ASSETS:
|
|
|
Investments in securities:
|
|
|
|
|
At cost
|
|
$
|
203,567,003
|
|
At value
|
|
$
|
223,298,025
|
|
Cash
|
|
|
120,208
|
|
Deposit with broker for futures contracts
|
|
|
1,202,602
|
|
Receivable for investments sold
|
|
|
1,154,754
|
|
Interest receivable
|
|
|
719,117
|
|
Dividends receivable
|
|
|
75
|
|
Total Assets
|
|
|
226,494,781
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
Payable for Floating Rate Note Obligations
|
|
|
67,175,000
|
|
Payable for interest expense and fees on Floating Rate Note Obligations
|
|
|
115,558
|
|
Loan payable (Note 6)
|
|
|
15,000,000
|
|
Variation margin payable
|
|
|
96,346
|
|
Interest due on loan payable
|
|
|
5,308
|
|
Payable for investments purchased
|
|
|
127,147
|
|
Payable to Adviser
|
|
|
266,759
|
|
Other payables
|
|
|
304
|
|
Total Liabilities
|
|
|
82,786,422
|
|
Net Assets
|
|
$
|
143,708,359
|
|
|
|
|
|
|
NET ASSETS CONSIST OF:
|
|
|
|
|
Paid-in capital
|
|
$
|
122,115,953
|
|
Total distributable earnings
|
|
|
21,592,406
|
|
Net Assets
|
|
$
|
143,708,359
|
|
|
|
|
|
|
PRICING OF SHARES:
|
|
|
|
|
Net Assets
|
|
$
|
143,708,359
|
|
Shares of common stock outstanding (50,000,000 of shares authorized, at $0.0001 par value per share)
|
|
|
6,114,699
|
|
Net asset value per share
|
|
$
|
23.50
|
|
See
Notes to Financial Statements.
Semi-Annual Report | December
31, 2020
|
9
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Statement of Operations
|
For
the Six Months Ended December 31, 2020 (Unaudited)
|
INVESTMENT INCOME:
|
|
|
Interest
|
|
$
|
1,762,689
|
|
Dividends
|
|
|
2,383,228
|
|
Total Investment Income
|
|
|
4,145,917
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
Investment Adviser fee
|
|
|
1,553,924
|
|
Interest expense and fees on Floating Rate Note Obligations
|
|
|
260,805
|
|
Interest expense on loan payable
|
|
|
75,780
|
|
Legal expenses
|
|
|
14,932
|
|
Total Expenses
|
|
|
1,905,441
|
|
Net Investment Income
|
|
|
2,240,476
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAIN/(LOSS):
|
|
|
|
|
Net realized gain/(loss) on:
|
|
|
|
|
Investments
|
|
|
2,772,989
|
|
Futures
|
|
|
481,973
|
|
Net realized gain
|
|
|
3,254,962
|
|
Net change in unrealized appreciation/depreciation on:
|
|
|
|
|
Investments
|
|
|
9,761,358
|
|
Futures
|
|
|
500,515
|
|
Net change in unrealized appreciation/depreciation
|
|
|
10,261,873
|
|
Net Realized and Unrealized Gain on Investments and Futures Contracts
|
|
|
13,516,835
|
|
Net Increase in Net Assets Resulting from Operations
|
|
$
|
15,757,311
|
|
See
Notes to Financial Statements.
10
|
(888)
848-7569 | www.rivernorth.com
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Statements
of Changes in Net Assets
|
|
For the
Period Ended December 31, 2020 (Unaudited)
|
|
For the Period
March 26, 2020 (Commencement of Operations) to
June 30, 2020
|
NET INCREASE IN NET ASSETS FROM OPERATIONS:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
2,240,476
|
|
|
$
|
647,352
|
|
Net realized gain
|
|
|
3,254,962
|
|
|
|
519,619
|
|
Net change in unrealized appreciation/depreciation
|
|
|
10,261,873
|
|
|
|
9,587,310
|
|
Net increase in net assets resulting from operations
|
|
|
15,757,311
|
|
|
|
10,754,281
|
|
|
|
|
|
|
|
|
|
|
DISTRIBUTIONS TO SHAREHOLDERS:
|
|
|
|
|
|
|
|
|
From distributable earnings
|
|
|
(3,822,910
|
)
|
|
|
(1,225,127
|
)
|
From tax return of capital
|
|
|
–
|
|
|
|
(49,176
|
)
|
Net decrease in net assets from distributions to shareholders
|
|
|
(3,822,910
|
)
|
|
|
(1,274,303
|
)
|
|
|
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS:
|
|
|
|
|
|
|
|
|
Proceeds from shares sold
|
|
|
–
|
|
|
|
122,193,980
|
|
Net increase in net assets from capital share transactions
|
|
|
–
|
|
|
|
122,193,980
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets
|
|
|
11,934,401
|
|
|
|
131,673,958
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
131,773,958
|
|
|
|
100,000
|
|
End of period
|
|
$
|
143,708,359
|
|
|
$
|
131,773,958
|
|
|
|
|
|
|
|
|
|
|
OTHER INFORMATION:
|
|
|
|
|
|
|
|
|
Share Transactions:
|
|
|
|
|
|
|
|
|
Shares outstanding- beginning of period
|
|
|
6,114,699
|
|
|
|
5,000
|
|
Shares sold
|
|
|
–
|
|
|
|
6,109,699
|
|
Shares outstanding - end of period
|
|
|
6,114,699
|
|
|
|
6,114,699
|
|
See
Notes to Financial Statements.
