RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Statements of Changes
in Net Assets Attributable to Common Shareholders |
| |
For
the Six Months Ended December 31, 2022 (Unaudited) | | |
For
the Year Ended June 30, 2022 | |
NET
INCREASE/(DECREASE) IN NET ASSETS | |
| | |
| |
ATTRIBUTABLE
TO COMMON SHAREHOLDERS FROM | |
| | |
| |
OPERATIONS: | |
| | |
| |
Net
investment income | |
$ | 9,533,592 | | |
$ | 15,941,930 | |
Net
realized gain/(loss) | |
| (3,200,775 | ) | |
| 2,894,301 | |
Net
change in unrealized appreciation/depreciation | |
| (12,918,266 | ) | |
| (52,145,724 | ) |
Net
decrease in net assets resulting from operations | |
| (6,585,449 | ) | |
| (33,309,493 | ) |
Distributions
to Series A Preferred Shareholders | |
| (1,312,506 | ) | |
| (2,625,018 | ) |
Distributions
to Series B Preferred Shareholders | |
| (1,425,012 | ) | |
| (1,726,080 | ) |
Net
decrease in net assets attributable to common shareholders resulting from operations | |
| (9,322,967 | ) | |
| (37,660,591 | ) |
| |
| | | |
| | |
DISTRIBUTIONS
TO COMMON SHAREHOLDERS: | |
| | | |
| | |
From
distributable earnings | |
| (18,812,328 | ) | |
| (14,847,964 | ) |
From
tax return of capital | |
| – | | |
| (18,971,451 | ) |
Net
decrease in net assets attributable to common shareholders from distributions to common shareholders | |
| (18,812,328 | ) | |
| (33,819,415 | ) |
| |
| | | |
| | |
PREFERRED
SHARE TRANSACTIONS: | |
| | | |
| | |
Issuance
and offering costs for Series A Cumulative Perpetual Preferred Shares | |
| – | | |
| – | |
Issuance
and offering costs for Series B Cumulative Perpetual Preferred Shares | |
| – | | |
| (2,438,300 | ) |
Net
decrease in net assets attributable to common shareholders from preferred share transactions | |
| – | | |
| (2,438,300 | ) |
| |
| | | |
| | |
COMMON
SHARE TRANSACTIONS: | |
| | | |
| | |
Proceeds
from common shares sold, net of offering costs | |
| 33,953,183 | | |
| 67,529,800 | |
Reinvestment
of distributions | |
| 133,143 | | |
| 685,086 | |
Net
increase in net assets attributable to common shareholders from capital share transactions | |
| 34,086,326 | | |
| 68,214,886 | |
| |
| | | |
| | |
Net
Increase/(Decrease) in Net Assets attributable to common shareholders | |
| 5,951,031 | | |
| (5,703,420 | ) |
| |
| | | |
| | |
NET
ASSETS ATTRIBUTABLE TO COMMON SHAREHOLDERS: | |
| | | |
| | |
Beginning
of period | |
| 219,122,984 | | |
| 224,826,404 | |
End
of period | |
$ | 225,074,015 | | |
$ | 219,122,984 | |
See Notes
to Financial Statements.
30 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Statements of Changes
in Net Assets Attributable to Common Shareholders |
| |
For
the Six Months Ended December 31, 2022 (Unaudited) | | |
For
the Year Ended June 30, 2022 | |
OTHER
INFORMATION: | |
| | |
| |
Common
Share Transactions: | |
| | |
| |
Common
Shares outstanding - beginning of period | |
| 19,443,627 | | |
| 14,821,557 | |
Common Shares sold | |
| 3,515,805 | | |
| 4,574,333 | |
Common
Shares issued in reinvestment of distributions | |
| 11,761 | | |
| 47,737 | |
Common
Shares outstanding - end of period | |
| 22,971,193 | | |
| 19,443,627 | |
See Notes
to Financial Statements.
Semi-Annual
Report | December 31, 2022 |
31 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Statement
of Cash Flows |
For
the Six Months Ended December 31, 2022 (Unaudited) |
CASH
FLOWS FROM OPERATING ACTIVITIES: | |
| |
Net
decrease in net assets resulting from operations | |
$ | (6,585,449 | ) |
Adjustments
to reconcile net decrease in net assets attributable to common shareholders from operations to net cash used in operating activities: | |
| | |
Purchases
of investment securities | |
| (169,674,798 | ) |
Proceeds
from disposition on investment securities | |
| 133,831,110 | |
Amortization
of premium and accretion of discount on investments, net | |
| (1,906,132 | ) |
Net
proceeds from short-term investment securities | |
| 14,285,415 | |
Net
realized (gain)/loss on: | |
| | |
Investments | |
| 3,200,775 | |
Net
change in unrealized appreciation/depreciation on: | |
| | |
Investments | |
| 12,777,463 | |
(Increase)/Decrease
in assets: | |
| | |
Interest
receivable | |
| (91,506 | ) |
Dividends
receivable | |
| (12,283 | ) |
Receivable
for principal repayments | |
| (333,022 | ) |
Prepaid
and other assets | |
| (65,924 | ) |
Increase/(Decrease)
in liabilities: | |
| | |
Facility
Loan Fee payable | |
| (10,417 | ) |
Payable
for shareholder servicing | |
| 423 | |
Payable
to Transfer agency | |
| 4,789 | |
Payable
to Adviser | |
| 4,228 | |
Payable
to fund accounting and administration fees | |
| 52,917 | |
Payable
for Audit fees | |
| (25,019 | ) |
Payable
for Compliance fees | |
| 2,817 | |
Payable
for Custodian fees | |
| (2,937 | ) |
Other
payables | |
| 1,646,757 | |
Net
cash used in operating activities | |
$ | (12,900,793 | ) |
| |
| | |
CASH
FLOWS FROM FINANCING ACTIVITIES: | |
| | |
Proceeds
from sale of capital shares | |
$ | 33,953,183 | |
Cash
distributions paid to common shareholders - net of distributions reinvested | |
| (18,679,185 | ) |
Cash
distributions paid to preferred shareholders | |
| (2,053,143 | ) |
Net
cash provided by financing activities | |
$ | 13,220,855 | |
| |
| | |
Net
increase in cash and restricted cash | |
$ | 320,062 | |
Cash
and restricted cash, beginning of period | |
$ | 10,955 | |
Cash
and restricted cash, end of period | |
$ | 331,017 | |
| |
| | |
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION: | |
| | |
Reinvestment of distributions | |
$ | 133,143 | |
See Notes
to Financial Statements.
32 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Statement
of Cash Flows |
For
the Six Months Ended December 31, 2022 (Unaudited) |
Reconciliation
of restricted and unrestricted cash at the beginning of period to the statement of assets and liabilities: | |
| |
Cash | |
$ | 10,955 | |
Reconciliation
of restricted and unrestricted cash at the end of the period to the statement of assets and liabilities: | |
| | |
Deposit
with broker for futures contracts | |
$ | 331,017 | |
See Notes
to Financial Statements.
Semi-Annual
Report | December 31, 2022 |
33 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Financial
Highlights |
For
a common share outstanding throughout the periods presented |
|
Net
asset value - beginning of period |
Income/(loss)
from investment operations: |
Net
investment income(a) |
Net
realized and unrealized gain/(loss)(b) |
Total
income/(loss) from investment operations |
Less
distributions to common shareholders: |
From
net investment income |
From
tax return of capital |
Total
distributions to common shareholders |
Less
distributions to preferred shareholders: |
From
net investment income(d) |
Total
distributions to preferred shareholders |
Common
share transactions: |
Dilutive
effect of rights offering |
Common
share offering costs charged to paid-in capital |
Total
common share transactions |
Preferred
Share issuance and offering costs charged to paid-in capital |
Total
preferred share transactions |
Net
increase/(decrease) in net asset value |
Net
asset value - end of period |
Market
price - end of period |
Total
Return(g) |
Total
Return -Market Price(g) Supplemental Data: |
Net
assets, end of period (in thousands) |
Ratio
of expenses to average net assets(i)(j) |
Ratio
of net investment income |
Portfolio
turnover rate |
Loan
payable (in thousands) |
Asset
coverage per $1,000 of loan payable(l) |
Cumulative
Perpetual Preferred Stock (in thousands) |
Asset
coverage of Cumulative Perpetual Preferred Stock(m) |
|
Involuntary
liquidating preference per unit of Series A Cumulative Preferred Stock |
Average
market value per unit of Series A Cumulative Preferred Stock |
|
Involuntary
liquidating preference per unit of Series B Cumulative Preferred Stock |
Average
market value per unit of Series B Cumulative Preferred Stock |
See Notes
to Financial Statements.
