not limited to, real property, machinery, equipment, accounts receivable, stocks, bonds, or notes. If a bond is unsecured,
it is known as a debenture. Holders of corporate debt securities, as creditors, have a prior legal claim over common and preferred
stockholders as to both income and assets of the corporation for the principal and interest due them and may have a prior claim
over other creditors if liens or mortgages are involved. Interest on corporate debt securities may be fixed rate, floating rate,
adjustable rate, zero coupon, contingent, deferred, or have payment-in-kind features. Interest on corporate debt securities is
typically paid semi-annually and is fully taxable to the holder of such securities. Corporate debt securities contain elements
of both interest rate risk and credit risk. The market value of a corporate debt security generally may be expected to rise and
fall inversely with interest rates and may also be affected by the credit rating of the corporation, the corporation’s performance,
and perceptions of the corporation in the marketplace. Corporate debt securities usually yield more than government or agency securities
due to the presence of credit risk. See “Additional Risks of Investing in the Fund—Fixed Income Securities Risk.”
Equity Securities. The
Fund may invest in equity securities, including but not limited to common stock, preferred stock and shares of exchange-traded
funds (“ETFs”).
Common stock represents
an equity ownership interest in a company, providing voting rights and entitling the holder to a share of the company’s success
through dividends and/or capital appreciation. In the event of liquidation, common stockholders have rights to a company’s
remaining assets after bondholders, other debt holders and preferred stockholders have been paid in full. Typically, common stockholders
are entitled to one vote per share to elect the company’s board of directors (although the number of votes is not always
directly proportional to the number of shares owned). Common stockholders also receive voting rights regarding other company matters
such as mergers and certain important company policies such as issuing securities to management. Common stock fluctuates in price
in response to many factors, including historical and prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity. See “Additional Risks of Investing in the Fund—Common
Stock Risk.”
Preferred stock represents
an equity ownership interest in an issuer, but generally entitles the holder to receive, in preference to the holders of other
stocks such as common stock, dividends and a fixed share of the proceeds resulting from the liquidation of the issuer. Some preferred
stock also entitles their holders to receive additional liquidation proceeds on the same basis as holders of the issuer’s
common stock. Some preferred stock offers a fixed rate of return with no maturity date. Preferred stock with no maturity may perform
similarly to long term bonds, and can be more volatile than other types of preferred stock with heightened sensitivity to changes
in interest rates. Other preferred stock has a variable dividend, generally determined on a quarterly or other periodic basis.
Because preferred stock represents an equity ownership interest in a company, its value usually will react more strongly than bonds
and other debt instruments to actual or perceived changes in an issuer’s financial condition or prospects or to fluctuations
in the equity markets. Unlike common stock, preferred stock does not usually have voting rights absent the occurrence of specified
events; preferred stock, in some instances, is convertible into common stock. In order to be payable, dividends on preferred stock
must be declared by the issuer’s board of directors. There is, however, no assurance that dividends will be declared by the
boards of directors of issuers of the preferred stocks in which the Fund invests. See “Additional Risks of Investing in the
Fund—Preferred Stock Risk” below.
ETFs are funds whose shares
are traded on securities exchanges and generally seek to approximate the investment performance of their respective benchmarks
by investing in a variety of U.S. and foreign equity, debt, commodities, money market securities, futures and other instruments.
The shares of an ETF may be assembled in a block (typically 50,000 shares) known as a creation unit and redeemed in-kind for a
portfolio of the underlying securities (based on the ETF’s net asset value (“NAV”)) together with a cash payment
generally equal to accumulated dividends as of the date of redemption. Conversely, a creation unit may be purchased from the ETF
by depositing a specified portfolio of the ETF’s underlying securities, as well as a cash payment generally equal to accumulated
dividends of the securities (net of expenses) up to the time of deposit. See “Additional Risks of Investing in the Fund—ETFs
Risk.”
Exchange-Traded Notes.
The Fund may invest in exchange-traded notes (“ETNs”), which are a type of unsecured, unsubordinated debt security.
ETNs combine certain aspects of bonds and ETFs. Similar to ETFs, ETNs are traded on a major exchange (e.g., the New York
Stock Exchange (the “NYSE”)) during normal trading hours, although trading volume can be limited. However, investors
can also hold the ETN until maturity. At maturity, the issuer pays to the investor a cash amount equal to the principal amount,
subject to the day’s index factor. ETN returns are based upon the performance of a market index minus applicable fees. ETNs
do not make periodic coupon payments and provide no principal protection. The value of an ETN may be influenced by time to maturity,
level of supply and demand for the ETN, volatility and lack of liquidity in underlying markets, changes in the applicable interest
rates, changes in the issuer’s credit rating and economic, legal, political or geographic events that affect the referenced
index. The value of the ETN may drop due to a downgrade in the issuer’s credit rating, despite the underlying index remaining
unchanged. See “Additional Risks of Investing in the Fund—ETNs Risk.”
Government Debt Securities.
The Fund may invest in government debt securities, which are debt securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities include
bills, notes and bonds issued by the U.S. Treasury, as well as “stripped” or “zero coupon” U.S. Treasury
obligations representing future interest or principal payments on U.S. Treasury notes or bonds. Stripped securities are sold at
a discount to their “face value,” and may exhibit greater price volatility than interest-bearing securities because
investors receive no payment until maturity. Other obligations of certain agencies and instrumentalities of the U.S. Government
are supported only by the credit of the instrumentality. The U.S. Government may choose not to provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not legally obligated to do so, in which case, if the issuer were to
default, the Fund might not be able to recover its investment from the U.S. Government.
Loans. In addition
to Alternative Credit Instruments, the Fund may invest in loans other than Alternative Credit Instruments that are senior and secured
loans as well as unsecured or subordinated loans. In addition, the Fund may invest in secured and unsecured participations in loans.
While the loans purchased by the Fund may be secured by a first-priority security interest in most tangible and intangible assets
of the issuer, they are not required to be and the Fund will not be subject to any limit on purchasing loans with lower-priority
security interests or loans whose security interests exclude material assets of the issuer.
The Fund may invest in
term loans and other types of loans, including those that are attached to a term loan tranche or otherwise required to be purchased
along with the purchase of a term loan tranche. The loans purchased by the Fund may be negotiated and structured by a syndicate
of lenders consisting of commercial banks, investment banks, thrift institutions, insurance companies, finance companies or other
financial institutions, one or more of which will administer the loan on behalf of all the lenders. The Fund may purchase assignments
of these loans, in which case it will typically become a lender for purposes of the relevant loan agreement with direct contractual
rights against the borrower, including the right to receive payments of principal and interest. However, the Fund may also purchase
participation interests, in which case it will not have any direct relationship with the borrower and will instead rely on the
lender or participant that sold the participation interest for enforcement of rights against the borrower and to receive and process
payments of interest, principal and other amounts due to the Fund. See “Additional Risks of Investing in the Fund—Loan
Risk.”
* * *
This Supplement
should be retained with the SAI for future reference.
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