Semi-Annual Report | December
31, 2020
|
11
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Statement of Cash Flows
|
For
the Six Months Ended December 31, 2020 (Unaudited)
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
15,757,311
|
|
Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities:
|
|
|
|
|
Purchases of investment securities
|
|
|
(26,717,019
|
)
|
Proceeds from disposition of investment securities
|
|
|
28,535,269
|
|
Amortization of premium and accretion of discount on investments, net
|
|
|
382,995
|
|
Net proceeds from short-term investment securities
|
|
|
528,611
|
|
Net realized (gain)/loss on:
|
|
|
|
|
Investments
|
|
|
(2,772,989
|
)
|
Net change in unrealized appreciation/depreciation on:
|
|
|
|
|
Investments
|
|
|
(9,761,358
|
)
|
(Increase)/Decrease in assets:
|
|
|
|
|
Interest receivable
|
|
|
(52,679
|
)
|
Dividends receivable
|
|
|
253,361
|
|
Variation margin receivable on futures contracts
|
|
|
134,219
|
|
Increase/(Decrease) in liabilities:
|
|
|
|
|
Variation margin payable on futures contracts
|
|
|
96,346
|
|
Decrease in interest due on loan payable
|
|
|
(3,108
|
)
|
Payable for interest expense and fees on Floating Rate Note Obligations
|
|
|
16,041
|
|
Payable to Adviser
|
|
|
26,049
|
|
Other payables
|
|
|
(37,829
|
)
|
Net cash provided by operating activities
|
|
$
|
6,385,220
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
Payments on floating rate note obligations
|
|
$
|
(2,715,000
|
)
|
Cash distributions paid
|
|
|
(3,822,910
|
)
|
Net cash used in financing activities
|
|
$
|
(6,537,910
|
)
|
|
|
|
|
|
Net decrease in cash and restricted cash
|
|
$
|
(152,690
|
)
|
Cash and restricted cash, beginning of year
|
|
$
|
1,475,500
|
|
Cash and restricted cash, end of year
|
|
$
|
1,322,810
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
Cash paid during the period for interest expense and fees on floating rate note obligations
|
|
$
|
244,764
|
|
Cash paid for interest expense and fees for line of credit
|
|
$
|
78,888
|
|
|
|
|
|
|
Reconciliation of restricted and unrestricted cash at the beginning of period to the statement of assets and liabilities:
|
|
|
|
|
Cash
|
|
$
|
30,500
|
|
Deposit with broker for futures contracts
|
|
$
|
1,445,000
|
|
|
|
|
|
|
Reconciliation of restricted and unrestricted cash at the end of the period to the statement of assets and liabilities:
|
|
|
|
|
Cash
|
|
$
|
120,208
|
|
Deposit with broker for futures contracts
|
|
$
|
1,202,602
|
|
See
Notes to Financial Statements.
12
|
(888)
848-7569 | www.rivernorth.com
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Financial Highlights
|
For
a share outstanding throughout the period presented
|
|
|
For the
Period Ended December
31, 2020
(Unaudited)
|
|
|
For the Period
March 26, 2020 (Commencement of Operations)
to June
30, 2020
|
|
Net asset value - beginning of period
|
|
$
|
21.55
|
|
|
$
|
20.00
|
|
Income/(loss) from investment operations:
|
|
|
|
|
|
|
|
|
Net investment income(a)
|
|
|
0.37
|
|
|
|
0.11
|
|
Net realized and unrealized gain
|
|
|
2.21
|
|
|
|
1.65
|
|
Total income from investment operations
|
|
|
2.58
|
|
|
|
1.76
|
|
Less distributions:
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(0.63
|
)
|
|
|
(0.13
|
)
|
From net realized gains
|
|
|
–
|
|
|
|
(0.07
|
)
|
From tax return of capital
|
|
|
–
|
|
|
|
(0.01
|
)
|
Total distributions
|
|
|
(0.63
|
)
|
|
|
(0.21
|
)
|
Net increase in net asset value
|
|
|
1.95
|
|
|
|
1.55
|
|
Net asset value - end of period
|
|
$
|
23.50
|
|
|
$
|
21.55
|
|
Market price - end of period
|
|
$
|
21.85
|
|
|
$
|
19.62
|
|
Total Return(b)
|
|
|
12.40
|
%(c)
|
|
|
8.88
|
%(c)
|
Total
Return - Market Price(b)
|
|
|
14.79
|
%(c)
|
|
|
(0.87
|
%)(c)
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
Net assets, end of period (in thousands)
|
|
$
|
143,708
|
|
|
$
|
131,774
|
|
Ratios to Average Net Assets (including interest on line of credit and short term floating rate obligations)(d)
|
|
|
|
|
|
|
|
|
Ratio of expenses to average net assets
|
|
|
2.76
|
%(e)(f)
|
|
|
2.26
|
%(e)(f)
|
Ratio of net investment income to average net assets
|
|
|
3.25
|
%(e)(f)
|
|
|
2.04
|
%(e)(f)
|
Ratios to Average Net Assets (excluding interest on line of credit and short term floating rate obligations)
|
|
|
|
|
|
|
|
|
Ratio of expenses to average net assets
|
|
|
2.27
|
%(e)(f)
|
|
|
1.93
|
%(e)(f)
|
Ratio of net investment income to average net assets
|
|
|
3.74
|
%(e)(f)
|
|
|
2.37
|
%(e)(f)
|
Portfolio turnover rate
|
|
|
12
|
%(c)
|
|
|
16
|
%(c)
|
Payable for floating rate obligations (in thousands)
|
|
$
|
67,175
|
|
|
$
|
69,890
|
|
Loan payable (in thousands)
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
Asset coverage per $1,000 of floating rate obligations payable(g)
|
|
|
3,141
|
|
|
|
2,885
|
|
Asset coverage per $1,000 of line of credit(g)
|
|
|
10,581
|
|
|
|
9,785
|
|
|
(a)
|
Calculated
using average shares throughout the period.