34 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Financial
Highlights |
For
a common share outstanding throughout the periods presented |
For
the Six Months Ended December 31, 2022 (Unaudited) | | |
For
the Year Ended June 30, 2022 | | |
For
the Year Ended June 30, 2021 | | |
For
the Year Ended June 30, 2020 | | |
For
the Year Ended June 30, 2019 | | |
For
the Year Ended June 30, 2018 | |
$ | 11.27 | | |
$ | 15.17 | | |
$ | 14.91 | | |
$ | 18.09 | | |
$ | 18.75 | | |
$ | 20.04 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| 0.45 | | |
| 0.87 | | |
| 0.92 | | |
| 0.95 | | |
| 0.94 | | |
| 1.06 | |
| (0.80 | ) | |
| (2.49 | ) | |
| 1.73 | | |
| (1.72 | ) | |
| 0.40 | | |
| (0.64 | ) |
| (0.35 | ) | |
| (1.62 | ) | |
| 2.65 | | |
| (0.77 | ) | |
| 1.34 | | |
| 0.42 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| (0.89 | ) | |
| (0.81 | ) | |
| (1.02 | ) | |
| (1.11 | ) | |
| (1.18 | ) | |
| (1.40 | )(c) |
| – | | |
| (1.03 | ) | |
| (1.01 | ) | |
| (1.07 | ) | |
| (0.82 | ) | |
| (0.31 | ) |
| (0.89 | ) | |
| (1.84 | ) | |
| (2.03 | ) | |
| (2.18 | ) | |
| (2.00 | ) | |
| (1.71 | ) |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| (0.13 | ) | |
| (0.24 | ) | |
| (0.13 | ) | |
| – | | |
| – | | |
| – | |
| (0.13 | ) | |
| (0.24 | ) | |
| (0.13 | ) | |
| – | | |
| – | | |
| – | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| (0.10 | )(e) | |
| (0.06 | )(e) | |
| (0.05 | )(e) | |
| (0.22 | )(e) | |
| – | | |
| – | |
| 0.00 | (f) | |
| (0.01 | ) | |
| 0.00 | (f) | |
| (0.01 | ) | |
| – | | |
| – | |
| (0.10 | ) | |
| (0.07 | ) | |
| (0.05 | ) | |
| (0.23 | ) | |
| – | | |
| – | |
| – | | |
| (0.13 | ) | |
| (0.18 | ) | |
| – | | |
| – | | |
| – | |
| – | | |
| (0.13 | ) | |
| (0.18 | ) | |
| – | | |
| – | | |
| – | |
| (1.47 | ) | |
| (3.90 | ) | |
| 0.26 | | |
| (3.18 | ) | |
| (0.66 | ) | |
| (1.29 | ) |
$ | 9.80 | | |
$ | 11.27 | | |
$ | 15.17 | | |
$ | 14.91 | | |
$ | 18.09 | | |
$ | 18.75 | |
$ | 8.68 | | |
$ | 10.89 | | |
$ | 15.58 | | |
$ | 13.91 | | |
$ | 17.06 | | |
$ | 17.69 | |
| (5.38 | %)(h) | |
| (14.82 | %) | |
| 16.88 | % | |
| (5.31 | %) | |
| 7.78 | % | |
| 2.12 | % |
| (12.79 | %)(h) | |
| (19.86 | %) | |
| 28.67 | % | |
| (6.33 | %) | |
| 8.50 | % | |
| (0.65 | %) |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
$ | 225,074 | | |
$ | 219,123 | | |
$ | 224,826 | | |
$ | 199,510 | | |
$ | 199,213 | | |
$ | 206,561 | |
| 2.11 | %(k) | |
| 1.93 | % | |
| 2.10 | % | |
| 2.84 | % | |
| 3.16 | % | |
| 2.67 | % |
| 8.50 | %(k) | |
| 6.32 | % | |
| 6.15 | % | |
| 5.73 | % | |
| 5.17 | % | |
| 5.42 | % |
| 39 | %(h) | |
| 44 | % | |
| 54 | % | |
| 43 | % | |
| 27 | % | |
| 23 | % |
$ | – | | |
$ | – | | |
$ | 21,000 | | |
$ | 65,500 | | |
$ | 73,500 | | |
$ | 73,500 | |
| – | | |
| – | | |
| 14,563 | | |
| 4,046 | | |
| 3,711 | | |
| 3,811 | |
$ | 120,000 | | |
$ | 120,000 | | |
$ | 60,000 | | |
$ | – | | |
$ | – | | |
$ | – | |
| 72 | | |
| 71 | | |
| 119 | | |
| – | | |
| – | | |
| – | |
| 25.00 | | |
| 25.00 | | |
| 25.00 | | |
| – | | |
| – | | |
| – | |
| 18.79 | | |
| 22.98 | | |
| 24.44 | | |
| – | | |
| – | | |
| – | |
| 25.00 | | |
| 25.00 | | |
| – | | |
| – | | |
| – | | |
| – | |
| 19.75 | | |
| 22.93 | | |
| – | | |
| – | | |
| – | | |
| – | |
See Notes
to Financial Statements.
Semi-Annual
Report | December 31, 2022 |
35 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Financial
Highlights |
For
a common share outstanding throughout the periods presented |
| (a) | Based
on average shares outstanding during the period. |
| (b) | Recognition
of net investment income by the Fund is affected by the timing of the declarations of dividends
by the underlying closed-end funds in which the Fund invests. The ratio does not include
net investment income of the closed-end funds in which the Fund invests. |
| (c) | Includes
net realized gain distributions of (0.09). (d) Calculated using the average shares method.
|
| (e) | Represents
the impact of the Fund's rights offering of 3,508,633 shares in September 2022, 2,926,441
shares in October 2021, 472,995 shares in October 2020 and 2,371,081 shares in December 2019
at a subscription price per share based on a formula. For more details please refer to Note
9 of the Notes to Financial Statements. |
| (f) | Less
than $0.005 per share. |
| (g) | Total
investment return is calculated assuming a purchase of common shares at the opening on the
first day and a sale at closing on the last day of each period reported. For purposes of
this calculation, dividends and distributions, if any, are assumed to be reinvested at prices
obtained under the Fund’s dividend reinvestment plan. Total investment returns do not
reflect brokerage commissions, if any. Periods less than one year are not annualized. |
| (i) | Includes
interest expenses, as applicable, of 0.00% for the six months ended December 31, 2022, 0.05%
for the year ended June 30, 2022, 0.21% for the year ended June 30, 2021, 0.91% for the year
ended June 30, 2020, 1.23% for the year ended June 30, 2019 and 0.87% for the year ended
June 30, 2018. |
| (j) | Does
not include expenses of the closed-end funds in which the Fund invests. (k) Annualized. |
| (l) | Calculated
by subtracting the Fund's total liabilities (excluding the debt balance and accumulated unpaid
interest) from the Fund's total assets and dividing by the outstanding debt balance. |
| (m) | The
asset coverage ratio for a class of senior securities representing stock is calculated as
the Fund's total assets, less all liabilities and indebtedness not represented by the Fund's
senior securities, divided by secured senior securities representing indebtedness plus the
aggregate of the involuntary liquidation preference of secured senior securities which are
stock. With respect to the Preferred Stock, the asset coverage per unit figure is expressed
in terms of dollar amounts per share of outstanding Preferred Stock (based on a liquidation
preference of $25). |
See Notes
to Financial Statements.
