If You Invested in RiverNorth Capital and Income Fund (RSF)

RiverNorth Capital and Income Fund, Inc. (NYSE: RSF) is a diversified, closed-end management investment company in the asset management segment of the financial services sector. According to the Fund, its primary investment objective is to seek a high level of current income. To pursue this objective, the Fund invests in credit instruments, including a portfolio of securities of specialty finance and other financial companies, as described in its public materials.

As a closed-end fund, RiverNorth Capital and Income Fund does not continuously issue shares the way an open-end mutual fund does. Instead, its common shares trade in the secondary market on the New York Stock Exchange under the symbol RSF, and investors who wish to buy or sell shares place orders through a broker or other intermediary. The market price of the Fund’s shares is based on trading in the secondary market and may differ from the Fund’s net asset value (NAV) per share.

Investment objective and strategy focus

The Fund states that its investment objective is to seek a high level of current income. It does this by investing in credit instruments, which include securities of specialty finance and other financial companies. The Fund’s disclosures also describe investments in Alternative Credit Instruments. These are loans and related instruments that are generally not guaranteed or insured by a third party and are not backed by any governmental authority. The Fund notes that such Alternative Credit Instruments are generally unrated by nationally recognized statistical rating organizations and are considered comparable in quality to below investment grade, or "junk" bond, securities.

The Fund further explains that it is not permitted to invest in loans that are of subprime quality at the time of investment. However, it characterizes investments in its shares as speculative and involving a high degree of risk, including the risk of loss of investment. The Fund emphasizes that there can be no assurance that payments due on underlying loans, including Alternative Credit, will be made.

Closed-end fund structure and trading

RiverNorth Capital and Income Fund identifies itself as a closed-end fund that trades in the secondary market. It explains that it does not continuously offer new shares for sale as open-end mutual funds do. Instead, shares are bought and sold on an exchange, and the share price is determined by market value. The Fund also notes that diversification does not ensure a profit or guarantee against loss, underscoring the risks associated with investing in its shares.

The Fund has conducted a transferable rights offering, as described in its public news releases. In that offering, existing rights holders were able to subscribe for additional shares of common stock, and the Fund received subscription requests for new shares. The Fund has stated that the final subscription price per share in that offering was determined based on a formula tied to a percentage of its reported NAV per share on the expiration date of the offering. The Fund has also indicated that any excess payments from the offering would be returned to subscribing rights holders in accordance with the offering documents.

Risk considerations and Alternative Credit

The Fund’s disclosures highlight a range of risks related to its focus on credit instruments and Alternative Credit. It notes that the profitability of specialty finance and other financial companies is largely dependent upon the availability and cost of capital funds and may fluctuate significantly in response to changes in interest rates and general economic conditions. The Fund also explains that, if a borrower of Alternative Credit in which the Fund invests is unable to make payments on a loan, the Fund may be limited in its ability to recover outstanding principal and interest.

Among the reasons cited for this limitation are that the Fund may not have direct recourse against the borrower, may be limited in its ability to enforce its rights through the borrower or the originating platform, loans may be unsecured or undercollateralized, and it may be impracticable to commence legal proceedings against a defaulting borrower. The Fund further notes that platforms through which Alternative Credit is originated generally do not verify the majority of information provided by prospective borrowers, and such information may be incomplete, inaccurate, false or misleading. Prospective borrowers may misrepresent their income, occupation, employment status or intended use of loan proceeds.

The Fund states that substantially all of the Alternative Credit in which it invests will not be guaranteed or insured by a third party and will not be backed by any governmental authority. It also notes that Alternative Credit Instruments are generally not rated by NRSROs and are considered comparable in quality to below investment grade securities. The Fund emphasizes that, even though it is not permitted to invest in loans that are of subprime quality at the time of investment, an investment in the Fund’s shares should be considered speculative and involving a high degree of risk.

Income distributions and preferred stock

In addition to its common shares, RiverNorth Capital and Income Fund has disclosed a series of preferred stock. Public announcements refer to the Fund’s 5.875% Series A Term Preferred Stock, which trades on the New York Stock Exchange under the symbol RMPL. The Fund has announced preferred dividends on this series, including details such as ex-dates, record dates and payable dates. The Fund notes that distributions on preferred shares may be paid from sources of income other than ordinary income, such as net realized short-term capital gains, net realized long-term capital gains and return of capital.

The Fund explains that the actual amounts and sources of distributions for tax reporting purposes depend on the Fund’s investment experience during its fiscal year and may change based on tax regulations. If a distribution includes anything other than net investment income, the Fund states that it provides a Section 19(a) notice with its best estimate of distribution sources at that time. These estimates may differ from the final tax characterization reported to shareholders on Form 1099-DIV after the end of the year.

Management and advisory firm

RiverNorth Capital and Income Fund is associated with RiverNorth Capital Management, LLC, which is described in public materials as an independent investment manager and closed-end fund expert. RiverNorth Capital Management, LLC states that it specializes in opportunistic investment strategies and structures that seek to exploit market inefficiencies. It serves as an institutional investment manager to registered funds, private funds and separately managed accounts. The Fund’s public disclosures direct investors to its prospectus, annual report and semi-annual report for more detailed information about its investment objective, risks, charges and expenses.

Investor information and suitability

The Fund repeatedly emphasizes that risk is inherent in all investing and that investing in any investment company security involves the risk of receiving little or no return or losing part or all of the investment. It notes that past performance is no guarantee of future results. The Fund advises prospective investors to consider its investment objectives, risks, charges and expenses carefully before investing and to read the prospectus and most recent periodic reports.

The Fund also states that its shares are not insured by the Federal Deposit Insurance Corporation (FDIC), may lose value and carry no bank guarantee. It encourages investors to consult legal or tax advisors regarding their specific situations, particularly in relation to the tax treatment of distributions.

Use of rights offerings and capital raising

The Fund’s public announcements describe its use of transferable rights offerings as a method of raising additional capital. In such an offering, rights are issued to record date stockholders, who may subscribe for new shares of common stock. The Fund has disclosed that, in a recent offering, subscription requests exceeded the available over-subscription shares, leading to pro-rata allocation among record date stockholders who submitted over-subscription requests. The Fund has indicated that it announces preliminary and final results of such offerings through press releases.

These rights offerings, as described by the Fund, are conducted pursuant to a prospectus supplement and accompanying prospectus filed with the Securities and Exchange Commission. The Fund notes that the subscription price in the offering was based on a formula tied to a percentage of its NAV per share on the expiration date, and that any difference between the estimated and final subscription price resulted in excess payments being returned to subscribing rights holders.

Position within the financial services sector

Within the financial services sector, RiverNorth Capital and Income Fund is positioned as a closed-end fund focused on generating current income through investments in credit instruments and securities of specialty finance and other financial companies. Its disclosures emphasize the specialized nature of Alternative Credit and the associated risks, as well as the structural features of a closed-end fund trading on an exchange. The Fund’s association with RiverNorth Capital Management, LLC, which describes itself as specializing in opportunistic strategies in niche markets, further situates the Fund within a segment of asset management that targets market inefficiencies.

Investors and observers who seek more granular details about the Fund’s portfolio, leverage, expenses or specific holdings are directed by the Fund’s public statements to review its prospectus and periodic reports. These documents, as referenced in the Fund’s materials, contain additional information about the Fund’s operations and risk profile.