|
|
(b)
|
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.
|
See
Notes to Financial Statements.
Semi-Annual Report | December
31, 2020
|
13
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Financial Highlights
|
For
a share outstanding throughout the period presented
|
|
(d)
|
Interest
expense relates to the cost of tender option bond transactions (See Note 2) and interest
expense on the loan payable.
|
|
(f)
|
The
ratios exclude the impact of expenses of the underlying funds in which the Fund invests
as represented in the Schedule of Investments.
|
|
(g)
|
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.
|
See
Notes to Financial Statements.
14
|
(888)
848-7569 | www.rivernorth.com
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
1.
ORGANIZATION
RiverNorth
Flexible Municipal Income Fund, Inc. (the “Fund”) was organized as a Maryland corporation on October 1, 2019 pursuant
to its Articles of Incorporation, which was amended and restated on February 19, 2020 (“Articles of Incorporation”).
The Fund commenced operations on March 26, 2020 and had no operations until that date other than those related to organizational
matters and the registration of its shares under applicable securities laws.
The
Fund is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended
(the “1940 Act”). The Articles of Incorporation permit the Board of Directors (the “Board” or “Directors”)
to authorize and issue fifty million shares of common stock with $0.0001 par value per share. The Fund is considered an investment
company and therefore follows the Investment Company accounting and reporting guidance of the Financial Accounting Standards Board
(“FASB”) Accounting Standards codification Topic 946 Financial Services – Investment Companies.
The
Fund will terminate on or before March 26, 2035; provided, that if the Board believes that under then-current market conditions
it is in the best interests of the Fund to do so, the Fund may extend the Termination Date once for up to one year, and once for
an additional six months. The Fund may be converted to an open-end investment company at any time if approved by the Board and
the shareholders. Within twelve months prior to the termination date, the Fund may conduct a tender offer to purchase 100% of
the then outstanding shares. Following the completion of the tender offer, the Fund must have at least $100 million of net assets.
The Board may then eliminate the termination date and convert the Fund to a perpetual structure upon the affirmative vote of a
majority of the Board.
The
Fund’s investment adviser is RiverNorth Capital Management, LLC (the “Adviser”) and the Fund’s sub-adviser
is MacKay Shields, LLC (the “Sub-Adviser”). The Fund’s primary investment objective is to seek current income
exempt from regular U.S. federal income taxes (but which may be includable in taxable income for purposes of the Federal alternative
minimum tax). The Fund’s secondary investment objective is total return.
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 (“U.S. GAAP”). The financial statements are prepared
in accordance with U.S. 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 financial statements have been prepared as of the close of the New York Stock Exchange (“NYSE”)
on December 31, 2020.
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.
Semi-Annual Report | December
31, 2020
|
15
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
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 Investment Income: The Fund follows industry practice and records securities 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, 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 over the life of the respective
securities.
Federal
Income Taxes: The Fund makes no provision for federal income tax. The Fund intends to qualify each year as a “regulated
investment company” under Subchapter M of the Internal Revenue Code of 1986, as amended (the “IRC”), by distributing
substantially all of its taxable income. If the required amount of net investment income is not distributed, the Fund could incur
a tax expense. As of and during the period from March 26, 2020 (commencement of operations) to December 31, 2020, 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.
The
Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expenses on the Statement of
Operations. During the period from March 26, 2020 (commencement of operations) to December 31, 2020, the Fund did not incur any
interest or penalties.
Distributions
to Shareholders: Distributions to shareholders, which are paid monthly and determined in accordance with income tax regulations,
are recorded on the ex-dividend date. The treatment for financial reporting purposes of distributions made to 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 value (“NAV”) per share of the Fund.
The
Fund distributes to 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, the Fund may pay out less than all of its net investment
income or pay out accumulated undistributed income, or return capital, in addition to current net investment income. Any distribution
that is treated as a return of capital generally will reduce a 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 shareholder’s
basis are generally treated as capital gain, assuming the shares are held as capital assets.