36 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
1. ORGANIZATION
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. (the “Fund”) is a closed-end management investment company that was organized as a Maryland
corporation on June 22, 2016, and commenced investment operations on September 28, 2016. The investment adviser to the Fund is RiverNorth
Capital Management, LLC (the “Adviser”). The Fund’s sub-adviser is DoubleLine Capital, LP (“Sub-Adviser”).
The Fund is a diversified investment company with an investment objective to seek current income and overall total return.
The
Fund seeks to achieve its investment objective by allocating its Managed Assets among three principal strategies: Tactical Closed End
Fund Income Strategy, Alternative Credit Strategy and Opportunistic 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.
2. SIGNIFICANT
ACCOUNTING POLICIES
The
following is a summary of significant accounting policies followed by the Fund. These policies are in conformity with generally accepted
accounting principles in the United States of America (“GAAP”). The financial statements are prepared in accordance with
GAAP, which requires management to make estimates and assumptions that affect the reported amounts and disclosures, including the disclosure
of contingent assets and liabilities, in the financial statements during the reporting period. Management believes the estimates and
security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in
the financial statements may differ from the value the Fund ultimately realizes upon sale of the securities. The Fund is considered an
investment company for financial reporting purposes under GAAP and follows the accounting and reporting guidance applicable to investment
companies as codified in Accounting Standards Codification (“ASC”) 946 – Investment Companies. The financial statements
have been prepared as of the close of the New York Stock Exchange (“NYSE”) on December 31, 2022.
Security
Valuation: The Fund’s investments are generally valued at their fair value using market quotations. If a market value quotation
is unavailable a security may be valued at its estimated fair value as described in Note 3.
Security
Transactions and Related Income: The Fund follows industry practice and records security transactions on the trade date basis. The
specific identification method is used for determining gains or losses for financial statements and income tax purposes. Dividend income
is recorded on the ex-dividend date or for certain foreign securities, when the information becomes available to the Fund and interest
income and expenses are recorded on an accrual basis. Discounts and premiums on securities purchased are amortized or accreted using
the effective interest method. Paydown gains and losses on mortgage-related and other asset-backed securities are recorded as components
of interest income on the Statement of Operations. Withholding taxes on foreign dividends have been provided for in accordance with the
Fund’s understanding of the applicable country’s tax rules and rates. The ability of issuers of debt securities held by the
Fund to meet their obligations may be affected by economic and political developments in a specific country or region. Settlement on
bank loans transactions may be in excess of seven business days. Interest only stripped mortgage backed securities (“IO Strips”)
are securities that receive only interest payments from a pool of mortgage loans. Little to no principal will be received by the Fund
upon maturity of an IO Strip. Periodic adjustments are recorded to reduce the cost of the security until maturity, which are included
in interest income.
Semi-Annual
Report | December 31, 2022 |
37 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
Foreign
Currency Translation: The books and records of the Fund are maintained in U.S. dollars. Investment valuations and other assets and
liabilities initially expressed in foreign currencies are converted each business day into U.S. dollars based upon current exchange rates.
Prevailing foreign exchange rates may generally be obtained at the close of the NYSE (normally, 4:00 p.m. Eastern time). The portion
of realized and unrealized gains or losses on investments due to fluctuations in foreign currency exchange rates is not separately disclosed
and is included in realized and unrealized gains or losses on investments, when applicable.
Preferred
Stock: In accordance with ASC 480-10-25, the Fund's Series A and Series B Cumulative Perpetual preferred shares have been classified
as equity on the Statement of Assets and Liabilities. Refer to "Note 8. Cumulative Perpetual Preferred Stock" for further details.
Other:
The Fund holds certain investments which pay dividends to their shareholders based upon available funds from operations. It is possible
for these dividends to exceed the underlying investments’ taxable earnings and profits resulting in the excess portion of such
dividends being designated as a return of capital. Distributions received from investments in securities that represent a return of capital
or long-term capital gains are recorded as a reduction of the cost of investments or as a realized gain, respectively.
The
Fund invests in closed-end funds, each of which has its own investment risks. Those risks can affect the value of the Fund's investments
and therefore the value of the Fund's shares. To the extent that the Fund invests more of its assets in one closed end fund than in another,
the Fund will have greater exposure to the risks of that closed end fund.
Common
Share Valuation: The NAV is generally calculated as of the close of trading on the NYSE (normally 4:00 p.m. Eastern time) every day
the NYSE is open. The 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), by the total number of common shares outstanding.
Federal
Income Taxes: The Fund has been treated as, and intends to qualify each year for special tax treatment afforded to, a regulated investment
company (“RIC”) under Subchapter M of the Internal Revenue Code, as amended (“IRC”). In order to qualify as a
RIC, the Fund must, among other things, satisfy income, asset diversification and distribution requirements. As long as it so qualifies,
the Fund will not be subject to U.S. federal income tax to the extent that it distributes annually its investment company taxable income
and its “net capital gain”. If the Fund retains any investment company taxable income or net capital gain, it will be subject
to U.S. federal income tax on the retained amount at regular corporate tax rates. In addition, if the Fund fails to qualify as a RIC
for any taxable year, it will be subject to U.S. federal income tax on all of its income and gains at regular corporate tax rates.
As
of and during the six months ended December 31, 2022, the Fund did not have a liability for any unrecognized tax benefits. The Fund files
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 for federal
purposes and four years for most state returns. Tax returns for open years have incorporated no uncertain tax positions that require
a provision for income taxes.
38 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
The
Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expenses on the Statement of Operations.
During the six months ended December 31, 2022, the Fund did not incur any interest or penalties.
Distributions
to Shareholders: Distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the
ex-dividend date. The treatment for financial reporting purposes of distributions made to common shareholders during the year from net
investment income or net realized capital gains may differ from their ultimate treatment for federal income tax purposes. These differences
are caused primarily by differences in the timing of recognition of certain components of income, expense, or realized capital gain for
federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of the net assets
based on their ultimate characterization for federal income tax purposes. Any such reclassification will have no effect on net assets,
results of operations, or net asset values (“NAV”) per common share of the Fund.
The
Fund maintains a level distribution policy. The Fund distributes to common shareholders regular monthly cash distributions of its net
investment income. In addition, the Fund distributes its net realized capital gains, if any, at least annually. 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 of capital, in addition to current net investment income. Any distribution that is treated as a return of capital generally
will reduce a common shareholder’s basis in his or her shares, which may increase the capital gain or reduce the capital loss realized
upon the sale of such shares. Any amounts received in excess of a common shareholder’s basis are generally treated as capital gain,
assuming the shares are held as capital assets. The Board approved the implementation of the level distribution policy to make monthly
cash distributions to common shareholders, stated in terms of a rate equal to 12.5% of the average of the Fund’s NAV per common
share for the final five trading days of the previous calendar year. The Fund made monthly distributions to common shareholders set at
a level monthly rate of $0.1478 per common share for the six months ended December 31, 2022.
Previously,
the Board approved the adoption of a managed distribution plan in accordance with a Section 19(b) exemptive order whereby the Fund made
monthly distributions to common shareholders set at a fixed monthly rate.
Distributions
to holders of cumulative perpetual preferred stock are accrued on a daily basis as described in Note 9.
Semi-Annual
Report | December 31, 2022 |
39 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
3. SECURITIES
VALUATION AND FAIR VALUE MEASUREMENTS
Fair
value is defined as the price that the Fund might reasonably expect to receive upon selling an investment in a timely transaction to
an independent buyer in the principal or most advantageous market of the investment. GAAP establishes a three-tier hierarchy to maximize
the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements
for disclosure purposes.
Inputs
refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk,
for example, the risk inherent in a particular valuation technique used to measure fair value including using such a pricing model and/or
the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that
reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from
sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions
about the assumptions market participants would use in pricing the asset or liability developed based on the best information available
in the circumstances.
Various inputs
are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below.
|
Level
1 – |
Unadjusted
quoted prices in active markets for identical, unrestricted assets or liabilities that the Fund has the ability to access at the
measurement date; |
|
|
|
|
Level
2 – |
Quoted
prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices
that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and |
|
|
|
|
Level
3 – |
Significant
unobservable prices or inputs (including the Fund’s own assumptions in determining the fair value of investments) where there
is little or no market activity for the asset or liability at the measurement date. |
The
inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes,
the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest
level input that is significant to the fair value measurement in its entirety.
Equity
securities, including closed-end funds and business development company notes, are generally valued by using market quotations, but may
be valued on the basis of prices furnished by a pricing service when the Adviser believes such prices more accurately reflect the fair
market value of such securities. Securities that are traded on any stock exchange are generally valued by the pricing service at the
last quoted sale price. Lacking a last sale price, an exchange traded security is generally valued by the pricing service at its last
bid price. Securities traded in the NASDAQ over-the-counter market are generally valued by the pricing service at the NASDAQ Official
Closing Price. When using the market quotations or close prices provided by the pricing service and when the market is considered active,
the security will be classified as a Level 1 security. Sometimes, an equity security owned by the Fund will be valued by the pricing
service with factors other than market quotations or when the market is considered inactive. When this happens, the security will be
classified as a Level 2 security. When market quotations are not readily available, when the Adviser determines that the market quotation
or the price provided by the pricing service does not accurately reflect the current fair value, or when restricted or illiquid securities
are being valued, such securities are valued as determined in good faith by the Adviser in conformity with guidelines adopted by and
subject to review by the Board. These securities will be categorized as Level 3 securities.
40 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
Investments in
mutual funds, including short term investments, are generally priced at the ending NAV provided by the service agent of the funds. These
securities will be classified as Level 1 securities.
Domestic
and foreign fixed income securities, including foreign and U.S. corporate bonds, foreign and U.S. government bonds, non-agency collateralized
mortgage obligations, U.S. Government/ Agency mortgage backed securities, bank loans, and collateralized loan obligations are normally
valued on the basis of quotes obtained from brokers and dealers or independent pricing services. Foreign currency positions, including
forward foreign currency contracts, are priced at the mean between the closing bid and asked prices at 4:00 p.m. Eastern Time. Prices
obtained from independent pricing services typically use information provided by market makers or estimates of market values obtained
from yield data relating to investments or securities with similar characteristics. Data used to establish quotes includes analysis of
cash flows, pre-payment speeds, default rates, delinquency assumptions and assumptions regarding collateral and loss assumptions. These
securities will be classified as Level 2 securities.
Small
business loans, as an asset class, are not presently traded on a developed secondary market. Therefore, market quotations are not available.
Accordingly, all small business loans are fair valued as determined in good faith by the Adviser pursuant to policies and procedures
approved by the Board and subject to the Board’s oversight. The Fund's holdings in small business loans are fair valued daily by
the Adviser using a discounted cash flow methodology. Discounted cash flow is a valuation technique that provides an estimation of the
fair value of an asset based on expectations about cash flows that a small business loan would generate over time. In general, the primary
inputs of fair value in the small business loan valuation model are expected future default rates, prepayment rates, and the discount
rate applied. A discounted cash flow model begins with an estimation of periodic cash flows expected to be generated over a discrete
period of time (generally the time remaining until maturity of the loan). The estimated cash flows for each interval period (generally
monthly) are then converted to their present value equivalent using a rate of return appropriate for the risk of achieving projected
cash flows. Although not exhaustive, discounted cash flow models factor in borrower level data. Loans made to small businesses may incorporate
different factors.
Short-term
investments in fixed income securities, excluding money market funds, with maturities of less than 60 days when acquired, or which subsequently
are within 60 days of maturity, are valued by using the amortized cost method of valuation. These securities will be classified as Level
2 securities.
Semi-Annual
Report | December 31, 2022 |
41 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
Effective
September 8, 2022, and pursuant to the requirements of Rule 2a-5 under the 1940 Act (see Note 5), the Board approved updated valuation
procedures for the Fund and designated the Adviser as the Fund's valuation designee to make all fair valuation determinations with respect
to the Fund's portfolio investments, subject to the Board's oversight.
In
accordance with the Fund’s good faith pricing guidelines, the Adviser is required to consider all appropriate factors relevant
to the value of securities for which it has determined other pricing sources are not available or reliable as described above. No single
standard exists for determining fair value, because fair value depends upon the circumstances of each individual case. As a general principle,
the current fair value of an issue of securities being valued by the Adviser would appear to be the amount which the owner might reasonably
expect to receive for them upon their current sale. Methods which are in accordance with this principle may, for example, be based on
(i) a multiple of earnings; (ii) discounted cash flow models; (iii) weighted average cost or weighted average price; (iv) a discount
from market of a similar freely traded security (including a derivative security or a basket of securities traded on other markets, exchanges
or among dealers); or (v) yield to maturity with respect to debt issues, or a combination of these and other methods. Good faith pricing
is permitted if, in the Adviser’s opinion, the validity of market quotations appears to be questionable based on factors such as
evidence of a thin market in the security based on a small number of quotations, a significant event occurs after the close of a market
but before the Fund’s NAV calculation that may affect a security’s value, or the Adviser is aware of any other data that
calls into question the reliability of market quotations.
Good faith pricing
may also be used in instances when the bonds in which the Fund invests default or otherwise cease to have market quotations readily available.
42 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
The following
is a summary of the inputs used at December 31, 2022 in valuing the Fund’s assets and liabilities:
Investments
in Securities at Value* | |
Level
1 - Quoted Prices | | |
Level
2 - Other Significant Observable Inputs | | |
Level
3 – Significant Unobservable Inputs | | |
Total | |
Closed-End
Funds | |
$ | 24,668,233 | | |
$ | 15,037 | | |
$ | – | | |
$ | 24,683,270 | |
Bank
Loans | |
| – | | |
| 9,236,061 | | |
| – | | |
| 9,236,061 | |
Small
Business Loans | |
| – | | |
| – | | |
| 53,643,974 | | |
| 53,643,974 | |
Special
Purpose Acquisition Companies | |
| 29,476,084 | | |
| 154,948 | | |
| – | | |
| 29,631,032 | |
Rights | |
| 25,450 | | |
| – | | |
| – | | |
| 25,450 | |
Warrants | |
| 101,851 | | |
| – | | |
| – | | |
| 101,851 | |
Preferred
Stocks | |
| 8,095,734 | | |
| 2,224 | | |
| – | | |
| 8,097,958 | |
Foreign
Government Bonds | |
| – | | |
| 1,355,018 | | |
| – | | |
| 1,355,018 | |
Collateralized
Loan Obligations | |
| – | | |
| 14,370,085 | | |
| – | | |
| 14,370,085 | |
U.S.
Corporate Bonds | |
| – | | |
| 14,746,735 | | |
| – | | |
| 14,746,735 | |
U.S.
Government / Agency Mortgage Backed Securities | |
| – | | |
| 71,033,736 | | |
| – | | |
| 71,033,736 | |
U.S.
Government Bonds and Notes | |
| – | | |
| 19,445,622 | | |
| – | | |
| 19,445,622 | |
Foreign
Corporate Bonds | |
| – | | |
| 10,385,291 | | |
| – | | |
| 10,385,291 | |
Non-Agency
Collateralized Mortgage Obligations | |
| – | | |
| 62,151,300 | | |
| – | | |
| 62,151,300 | |
Short-Term
Investments | |
| 26,031,460 | | |
| – | | |
| – | | |
| 26,031,460 | |
Total | |
$ | 88,398,812 | | |
$ | 202,896,057 | | |
$ | 53,643,974 | | |
$ | 344,938,843 | |
Other
Financial Instruments** | |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Future
Contracts | |
$ | (140,802 | ) | |
$ | – | | |
$ | – | | |
$ | (140,802 | ) |
Total | |
$ | (140,802 | ) | |
$ | – | | |
$ | – | | |
$ | (140,802 | ) |
| * | Refer
to the Fund's Schedule of Investments for a listing of securities by type. |
| ** | Other
financial instruments are derivative instruments reflected in the Schedule of Investments.