16
|
(888)
848-7569 | www.rivernorth.com
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
Tender
Option Bonds: The Fund may leverage its assets through the use of proceeds received from tender option bond (“TOB”)
transactions. In a TOB transaction, a tender option bond trust (a “TOB Issuer”) is typically established, which forms
a special purpose trust into which the Fund, or an agent on behalf of the Fund, transfers municipal bonds or other municipal securities
(“Underlying Securities”). A TOB Issuer typically issues two classes of beneficial interests: short-term floating
rate notes (“TOB Floaters”) with a fixed principal amount representing a senior interest in the Underlying Securities,
and which are generally sold to third party investors, and residual interest municipal tender option bonds (“TOB Residuals”)
representing a subordinate interest in the Underlying Securities, and which are generally issued to the Fund. The interest rate
on the TOB Floaters resets periodically, usually weekly, to a prevailing market rate, and holders of the TOB Floaters are granted
the option to tender their TOB Floaters back to the TOB Issuer for repurchase at their principal amount plus accrued interest
thereon periodically, usually daily or weekly. The Fund may invest in both TOB Floaters and TOB Residuals, including TOB Floaters
and TOB Residuals issued by the same TOB Issuer. The Fund may not invest more than 5% of its “Managed Assets” in any
single TOB Issuer. Managed Assets is defined as total assets of the Fund, including assets attributable to leverage, minus liabilities
(other than debt representing leverage and any preferred stock that may be outstanding).
As
a result of Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules thereunder (collectively,
the “Volcker Rule”), banking entities are generally prohibited from sponsoring the TOB Issuer, and instead the Fund
may serve as the sponsor of a TOB issuer (“Fund-sponsored TOB”) and establish, structure and “sponsor”
a TOB Issuer in which it holds TOB Residuals. In connection with Fund-sponsored TOBs, the Fund may contract with a third-party
to perform some or all of the Fund’s duties as sponsor. The Fund’s role under the Fund-sponsored TOB structure may
increase its operational and regulatory risk. If the third-party is unable to perform its obligations as an administrative agent,
the Fund itself would be subject to such obligations or would need to secure a replacement agent. The obligations that the Fund
may be required to undertake could include reporting and recordkeeping obligations under the IRC and federal securities laws and
contractual obligations with other TOB service providers.
Under
the Fund-sponsored TOB structure, the TOB Issuer receives Underlying Securities from the Fund through (or as) the sponsor and
then issues TOB Floaters to third party investors and TOB Residuals to the Fund. The Fund is paid the cash (less transaction expenses,
which are borne by the Fund) received by the TOB Issuer from the sale of TOB Floaters and typically will invest the cash in additional
municipal bonds or other investments permitted by its investment policies. TOB Floaters may have first priority on the cash flow
from the securities held by the TOB Issuer and are enhanced with a liquidity support arrangement from a bank or an affiliate of
the sponsor (the “liquidity provider”), which allows holders to tender their position back to the TOB Issuer at par
(plus accrued interest). The Fund, in addition to receiving cash from the sale of TOB Floaters, also receives TOB Residuals. TOB
Residuals provide the Fund with the right to (1) cause the holders of TOB Floaters to tender their notes to the TOB Issuer at
par (plus accrued interest), and (2) acquire the Underlying Securities from the TOB Issuer. In addition, all voting rights and
decisions to be made with respect to any other rights relating to the Underlying Securities deposited in the TOB Issuer are passed
through to the Fund, as the holder of TOB Residuals. Such a transaction, in effect, creates exposure for the Fund to the entire
return of the Underlying Securities deposited in the TOB Issuer, with a net cash investment by the Fund that is less than the
value of the Underlying Securities deposited in the TOB Issuer. This multiplies the positive or negative impact of the Underlying
Securities’ return within the Fund (thereby creating leverage). Income received from TOB Residuals will vary inversely with
the short term rate paid to holders of TOB Floaters and in most circumstances, TOB Residuals represent substantially all of the
Underlying Securities’ downside investment risk and also benefits disproportionately from any potential appreciation of
the Underlying Securities’ value. The amount of such increase or decrease is a function, in part, of the amount of TOB Floaters
sold by the TOB Issuer of these securities relative to the amount of TOB Residuals that it sells. The greater the amount of TOB
Floaters sold relative to TOB Residuals, the more volatile the income paid on TOB Residuals will be. The price of TOB Residuals
will be more volatile than that of the Underlying Securities because the interest rate is dependent on not only the fixed coupon
rate of the Underlying Securities, but also on the short-term interest rate paid on TOB Floaters.
Semi-Annual Report | December
31, 2020
|
17
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
For
TOB Floaters, generally, the interest rate earned will be based upon the market rates for municipal securities with maturities
or remarketing provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly,
to monthly, to extended periods of one year or multiple years. Since the option feature has a shorter term than the final maturity
or first call date of the Underlying Securities deposited in the TOB Issuer, the Fund, if it is the holder of the TOB Floaters,
relies upon the terms of the agreement with the financial institution furnishing the option as well as the credit strength of
that institution. As further assurance of liquidity, the terms of the TOB Issuer provide for a liquidation of the Underlying Security
deposited in the TOB Issuer and the application of the proceeds to pay off the TOB Floaters.