Futures contracts are reported at their unrealized appreciation/depreciation. |
Semi-Annual
Report | December 31, 2022 |
43 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
The changes of
the fair value of investments for which the Fund has used Level 3 inputs to determine the fair value are as follows:
Asset
Type | |
Balance
as of June 30, 2022 | | |
Accrued
Discount/ premium | | |
Return
of Capital | | |
Realized
Gain/ (Loss) | | |
Change
in Unrealized Appreciation/ Depreciation | | |
Purchases | | |
Sales
Proceeds/ Loan Paydowns | | |
Transfer
into Level 3 | | |
Transfer
Out of Level 3 | | |
Balance
as of December 31, 2022 | | |
Net
change in unrealized appreciation/ (depreciation) included in the Statements of Operations attributable to Level 3 investments held
at December 31, 2022 | |
Common
Stocks | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | (2,319 | ) |
Small
Business Loan | |
| – | | |
| – | | |
| – | | |
| (74,609 | ) | |
| (388,681 | ) | |
| 129,938,295 | | |
| (75,308,115 | ) | |
| – | | |
| – | | |
| 53,643,974 | | |
| – | |
| |
$ | – | | |
$ | – | | |
$ | – | | |
$ | (74,609 | ) | |
$ | (388,681 | ) | |
$ | 129,938,295 | | |
$ | (73,308,115 | ) | |
$ | – | | |
$ | – | | |
$ | 53,643,974 | | |
$ | (2,319 | ) |
The table below
provides additional information about the Level 3 Fair Value Measurements as of December 31, 2022:
Asset
Class |
Fair
Value (USD) |
Valuation
Technique |
Unobservable
Inputs(a) |
Value/Range
(Weighted Average) |
Small
Business Loans |
$
53,643,974 |
Discounted
Cash Flow |
Loss-Adjusted
Discount Rate |
0.62%-21.34%
(9.59%) |
|
|
|
Projected
Loss Rate |
0.00%-56.36%
(4.40%) |
| (a) | A
change to the unobservable input may result in a significant change to the value of the investment
as follows: |
Unobservable
Inputs |
Impact
to Value if Input Increases |
Impact
to Value if Input Decreases |
Loss-Adjusted
Discount Rate |
Decrease |
Increase |
Projected
Loss Rate |
Decrease |
Increase |
44 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
Derivative
Instruments: The following tables disclose the amounts related to the Fund’s use of derivative instruments.
The effect of
derivatives instruments on the Fund's Statement of Assets and Liabilities as of December 31, 2022:
| |
Liabilty
Derivatives | |
| |
Risk
Exposure | |
Statement
of Assets and Liabilities Location | |
Fair
Value | |
Interest
Rate Risk (Futures Contracts)* | |
Net
unrealized depreciation on futures contracts | |
$ | (140,802 | ) |
* | | The
value presented includes cumulative loss on open futures contracts; however the value reflected
on the accompanying Statement of Assets and Liabilities is variation margin payable as of
December 31, 2022. |
The effect of
derivative instruments on the Statement of Operations for the six months ended December 31, 2022:
Risk
Exposure | |
Statement
of Operations Location | |
Realized
Gain on Derivatives | | |
Change
in Unrealized Appreciation/ Depreciation on Derivatives | |
Interest
rate risk contracts) | |
Net
realized gain on futures contracts; Net change in unrealized appreciation/ (Futures depreciation on futures contracts | |
$ | – | | |
$ | (140,802 | ) |
The futures contracts
average notional amount during the six months ended December 31, 2022, is noted below.
Fund | |
Average
Notional Amount of Futures Contracts | |
RiverNorth/DoubleLine
Strategic Opportunity Fund | |
$ | 936,393 | |
4. ADVISORY
FEES, DIRECTOR FEES AND OTHER AGREEMENTS
RiverNorth
serves as the investment adviser to the Fund. Under the terms of the management agreement (the “Agreement”), the Adviser,
subject to the supervision of the Board, provides or arranges to be provided to the Fund such investment advice as it deems advisable
and will furnish or arrange to be furnished a continuous investment program for the Fund consistent with the Fund’s investment
objectives and policies. As compensation for its management services, the Fund is obligated to pay the Adviser a fee computed and accrued
daily and paid monthly in arrears at an annual rate of 1.00% of the average daily managed assets of the Fund. Managed assets are defined
as 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.
Semi-Annual
Report | December 31, 2022 |
45 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
DoubleLine
Capital, LP is the investment sub-adviser to the Fund. Under the terms of the sub-advisory agreement, the Sub-Adviser, subject to the
supervision of the Adviser and the Board, provides or arranges to be provided to the Fund such investment advice as deemed advisable
and will furnish or arrange to be furnished a continuous investment program for the portion of assets managed in the Fund consistent
with the Fund’s investment objective and policies. As compensation for its sub-advisory services, the Adviser is obligated to pay
the Sub-Adviser a fee computed and accrued daily and paid monthly in arrears based on an annual rate of 0.50% of the average daily managed
assets of the Fund.
ALPS
Fund Services, Inc. (“ALPS”) provides the Fund with fund administration and fund accounting services. As compensation for
its services to the Fund, ALPS receives an annual fee based on the Fund’s average daily net assets, subject to certain minimums.
State Street
Bank & Trust, Co. serves as the Fund’s custodian. Millennium Trust serves as a custodian for electronic loan documents related
to the Alternative Credit Strategy.
DST
Systems, Inc. (“DST”), the parent company of ALPS, serves as the Transfer Agent to the Fund. Under the Transfer Agency Agreement,
DST is responsible for maintaining all shareholder records of the Fund. DST is a wholly-owned subsidiary of SS&C Technologies Holdings,
Inc. (“SS&C”), a publicly traded company listed on the NASDAQ Global Select Market.
The
Fund pays no salaries or compensation to its officers or to any interested Director employed by the Adviser or Sub-Adviser, and the Fund
has no employees except as noted below. For their services, the Directors of the Fund who are not employed by the Adviser or Sub-Adviser,
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 employed by the Adviser or Sub-Adviser are also reimbursed
for all reasonable out-of-pocket expenses relating to attendance at meetings of the Board.
The
Chief Compliance Officer (“CCO”) of the Fund is an employee of the Adviser. The Fund reimburses the Adviser for certain compliance
costs related to the Fund, including a portion of the CCO's compensation.
5. NEW
ACCOUNTING PRONOUNCEMENTS AND RULE ISSUANCES
In
December 2020, the SEC voted to adopt a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5
establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits fund boards to designate
certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines
when market quotations are “readily available” for purposes of Section 2(a)(41) of the 1940 Act, which requires a fund to
fair value a security when market quotations are not readily available, and the threshold for determining whether a fund must fair value
a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth the recordkeeping requirements associated with fair
value determinations. Finally, the SEC rescinded previously issued guidance on related issues, including the role of a board in determining
fair value and the accounting and auditing of fund investments. Rule 2a-5 and Rule 31a-4 became effective on March 8, 2021, with a compliance
date of September 8, 2022. Management has assessed the impact of the new rules on the Fund's financial statements and the implementation
does not have a material impact on the Fund's financial statements.
46 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
6. CREDIT
AGREEMENT
The
Fund may borrow money and/or issue preferred stock, notes or debt securities for investment purposes. These practices are known as leveraging.
The Fund may use leverage through borrowings or the issuance of preferred stock, in an aggregate amount of up to 33 1/3% of the Fund’s
total assets immediately after such borrowings or issuance.
On
December 16, 2016, the Fund entered into a $75,000,000 secured, revolving, evergreen credit facility with U.S. Bank National Association
(“U.S. Bank”). The credit facility had a variable annual interest rate equal to one-month LIBOR plus 0.95 percent. The credit
facility accrued a commitment fee equal to an annual rate of 0.10 percent on $75,000,000.
On
April 1, 2022, the Fund entered into an amended $50,000,000 secured, revolving, evergreen credit facility with U.S. Bank, which was terminated
on October 14, 2022. The amended credit facility had a variable annual interest rate equal to SOFR plus 1.10 percent. The amended credit
facility accrued a commitment fee equal to an annual rate of 0.25 percent if the drawn amount was less than $37,500,000 and 0.125 percent
if the drawn amount was $37,500,000 or more.
There was no
outstanding balance on the credit facility during the six months ended December 31, 2022.