The
TOB Issuer may be terminated without the consent of the Fund upon the occurrence of certain events, such as the bankruptcy or
default of the issuer of the Underlying Securities deposited in the TOB Issuer, a substantial downgrade in the credit quality
of the issuer of the securities deposited in the TOB Issuer, the inability of the TOB Issuer to obtain liquidity support for the
TOB Floaters, a substantial decline in the market value of the Underlying Securities deposited in the TOB Issuer, or the inability
of the sponsor to remarket any TOB Floaters tendered to it by holders of the TOB Floaters. In such an event, the TOB Floaters
would be redeemed by the TOB Issuer at par (plus accrued interest) out of the proceeds from a sale of the Underlying Securities
deposited in the TOB Issuer. If this happens, the Fund would be entitled to the assets of the TOB Issuer, if any, that remain
after the TOB Floaters have been redeemed at par (plus accrued interest). If there are insufficient proceeds from the sale of
these Underlying Securities to redeem all of the TOB Floaters at par (plus accrued interest), the liquidity provider or holders
of the TOB Floaters would bear the losses on those securities and there would be no recourse to the Fund’s assets (unless
the Fund held a recourse TOB Residual).
Pursuant
to the Volcker Rule, to the extent that the remarketing agent is a banking entity, it would not be able to repurchase tendered
TOB Floaters for its own account upon a failed remarketing. In the event of a failed remarketing, a banking entity serving as
liquidity provider may loan the necessary funds to the TOB Issuer to purchase the tendered TOB Floaters. The TOB Issuer, not the
Fund, would be the borrower and the loan from the liquidity provider will be secured by the purchased TOB Floaters now held by
the TOB Issuer. However, the Fund would bear the risk of loss with respect to any liquidity shortfall to the extent it entered
into a reimbursement agreement with the liquidity provider.
18
|
(888)
848-7569 | www.rivernorth.com
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
For
financial reporting purposes, Underlying Securities that are deposited into a TOB Issuer are treated as investments of the Fund,
and are presented in the Fund’s Schedule of Investments. Outstanding TOB Floaters issued by a TOB Issuer are presented as
a liability at their face value as “Payable for Floating Rate Note Obligations” in the Fund’s Statement of Assets
and Liabilities. The face value of the TOB Floaters approximates the fair value of the floating rate notes. Interest income from
the Underlying Securities is recorded by the Fund on an accrual basis. Interest expense incurred on the TOB Floaters and other
expenses related to remarketing, administration and trustee services to a TOB Issuer are recognized as a component of “Interest
expense and fees on floating rate note obligations” in the Statement of Operations. Fees paid upon creation of the TOB Trust
are recorded as debt issuance costs and are amortized to “Interest expense and fees on floating rate note obligations”
in the Statement of Operations.
At
December 31, 2020, the aggregate value of the Underlying Securities transferred to the TOB Issuer and the related liability for
TOB Floaters was as follows:
Underlying
Securities Transferred to TOB Issuers
|
Liability
for Floating Rate Note Obligations
|
$103,212,712
|
$67,175,000
|
During
the six months ended December 31, 2020, the Fund’s average TOB Floaters outstanding and the daily weighted average interest
rate, including fees, were as follows:
Average
Floating Rate Note Obligations Outstanding
|
Daily
Weighted Average Interest Rate
|
$68,195,245
|
0.76%
|
Segregation
and Collateralization: In cases where a Fund enters into certain investments (e.g., futures contracts) or certain borrowings
(e.g., TOB Trust transactions) that would be treated as “senior securities” for 1940 Act purposes, a Fund may segregate
or designate on its books and records cash or liquid assets having a market value at least equal to the amount of its future obligations
under such investments or borrowings. Doing so allows the investment or borrowings to be excluded from treatment as a “senior
security.”
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.
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. U.S. 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.
Semi-Annual Report | December
31, 2020
|
19
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
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 a 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, are generally valued by using market quotations, but may be valued on the basis of prices
furnished by a pricing service when the Adviser or the Sub-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
or the Sub-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, Sub-Adviser, or valuation committee in conformity with guidelines adopted by and subject to review
by the Board. These securities will be categorized as Level 3 securities.
20
|
(888)
848-7569 | www.rivernorth.com
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (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.
Fixed
income securities, including municipal and corporate bonds, are normally valued at the mean between the closing bid and asked
prices provided by independent pricing services. 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.
These securities will be classified as Level 2 securities.
Futures
contracts are normally valued at the settlement price or official closing price provided by independent pricing services.
In
accordance with the Fund’s good faith pricing guidelines, the Adviser, Sub-Adviser, or valuation committee 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, Sub-Adviser, or valuation committee 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, a Sub-Adviser’s, or the valuation committee’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 a Fund’s NAV calculation that
may affect a security’s value, or the Adviser or a Sub-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.
Semi-Annual Report | December
31, 2020
|
21
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
The
following is a summary of the inputs used at December 31, 2020 in valuing the Fund’s assets:
Investments in Securities at Value*
|
|
Level 1 -
Quoted Prices
|
|
Level 2 -
Other Significant Observable
Inputs
|
|
Level 3 -
Significant
Unobservable
Inputs
|
|
Total
|
Closed-End Funds
|
|
$
|
102,348,662
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
102,348,662
|
|
Municipal Bonds
|
|
|
–
|
|
|
|
114,305,820
|
|
|
|
–
|
|
|
|
114,305,820
|
|
Short-Term Investments
|
|
|
6,643,543
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6,643,543
|
|
Total
|
|
$
|
108,992,205
|
|
|
$
|
114,305,820
|
|
|
$
|
–
|
|
|
$
|
223,298,025
|
|
Other Financial Instruments**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Contracts
|
|
$
|
190,891
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
190,891
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Contracts
|
|
$
|
(72,730
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
(72,730
|
)
|
Total
|
|
$
|
118,161
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
118,161
|
|
4.
DERIVATIVE FINANCIAL INSTRUMENTS
The
following discloses the Fund’s use of derivative instruments. The Fund’s investment objective not only permits the
Fund to purchase investment securities, but also allow the Fund to enter into various types of derivative contracts such as futures.
In doing so, the Fund will employ strategies in differing combinations to permit it to increase, decrease, or change the level
or types of exposure to market factors. Central to those strategies are features inherent to derivatives that make them more attractive
for this purpose than equity or debt securities; they require little or no initial cash investment, they can focus exposure on
only selected risk factors, and they may not require the ultimate receipt or delivery of the underlying security (or securities)
to the contract. This may allow the Fund to pursue its objective more quickly and efficiently than if it were to make direct purchases
or sales of securities capable of affecting a similar response to market factors.
Market
Risk Factors: In pursuit of its investment objectives, the Fund may seek to use derivatives to increase or decrease its exposure
to the following market risk factors:
Equity
Risk: Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general
market.
Interest
Rate Risk: Interest rate risk relates to the risk that the municipal securities in the Fund’s portfolio will decline
in value because of increases in market interest rates.
22
|
(888)
848-7569 | www.rivernorth.com
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
Risk
of Investing in Derivatives
The
Fund’s use of derivatives can result in losses due to unanticipated changes in the market risk factors and the overall market.
Derivatives may have little or no initial cash investment relative to their market value exposure and therefore can produce significant
gains or losses in excess of their cost. This use of embedded leverage allows the Fund to increase its market value exposure relative
to its net assets and can substantially increase the volatility of the Fund’s performance.
Additional
associated risks from investing in derivatives also exist and potentially could have significant effects on the valuation of the
derivative and the Fund. Typically, the associated risks are not the risks that the Fund is attempting to increase or decrease
exposure to, per its investment objective, but are the additional risks from investing in derivatives.
Examples
of these associated risks are liquidity risk, which is the risk that the Fund will not be able to sell the derivative in the open
market in a timely manner, and counterparty credit risk, which is the risk that the counterparty will not fulfill its obligation
to the Fund.
Futures
The
Fund may invest in futures contracts in accordance with its investment objectives. The Fund does so for a variety of reasons including
for cash management, hedging or non-hedging purposes in an attempt to achieve the Fund’s investment objective. A futures
contract provides for the future sale by one party and purchase by another party of a specified quantity of the security or other
financial instrument at a specified price and time. A futures contract on an index is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index contract was originally written. Futures transactions may result
in losses in excess of the amount invested in the futures contract. There can be no guarantee that there will be a correlation
between price movements in the hedging vehicle and in the portfolio securities being hedged. An incorrect correlation could result
in a loss on both the hedged securities in a fund and the hedging vehicle so that the portfolio return might have been greater
had hedging not been attempted. There can be no assurance that a liquid market will exist at a time when a fund seeks to close
out a futures contract or a futures option position. Lack of a liquid market for any reason may prevent a fund from liquidating
an unfavorable position, and the fund would remain obligated to meet margin requirements until the position is closed. In addition,
a fund could be exposed to risk if the counterparties to the contracts are unable to meet the terms of their contracts. With exchange-traded
futures, there is minimal counterparty credit risk to the Fund since futures are exchange-traded and the exchange’s clearinghouse,
as counterparty to all exchange-traded futures, guarantees the futures against default. The Fund is party to certain enforceable
master netting arrangements, which provide for the right of offset under certain circumstances, such as the event of default.
When
a purchase or sale of a futures contract is made by a fund, the fund is required to deposit with its custodian (or broker, if
legally permitted) a specified amount of liquid assets (“initial margin”). The margin required for a futures contract
is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin
is in the nature of a performance bond or good faith deposit on the futures contract that is returned to the Fund upon termination
of the contract, assuming all contractual obligations have been satisfied. These amounts are included in Deposit with broker for
futures contracts on the Statement of Assets and Liabilities.
Semi-Annual Report | December
31, 2020
|
23
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
Each
day the Fund may pay or receive cash, called “variation margin,” equal to the daily change in value of the futures
contract. Such payments or receipts are recorded for financial statement purposes as unrealized gains or losses by the Fund. Variation
margin does not represent a borrowing or loan by the Fund but instead is a settlement between the Fund and the broker of the amount
one would owe the other if the futures contract expired. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
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, 2020:
|
|
Liability Derivatives
|
|
|
Risk Exposure
|
|
Statements of Assets and Liabilities Location
|
|
Fair Value
|
Interest Rate Risk (Futures Contracts)*
|
|
Unrealized depreciation on futures contracts
|
|
$
|
118,161
|
|
|
*
|
The
value presented includes cumulative loss on open futures contracts; however the value
reflected on the accompanying Statement of Assets and Liabilities is only the unsettled
variation margin payable as of December 31, 2020.
|
The
effect of derivative instruments on the Statement of Operations for the six months ended December 31, 2020:
Risk Exposure
|
|
Statement of Operations Location
|
|
Realized
Gain on
Derivatives
|
|
Change in
Unrealized
Appreciation/ Depreciation on Derivatives
|
Interest rate risk (Futures
contracts)
|
|
Net realized gain on futures contracts; Net change in unrealized appreciation/ depreciation on futures contracts
|
|
$
|
481,973
|
|
|
$
|
500,515
|
|
24
|
(888)
848-7569 | www.rivernorth.com
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
The
futures contracts average notional amount during the six months ended December 31, 2020, is noted below.