7. TAX BASIS
INFORMATION
It
is the Fund’s policy to meet the requirements of the IRC applicable to regulated investment companies, and to distribute all of
its taxable net income to its shareholders. In addition, the Fund intends to pay distributions as required to avoid imposition of excise
tax. Therefore, no federal income tax provision is required.
Tax
Basis of Distributions to Shareholders: The character of distributions made during the year from net investment income or net realized
gains may differ from its ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or realized gains were recorded
by the Fund.
The
amounts and characteristics of tax basis of distributions and composition of distributable earnings/(accumulated losses) are finalized
at fiscal year-end and are not available for the six months ended December 31, 2022.
Semi-Annual
Report | December 31, 2022 |
47 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
The tax character
of the distributions paid by the Fund during the fiscal year ended June 30, 2022, was as follows:
| |
For
the Year Ended June 30, 2022 | |
Ordinary
Income | |
$ | 18,842,812 | |
Return
of Capital | |
| 18,971,451 | |
Total | |
$ | 37,814,263 | |
Unrealized
Appreciation and Depreciation on Investments: As of December 31, 2022, net unrealized appreciation/(depreciation) of investments
based on federal tax costs was as follows:
Cost
of investments for income tax purposes | |
$ | 423,893,716 | |
Gross
appreciation on investments (excess of value over tax cost) | |
| 6,705,066 | |
Gross
depreciation on investments (excess of tax cost over value) | |
| (74,423,221 | ) |
Net
unrealized depreciation on investments | |
$ | (67,718,155 | ) |
The difference
between book and tax basis unrealized appreciation/(depreciation) for the Fund is primarily attributable to wash sales and grantor trusts.
The
Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained
assuming examination by tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no liability
for unrecognized tax benefits should be recorded related to uncertain tax positions taken on U.S. tax returns and state tax returns filed
since inception of the Fund. No income tax returns are currently under examination. The tax years since 2018 remain subject to examination
by the tax authorities in the United States. The Fund is not aware of any tax positions for which it is reasonably possible that the
total amounts of unrecognized tax benefits will change materially in the next 12 months.
8. INVESTMENT
TRANSACTIONS
Investment transactions
for the six months ended December 31, 2022, excluding short-term investments, were as follows:
| |
Purchases | | |
Sales | |
| |
$ | 163,774,502 | | |
$ | 130,662,308 | |
Investment Transactions
in long term U.S. Government Obligations for the six months ended December 31, 2022 were as follows:
| |
Purchases
of Securities | | |
Proceeds
from Sales of Securities | |
| |
$ | 5,900,297 | | |
$ | 171,020 | |
48 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
9. CUMULATIVE
PERPETUAL PREFERRED STOCK
At
December 31, 2022, the Fund had issued and outstanding 2,400,000 shares of Series A Cumulative Perpetual Preferred Stock, listed under
trading symbol OPPPRA on the NYSE, with a par value of $0.0001 per share and a liquidation preference of $25.00 per share plus accrued
and unpaid dividends (whether or not declared) and 2,400,000 shares of Series B Cumulative Perpetual Preferred Stock, listed under trading
symbol OPPPRB on the NYSE, with a par value of $0.0001 per share and a liquidation preference of $25.00 per share plus accrued and unpaid
dividends (whether or not declared). The Fund issued 2,400,000 shares of Series A Cumulative Perpetual Preferred Stock on October 23,
2020 and 2,400,000 shares of Series B Cumulative Perpetual Preferred Stock on November 22, 2021. The Series A Cumulative Perpetual Preferred
Stock is entitled to voting rights and a dividend at a rate of 4.375% per year, paid quarterly, based on the $25.00 liquidation preference
before the common stock is entitled to receive any dividends. The Series B Cumulative Perpetual Preferred Stock is entitled to voting
rights and a dividend at a rate of 4.75% per year, paid quarterly, based on the $25.00 liquidation preference before the common stock
is entitled to receive any dividends. The Series A Cumulative Perpetual Preferred Stock is generally not redeemable at the Fund’s
option prior to November 15, 2025, and is subject to mandatory redemption by the Fund in certain circumstances. The Series B Cumulative
Perpetual Preferred Stock is generally not redeemable at the Fund’s option prior to February 15, 2027, and is subject to mandatory
redemption by the Fund in certain circumstances. On or after November 15, 2025, the Fund may redeem in whole, or from time to time in
part, outstanding Series A Cumulative Perpetual Preferred Stock at a redemption price per share equal to the per share liquidation preference
of $25.00 per share, plus accumulated and unpaid dividends, if any, through the date of redemption. On or after February 15, 2027, the
Fund may redeem in whole, or from time to time in part, outstanding Series B Cumulative Perpetual Preferred Stock at a redemption price
per share equal to the per share liquidation preference of $25.00 per share, plus accumulated and unpaid dividends, if any, through the
date of redemption.
Series | |
First
Redemption Date | |
Fixed
Rate | | |
Shares
Outstanding | | |
Aggregate
Liquidation Preference | | |
Estimated
Fair Value | |
Series
A | |
November
15, 2025 | |
| 4.375 | % | |
| 2,400,000 | | |
$ | 60,000,000 | | |
$ | 43,248,000 | |
Series
B | |
February 15, 2027 | |
| 4.750 | % | |
| 2,400,000 | | |
$ | 60,000,000 | | |
$ | 44,712,000 | |
10. CAPITAL SHARE
TRANSACTIONS
The
Fund’s authorized capital stock consists of 50,000,000 shares of common stock, $0.0001 par value per share, all of which was initially
classified as common shares. Under the rules of the NYSE applicable to listed companies, the Fund is required to hold an annual meeting
of stockholders in each year.
On
August 12-13, 2020, and August 10-11, 2021 and August 9-10, 2022, respectively, the Board approved rights offerings to participating
shareholders of record who were allowed to subscribe for new common shares of the Fund (the “Primary Subscription”). Record
date shareholders received one right for each common share held on the Record Date ("Right"). For every three Rights held,
a holder of the Rights was entitled to buy one new common share of the Fund. Record date shareholders who fully exercised all Rights
initially issued to them in the Primary Subscription were entitled to buy those common shares that were not purchased by other record
date shareholders.
Semi-Annual
Report | December 31, 2022 |
49 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
The
Fund issued new shares of common stock at a subscription price that represented 92.5% to 97.5% of the reported net asset value on the
expiration date of each rights offering. Offering costs were charged to paid-in-capital upon the exercise of the Rights.
The shares of
common stock issued, subscription price, and offering costs for the rights offerings were as follows:
Record
Date |
Expiration
Date |
Shares
of Common Stock Issued |
Subscription
Price |
Offering
Costs |
September
3, 2020 |
October
1, 2020 |
472,995 |
$13.88 |
$122,545 |
September
7, 2021 |
October
1, 2021 |
2,926,441 |
$14.48 |
$292,000 |
August
25, 2022 |
September
23, 2022 |
3,508,633 |
$9.70 |
$122,884 |
On
April 7, 2021 and December 29, 2021, the Fund entered into a distribution agreement with ALPS Distributors, Inc. ("ADI"). Pursuant
to the distribution agreement with ADI, the Fund may offer to sell up to 10,000,000 of the Fund's common stock from time to time through
ADI.
The shares of
common stock issued, gross proceeds from the sales of shares, and commissions to ADI were as follows:
Period
Ended |
Shares
of Common Stock Issued |
Gross
Proceeds |
Commissions |
Offering
Costs |
Net
Proceeds |
June
30, 2022 |
1,647,892 |
$
25,745,539 |
$
257,587 |
$
41,019 |
$
25,446,933 |
December
31, 2022 |
– |
– |
– |
– |
– |
The
Fund has issued and outstanding 22,971,193 shares of common stock at December 31, 2022. Additional shares of the Fund may be issued under
certain circumstances, including pursuant to the Fund’s Automatic Dividend Reinvestment Plan, as defined within the Fund’s
organizational documents. Additional information concerning the Automatic Dividend Reinvestment Plan is included within this report.
11. INDEMNIFICATIONS
Under
the Fund’s organizational documents, its Officers and Directors are indemnified against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service
providers that may contain general indemnification clauses. The Fund’s maximum exposure under those arrangements is unknown, as
this would involve future claims that may be made against the Fund that have not yet occurred.
50 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Notes
to Financial Statements |
December
31, 2022 (Unaudited) |
12. CORONAVIRUS
(COVID-19) PANDEMIC
Beginning
in the first quarter of 2020, financial markets in the United States and around the world experienced extreme and in many cases unprecedented
volatility and severe losses due to the global pandemic caused by COVID-19, a novel coronavirus. The outbreak was first detected in December
2019 and subsequently spread globally, and since then, the number of cases has fluctuated and new "variants" have been confirmed
around the world. The pandemic has resulted in a wide range of social and economic disruptions, including closed borders, voluntary or
compelled quarantines of large populations, stressed healthcare systems, reduced or prohibited domestic or international travel, supply
chain disruptions, and so-called “stay-at-home” orders throughout much of the United States and many other countries. The
fall-out from these disruptions has included the rapid closure of businesses deemed “non-essential” by federal, state, or
local governments and rapidly increasing unemployment, as well as greatly reduced liquidity for certain instruments at times. Some sectors
of the economy and individual issuers have experienced particularly large losses. Such disruptions may continue for an extended period
of time or reoccur in the future to a similar or greater extent. In response, the U.S. government and the Federal Reserve have taken
extraordinary actions to support the domestic economy and financial markets. Although vaccines for COVID-19 have become widely available,
it is unknown how long circumstances related to the pandemic will persist, whether they will reoccur in the future, whether efforts to
support the economy and financial markets will be successful, and what additional implications may follow from the pandemic. The impact
of these events and other epidemics or pandemics in the future could adversely affect Fund performance.
13. SUBSEQUENT
EVENTS
Subsequent to
December 31, 2022, the Fund paid the following distributions:
Ex-Date |
Record
Date |
Payable
Date |
Rate
(per share) |
January
12, 2023 |
January
13, 2023 |
January
31, 2023 |
$0.1021 |
February
14, 2023 |
February
15, 2023 |
February
28, 2023 |
$0.1021 |
On
February 14, 2023, the Board declared Series A and Series B preferred stock dividend in the amount of $0.27344 and $0.29688 per share,
respectively, payable on February 15, 2023 to preferred shareholders of record on February 2, 2023 with an ex date of February 1, 2023.
Semi-Annual
Report | December 31, 2022 |
51 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Dividend
Reinvestment Plan |
December
31, 2022 (Unaudited) |
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 (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 Sub-Adviser).
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.
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.
52 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Dividend
Reinvestment Plan |
December
31, 2022 (Unaudited) |
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.
Semi-Annual
Report | December 31, 2022 |
53 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Additional
Information |
December
31, 2022 (Unaudited) |
PROXY VOTING
GUIDELINES
A
description of the policies and procedures that the Fund used to determine how to vote proxies relating to portfolio securities and information
regarding how the Fund voted proxies during the most recent 12-month period ended June 30, are available without charge upon request
by (1) calling the Fund at (888) 848-7569 and (2) from Form N-PX filed by the Fund with the SEC on the SEC’s website at www.sec.gov.
PORTFOLIO HOLDINGS
DISCLOSURE POLICY
The
Fund files a complete schedule of investments with the SEC for the first and third quarter of the fiscal year on Part F of Form N-PORT.
The Fund’s first and third fiscal quarters end on September 30 and March 31. The Form N-PORT filing must be filed within 60 days
of the end of the quarter. The Fund's Form N-PORT are available on the SEC's website at www.sec.gov. You may also obtain copies by calling
the Fund at 1-888-848-7569.
STOCKHOLDER MEETING
RESULTS
On September
23, 2022, the Fund held a Meeting of Stockholders to consider the proposals set forth below. The following votes were recorded:
Election
of J. Wayne Hutchens as a Director of the Fund by common and preferred stockholders to a three-year term to expire at the Fund’s
2025 Annual Meeting of Stockholders or until his successor is duly elected and qualified.
| |
Shares
Voted | | |
%
of Shares Voted | |
For | |
| 14,888,396 | | |
| 94.09 | % |
Withheld | |
| 934,555 | | |
| 5.91 | % |
Total | |
| 15,822,951 | | |
| 100.00 | % |
Election
of David M. Swanson as a Director of the Fund by preferred stockholders to a three-year term to expire at the Fund’s 2025 Annual
Meeting of Stockholders or until his successor is duly elected and qualified.
| |
Shares
Voted | | |
%
of Shares Voted | |
For | |
| 2,430,188 | | |
| 89.22 | % |
Withheld | |
| 293,684 | | |
| 10.78 | % |
Total | |
| 2,723,872 | | |
| 100.00 | % |
54 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Consideration
and Approval of
Advisory
and Sub-Advisory Agreements |
December
31, 2022 (Unaudited) |
Consideration
of the Advisory Agreement
At
a meeting (the “Meeting”) of the Board of Directors (the “Board” or the “Directors”) of the RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. (the “Fund”) held on November 8, 2022 and called expressly for that purpose, the Board,
including a majority of the Directors who are not “interested persons” (as defined in the Investment Company Act of 1940
(the “1940 Act”) (the “Independent Directors”)) considered the renewal of the Advisory Agreement between RiverNorth
Capital Management, LLC (the “Adviser”) and the Fund. In its consideration of the Advisory Agreement, the Board considered
information and materials furnished by the Adviser in advance of and at the Meeting and was afforded the opportunity to request additional
information and to ask questions of the Adviser to obtain information that it believed to be reasonably necessary to evaluate the terms
of the Advisory Agreement. The Board received materials compiled by the Adviser and the Fund’s administrator including a copy of
the Advisory Agreement, the Adviser’s response to a questionnaire regarding the Adviser’s profitability, organization, management
and operations, a copy of the Adviser’s Form ADV, the Adviser’s audited financial statements, information regarding the Adviser’s
assets under management, an overview of the Fund’s cumulative and annualized returns as compared to the Fund’s benchmark,
the Fund’s fact sheet for the quarter ended September 30, 2022, a performance comparison of the Fund to other funds managed by
the Adviser, information regarding the Adviser’s compliance programs and a third-party comparison report regarding the Fund’s
performance and fees compared to benchmark indices and peer funds. The Board considered the following factors, among others, in reaching
its determination to renew the Advisory Agreement: (i) the investment performance of the Fund and the investment performance of the Adviser,
(ii) the nature, extent and quality of the services provided by the Adviser to the Fund, (iii) the experience and qualifications of the
personnel providing such services (iv) the costs of the services provided and the profits to be realized by the Adviser and any of its
affiliates from the relationship with the Fund, (v) the extent to which economies of scale will be realized by the Fund as it grows,
and (vi) whether the Fund’s fee levels reflected the economies of scale to the benefit of the Fund’s shareholders.
The
Directors relied upon the advice of independent legal counsel and their own business judgment in determining the material factors to
be considered in evaluating the Advisory Agreement and the weight to be given to each such factor. The Directors’ conclusions were
based on an evaluation of all of the information provided and were not the result of any one factor. Moreover, each Director may have
afforded different weight to the various factors in reaching conclusions with respect to the Advisory Agreement. Although not meant to
be all-inclusive, the following discussion summarizes the factors considered and conclusions reached by the Directors at the Meeting,
including during an executive session with their independent legal counsel, in determining to renew the Advisory Agreement.
Performance,
Fees and Expenses
The
Board reviewed the performance of the Fund for the three months, one-year, three-year, five-year and since inception periods ended September
30, 2022. These returns were compared to the returns of funds in FUSE’s Tactical-Flexible Allocation fund peer group. The Board
considered the Fund’s net asset value (“NAV”) and market price returns relative to the returns for funds in the FUSE
peer group, noting that on a NAV basis, the Fund had underperformed the median for its peer group for the three-month, one-year, three-years,
five-years and since inception periods ended September 30, 2022. Using market price returns, the Board observed that the Fund had underperformed
the median of its peer group for the three-month, one-year, three-years, five-years and since inception periods ended September 30, 2022.