Fund
|
|
Average Notional Amount of Futures Contracts
|
RiverNorth Flexible Municipal Income Fund, Inc.
|
|
$
|
81,728,938
|
|
5.
ADVISORY FEES, DIRECTOR FEES AND OTHER AGREEMENTS
RiverNorth
serves as the Fund’s investment adviser pursuant to an Investment Advisory Agreement with the Fund (the “Advisory
Agreement”). Pursuant to the Advisory Agreement, the Fund will pay RiverNorth an annual management fee of 1.40% of the Fund’s
average daily managed assets, calculated as the total assets of the Fund, including assets attributable to leverage, less liabilities
other than debt representing leverage and any preferred stock that may be outstanding, for the services and facilities it provides
to the Fund (the “Unified Management Fee”). Out of the Unified Management Fee, the Adviser will pay substantially
all expenses of the Fund, including the compensation of the Sub-Adviser, the cost of transfer agency, custody, fund administration,
legal, audit, independent directors and other services, except for costs, including interest expenses, of borrowing money or engaging
in other types of leverage financing including, without limit, through the use by the Fund of tender option bond transactions
or preferred shares, distribution fees or expenses, brokerage expenses, taxes and governmental fees, fees and expenses of any
underlying funds in which the Fund invests, dividend and interest expense on short positions, fees and expenses of the legal counsel
for the Fund's independent directors, fees and expenses associated with shareholder meetings involving certain non-routine matters,
shareholder proposals or contested elections, costs associated with any future share offerings, tender offers and other share
repurchases and redemptions, and other extraordinary expenses not incurred in the ordinary course of the Fund’s business.
The Unified Management Fee is designed to pay substantially all of the Fund’s expenses and to compensate the Adviser for
providing services for the Fund.
MacKay
Shields, LLC 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 of Directors, provides to the Fund such investment advice as is deemed advisable
and will furnish a continuous investment program for the portion of assets managed, consistent with the Fund’s investment
objective and policies. As compensation for its sub-advisory services, the Adviser, not the Fund, is obligated to pay the Sub-Adviser
a fee computed and accrued daily and paid monthly in arrears based on an annual rate of 0.20% of the daily managed assets of the
Fund.
ALPS
Fund Services, Inc. (“ALPS”), serves as administrator to the Fund. Under an Administration, Bookkeeping and Pricing
Services Agreement, ALPS is responsible for calculating the net asset and Daily Managed Assets values, providing additional fund
accounting and tax services, and providing fund administration and compliance-related services to the Fund. ALPS is entitled to
receive the greater of an annual minimum fee or a monthly fee based on the Fund’s average net assets, plus out-of-pocket
expenses. These fees are paid by the Adviser, not the Fund out of the Unified Management Fee.
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
fees of DST Systems, Inc. are paid by the Adviser, not the Fund.
Semi-Annual Report | December
31, 2020
|
25
|
RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
State
Street Bank & Trust, Co. serves as the Fund’s custodian. The fees of State Street Bank & Trust, Co. are paid by
the Adviser, not the Fund.
The
Fund pays no salaries or compensation to its officers or to any interested Director affiliated with the Adviser or Sub-Adviser,
and the Fund has no employees. For their services, the Directors of the Fund who are not affiliated with 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 affiliated with the Adviser
or Sub-Adviser are also reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings of the Board.
These fees are paid out of the Unified Management Fee.
6.
CREDIT AGREEMENT
On
May 29, 2020, the Fund entered into a credit agreement for margin financing with Pershing LLC (“Credit Agreement”).
The Credit Agreement permits the Fund to borrow funds that are collateralized by assets held in a special custody account held
at State Street Bank pursuant to a Special Custody and Pledge Agreement. Borrowings under this arrangement bear interest at the
overnight bank funding rate plus 90 basis points for a term of 60 calendar days.
For
the six months ended December 31, 2020, the Fund’s average borrowings and interest rate under the Credit Agreement were
$15,000,000 and 0.98%, respectively. At December 31, 2020, borrowings outstanding was $15,000,000 at an interest rate of 0.98%.
7.
TAX BASIS INFORMATION
Tax
Basis of Distributions to Shareholders: The character of distributions made during the period 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 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, 2020.
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848-7569 | www.rivernorth.com
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RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
The
tax character of the distributions paid by the Fund during the period March 26, 2020 (commencement of operations) to June 30,
2020, was as follows:
|
|
For the
Period Ended
June 30, 2020
|
Ordinary Income
|
|
$
|
432,290
|
|
Tax-Exempt Income
|
|
|
792,837
|
|
Return of Capital
|
|
|
49,176
|
|
Total
|
|
$
|
1,274,303
|
|
Unrealized
Appreciation and Depreciation on Investments: The amount of net unrealized appreciation/(depreciation) and the cost of investment
securities for tax purposes, adjusted for tender option bonds, including short-term securities at December 31, 2020, was as follows:
Cost of investments for income tax purposes
|
|
$
|
203,567,756
|
|
Gross appreciation on investments (excess of value over tax cost)
|
|
|
20,696,174
|
|
Gross depreciation on investments (excess of tax cost over value)
|
|
|
(847,745
|
)
|
Net unrealized appreciation on investments
|
|
$
|
19,848,429
|
|
8.