The Directors also noted that on a NAV basis, the Fund had underperformed its benchmark index for the three-month, one-year, three-year
and five-year periods and outperformed its benchmark index for the since inception period. The Directors also reviewed the Fund’s
performance relative to other funds managed by the Adviser. The Adviser noted the peer group is not entirely reflective of the Fund due
to its unique investment structure. In consideration of each item noted, the Board agreed that the Fund’s performance was adequate.
Semi-Annual
Report | December 31, 2022 |
55 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Consideration
and Approval of
Advisory
and Sub-Advisory Agreements |
December
31, 2022 (Unaudited) |
As
to the comparative fees and expenses, the Directors considered the management and the other fees paid by the Fund and compared those
to the management and other fees paid by funds in the relative peer group determined by FUSE. The Directors also noted the fact that
the fee payable to the Sub-Adviser is paid by the Adviser and not the Fund. The Board noted that the Fund’s annual net expense
ratio was higher than the Tactical-Flexible Allocation fund peer group median.
The
Board also noted that the annual management fee for the Fund was slightly above the median paid by the peer group but within the range
of the fees paid by the peer funds. The Directors also reviewed the Fund’s fees relative to other funds managed by the Adviser.
The Board, including the Independent Directors, determined that the fees were reasonable given the nature of the Fund’s investment
strategy, the capabilities of the Adviser and the Sub-Adviser, and the nature of the services provided to the Fund.
Nature, Extent
and Quality of Services
As
to the nature, extent and quality of the services to be provided by the Adviser to the Fund, the Board considered that under the terms
of the Advisory Agreement, the Adviser would, subject to the supervision of the Board, provide or arrange to be provided to the Fund
such investment advice as the Adviser, in its discretion, deems 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. The Board reviewed the Adviser’s Form
ADV, which was previously provided to the Board and that provided details regarding the experience of each of the Adviser’s personnel.
The Adviser also provided additional information regarding its experience managing other investment accounts. Based on the foregoing
information, the Board, including the Independent Directors, concluded that the Adviser had provided quality services and would continue
to do so for the Fund.
Profitability
and Other Benefits
As
to the cost of the services to be provided and to the profits to be realized by the Adviser, the Board reviewed the Adviser’s estimates
of its profitability and its financial condition. The Board reviewed the Adviser’s financial statements and noted the Adviser’s
financial condition is stable as income from its asset management operations have contributed to higher revenues for the Adviser. The
Board acknowledged the Adviser’s management fees were comparable to those charged to other funds to which the Adviser provides
advisory or sub-advisory services. It was noted that, when launching a CEF, such as the Fund, the Adviser covers the underwriting costs,
which is a significant investment. The Board, including the Independent Directors, determined that the Advisory Agreement, with respect
to the Fund was not overly profitable to the Adviser and the financial condition of the Adviser was adequate.
56 |
(888)
848-7569 | www.rivernorth.com |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Consideration
and Approval of Advisory and Sub-Advisory Agreements |
December
31, 2022 (Unaudited) |
The
Board noted that the Adviser has no affiliations with the Fund’s transfer agent, fund accountant, custodian, or distribution-related
service providers utilized by the Fund and therefore does not derive any benefits from the relationships these parties may have with
the Fund.
Conclusion
Having
requested and received such information from the Adviser as the Board believed to be reasonably necessary to evaluate the terms of the
Advisory Agreement, and as assisted by the advice of independent counsel, the Board, including the Independent Directors, concluded that
renewal of the Advisory Agreement was in the best interests of the Fund and its shareholders.
Consideration
of the Sub-Advisory Agreement
At
the Meeting, the Board, including the Independent Directors, also considered the renewal of the sub-advisory agreement (the “Sub-Advisory
Agreement”) between the Adviser and DoubleLine Capital, LP (the “Sub-Adviser”). In its consideration of the Sub-Advisory
Agreement, the Board considered information and materials furnished by the Adviser and the Sub-Adviser in advance of and at the Meeting
and was afforded the opportunity to request additional information and to ask questions of the Adviser and Sub-Adviser to obtain information
that it believed to be reasonably necessary to evaluate the terms of the Sub-Advisory Agreement. The Board received materials compiled
by the Sub-Adviser and the Adviser, including a copy of the Sub-Advisory Agreement, the Sub-Adviser’s response to a questionnaire
regarding its profitability, management and operations, a copy of the Sub-Adviser’s Form ADV, information regarding the Sub-Adviser’s
compliance programs and information regarding the performance of the Fund’s benchmark indices and peer funds. The Board considered
the following factors, among others, in reaching its determination to renew the Sub-Advisory Agreement: (i) the investment performance
of the Fund and the investment performance of the Sub-Adviser, (ii) the nature, extent and quality of the services provided by the Sub-Adviser
to the Fund, (iii) the experience and qualifications of the personnel providing such services, (iv) the costs of the services provided
and the profits to be realized by the Sub-Adviser and any of its affiliates from the relationship with the Fund, (v) the extent to which
economies of scale will be realized by the Fund as it grows, and (vi) whether the fee level of the Fund reflected the economies of scale
to the benefit of the Fund’s shareholders.
The
Directors relied upon the advice of independent legal counsel and their own business judgment in determining the material factors to
be considered in evaluating the Sub-Advisory Agreement and the weight to be given to each such factor. The Directors’ conclusions
were based on an evaluation of all of the information provided and were not the result of any one factor. Moreover, each Director may
have afforded different weight to the various factors in reaching conclusions with respect to the Sub-Advisory Agreement. Although not
meant to be all-inclusive, the following discussion summarizes the factors considered and conclusions reached by the Directors in the
executive session and at the Meeting in determining to renew the Sub-Advisory Agreement.
Performance,
Fees and Expenses
The
Board reviewed the performance of the portion of the Fund managed by the Sub-Adviser. The Board recalled its deliberations regarding
the Fund’s performance while considering the renewal of the Sub-Advisory Agreement. The Board, including the Independent Directors,
concluded that the performance was adequate.
Semi-Annual
Report | December 31, 2022 |
57 |
RiverNorth/DoubleLine
Strategic Opportunity Fund, Inc. |
Consideration
and Approval of Advisory and Sub-Advisory Agreements |
December
31, 2022 (Unaudited) |
As
to the comparative fees and expenses, the Board considered the management fee paid by the Fund to the Adviser and noted that the Adviser
pays the Sub-Adviser from its fee, which the Board had previously determined was reasonable. The Board also compared the sub-advisory
fee paid by the Adviser to the Sub-Adviser against the fees the Sub-Adviser charges other clients to manage similar strategies.
Nature, Extent
and Quality of Services
As
to the nature, extent and quality of the services to be provided by the Sub-Adviser, the Board considered that under the terms of the
Sub-Advisory Agreement, the Sub-Adviser would, subject to the supervision of the Board, provide to the Fund such investment advice as
the Sub-Adviser, in its discretion, deems 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. The Board reviewed the Form ADV of the Sub-Adviser, which provided
details regarding the experience of the Sub-Adviser’s investment personnel. The Sub-Adviser also provided additional information
regarding its operations and experience managing other investment accounts. Based on the foregoing information, the Board, including
the Independent Directors, concluded that the Sub-Adviser had provided quality services and would continue to do so for the Fund.
Profitability
and Other Benefits
As
to the cost of the services to be provided and to the profits to be realized by the Sub-Adviser, the Board reviewed the Sub-Adviser’s
financial condition. The Board noted that the financial condition of the Sub-Adviser was stable. The Board, including the Independent
Directors determined that the Sub-Advisory Agreement and the compensation to the Sub-Adviser was reasonable and the financial condition
of the Sub-Adviser was adequate. The Board noted that the Sub-Adviser had no affiliations with the Fund’s transfer agent, fund
accountant, custodian, or distribution-related service providers and therefore does not derive any benefits from the relationships these
parties may have with the Fund.
Conclusion
Having
requested and received such information from the Adviser and Sub-Adviser as the Board believed to be reasonably necessary to evaluate
the terms of the Sub-Advisory Agreement, and as assisted by the advice of independent counsel, the Board, including the Independent Directors,
concluded that renewal of the Sub-Advisory Agreement was in the best interests of the Fund and its shareholders.
58 |
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848-7569 | www.rivernorth.com |
Intentionally
Left Blank