INVESTMENT TRANSACTIONS
Investment
transactions for the six months ended December 31, 2020, excluding short-term investments, were as follows:
|
|
Purchases
|
|
Sales
|
|
|
|
|
$
|
24,648,617
|
|
|
$
|
28,292,969
|
|
9.
CAPITAL SHARE TRANSACTIONS
On
March 26, 2020, 5,505,000 shares were issued in connection with the Fund’s initial public offering. An additional 609,699
shares were issued on May 11, 2020 in connection with the underwriter's over-allotment option. Aggregate proceeds from the sale
of shares was $122,293,980.
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.
Semi-Annual Report | December
31, 2020
|
27
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RiverNorth
Flexible Municipal Income Fund, Inc.
Notes to Financial Statements
|
December
31, 2020 (Unaudited)
|
10.
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.
11.
CORONAVIRUS (COVID-19) PANDEMIC
A
recent outbreak of respiratory disease caused by a novel coronavirus was first detected in December 2019 and has spread internationally.
The outbreak and efforts to contain its spread have resulted in closing borders and quarantines, restricting international and
domestic travel, enhanced health screenings, cancelations, disrupted supply chains and customer activity, responses by businesses
(including changes to operations and reducing staff), and have produced general concern and uncertainty. The impact of the coronavirus
pandemic, and other epidemics and pandemics that may arise in the future could adversely affect national and global economies,
individual companies and the market in general in a manner and for a period of time that cannot be foreseen at the present time
and may adversely affect the value, volatility and liquidity of dividend and interest paying securities. In the event of a pandemic
or an outbreak, there can be no assurance that the Fund and its service providers will be able to maintain normal business operations
for an extended period of time or will not lose the services of key personnel on a temporary or long-term basis due to illness
or other reasons, and could otherwise disrupt the ability of the Fund's service providers to perform essential services. Certain
economic and market conditions arising out of a pandemic or outbreak could result in a Fund's inability to achieve its investment
objectives, cause the postponement of reconstitution or rebalance dates for benchmark indices, adversely affect the prices and
liquidity of the securities and other instruments in which a Fund invests, negatively impact a Fund's performance, and cause losses
on your investment in a Fund. Management is monitoring the development of the pandemic, which was ongoing as of the date of the
financial statements, and is evaluating its impact on the financial position and operating results of the Fund.
12.
SUBSEQUENT EVENTS
Subsequent
to December 31, 2020, the Fund paid the following distributions:
Ex-Date
|
Record
Date
|
Payable
Date
|
Rate
(per share)
|
January 14, 2021
|
January 15, 2021
|
January 29, 2021
|
$0.1042
|
February 10, 2021
|
February 11, 2021
|
February 26, 2021
|
$0.1042
|
28
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(888)
848-7569 | www.rivernorth.com
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RiverNorth
Flexible Municipal Income Fund, Inc.
Dividend Reinvestment Plan
|
December
31, 2020 (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 Systems, Inc. (the “Plan Administrator”), all dividends
declared on Common Shares will be automatically reinvested by the Plan Administrator for shareholders in the Fund’s Automatic
Dividend Reinvestment Plan (the “Plan”), in additional Common Shares. Common Shareholders who elect not to participate
in the Plan will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of record
(or, if the Common Shares are held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend
disbursing agent. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty
by notice if received and processed by the Plan Administrator prior to the dividend record date; otherwise such termination or
resumption will be effective with respect to any subsequently declared dividend or other distribution. Such notice will be effective
with respect to a particular dividend or other distribution (together, a “Dividend”). Some brokers may automatically
elect to receive cash on behalf of Common Shareholders and may re-invest that cash in additional Common Shares. Reinvested Dividends
will increase the Fund’s Managed Assets on which the management fee is payable to the Adviser (and by the Adviser to the
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.
Semi-Annual Report | December
31, 2020
|
29
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RiverNorth
Flexible Municipal Income Fund, Inc.
Dividend Reinvestment Plan
|
December
31, 2020 (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. See “U.S. Federal
Income Tax Matters” below. Participants that request a sale of Common Shares through the Plan Administrator are subject
to brokerage commissions.
The
Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases
in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. All
correspondence or questions concerning the Plan should be directed to the Plan Administrator at (844) 569-4750.
30
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(888) 848-7569
| www.rivernorth.com
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RiverNorth
Flexible Municipal Income Fund, Inc.
Additional Information
|
December
31, 2020 (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 ending June 30 will be available without
charge upon request by (1) calling the Fund at (844) 569-4750 and (2) from Form N-PX filed by the Fund with the Securities and
Exchange Commission (“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 must be filed within
60 days of the end of the quarter. The Fund’s Forms N-PORT filing are available on the SEC’s website at www.sec.gov.
You may also obtain copies by calling the Fund at 1-844-569-4750.
Semi-Annual Report | December
31, 2020
|
31
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