MKZR 10-K Annual Report June 30, 2016

MACKENZIE REALTY CAPITAL, INC.

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10-K 1 mrc10k06302016.htm FORM 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K


☑		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2016
OR
☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission file number: 000-55006

MACKENZIE REALTY CAPITAL, INC.

(Exact Name of Registrant as Specified in its Charter)


Maryland		45-4355424
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

1640 School Street Moraga, California		94556
(Address of Principal Executive Offices)		(Zip Code)

Registrant's Telephone Number, Including Area Code: (925) 631-9100

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name Of Each Exchange On Which Registered
None		None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.0001 per share par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☐ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑ Smaller reporting company ☐

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☑

There is no established market for the Registrant's shares of common stock. The Registrant is currently conducting an ongoing public offering of its shares of common stock pursuant to a Registration Statement on Form N-2, which shares are currently being offered and sold at a price of $10 per share.

The number of the issuer's Common Stock outstanding as of September 22, 2016 was 4,766,075.36.

TABLE OF CONTENTS

		Page

PART I
Item 1.	Business	1
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	22
Item 3.	Legal Proceedings	22
Item 4.	Mine Safety Disclosures	22

PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	25
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
Item 9A.	Controls and Procedures	35
Item 9B.	Other Information	36

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	37
Item 11.	Executive Compensation	40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	41
Item 13.	Certain Relationships and Related Transactions, and Director Independence	42
Item 14.	Principal Accountant Fees and Services	43

PART IV
Item 15.	Exhibits and Financial Statement Schedules	44
	Signatures

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PART I

Item 1. BUSINESS

Organization

MacKenzie Realty Capital, Inc. (the "Company", " we " or " us ") is an externally managed non-diversified company that has elected to be treated as a business development company (" BDC ") under the Investment Company Act of 1940 (the " 1940 Act "). Our investment objective is to generate both current income and capital appreciation through investments in real estate companies (as defined below). We are advised by MCM Advisers, LP (the " Adviser " or " MCM Advisers "). MacKenzie Capital Management, LP (" MacKenzie " or the " Administrator ") provides us with non-investment management services and administrative services necessary for us to operate. The Company has elected to be treated as a real estate investment trust ("REIT") as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").

We commenced our initial public offering (" IPO ") under a registration statement on Form N-2 (the " Registration Statement ") that was declared effective by the Securities and Exchange Commission (" SEC ") on August 2, 2013, under which we seek to raise up to $50,000,000 through the sale of shares of our common stock (the " Shares "). The Company filed various post-effective amendments since the SEC granted the initial effectiveness for the purpose of updating the Registration Statement. The most recent post-effective amendment was filed on November 04, 2015, which the SEC declared effective on the same date.

On February 28, 2013, we acquired the Legacy Portfolio from eight private funds (the "Legacy Funds") and commenced our operations. The Legacy Portfolio had a fair value, as determined by our Board of Directors, of approximately $6.92 million on February 28, 2013. As consideration for our acquisition of the Legacy Portfolio, we issued 692,217 Shares to the Legacy Funds, resulting in a net asset value (" NAV ") per Share of $9.42 as of February 28, 2013. The acquisition of the Legacy Portfolio was a taxable transfer of assets, and, as a result, we took a tax basis in the assets acquired equal to the fair market value of our stock issued as consideration.

Our investments generally range in size from $10,000 to $3 million. However, we may make smaller or larger investments from time to time on an opportunistic basis. We focus primarily on real estate-related securities. We purchase most of our securities (i) directly from existing security holders, (ii) through established securities markets, and (iii) in the case of unregistered, privately offered securities, directly from issuers. We invest primarily in debt and equity securities issued by U.S. companies that primarily own commercial real estate that are either illiquid or not listed on any exchange.

We generally seek to invest in interests of real estate-related limited partnerships and REITs. Under normal market conditions, we invest at least 80% of our total assets in common stocks and other equity or debt securities issued by real estate companies, including REITs and similar REIT-like entities. A real estate company is one that (i) derives at least 50% of its revenue from the ownership, construction, financing, management or sale of commercial, industrial or residential real estate and land; or (ii) has at least 50% of its assets invested in such real estate. We will not invest in general partnerships, joint ventures, or other entities that do not afford limited liability to their security holders. However, limited liability entities that we may invest in may in turn hold interests in general partnerships, joint ventures, or other non-limited liability entities. We generally consider purchasing securities issued by entities that have (i) completed the initial offering of their securities, (ii) operated for a period of at least two years, and typically more than five years, from the completion of their initial offering, and (iii) fully invested their capital in real properties or other real estate-related investments.

We may also acquire or originate (i) individual mortgages secured by real property (i.e., we may originate such loans or we may purchase outstanding loans secured by real estate), (ii) securities of issuers that own mortgages secured by income producing real property, and (iii) using no more than 20% of our available capital, securities of issuers that own assets other than real estate.

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Investment Strategy

Our investment objective is to generate both current income and capital appreciation through debt and equity real estate-related investments. Our Independent Directors (as defined in Part II, Item 10 of this Annual Report on Form 10-K) review our investment policies with sufficient frequency, but at least annually, to determine that the policies we are following are in the best interests of our stockholders. Each such determination and the basis thereof are contained in the minutes of our Board of Directors.

We seek to accomplish our objective by rigorously analyzing the net asset value ("NAV") of and risks associated with a potential security acquisition, and by adhering to a disciplined requirement that any security must be acquired at a significant discount to its NAV. Although we may acquire any type of security by any method, we anticipate our acquisitions will generally be accomplished in the following ways:

Tender offers . We acquire shares of non-traded REITs ("NTRs") and other real estate companies via registered and non-registered tender offers (e.g., offers to purchase securities directly from the existing holders). This is generally our preferred acquisition method, as it allows us to name the price at which we are willing to buy such securities. By purchasing securities at significant discounts to NAV, we believe we reduce the risk of a loss of capital due to a decline in NAV while increasing total returns when the discount is realized. Also, by purchasing seasoned securities that are several years old, we significantly reduce our anticipated holding period and potentially increase our annualized rate of return.

·	Direct loans and private placements . We may occasionally make direct loans to private real estate companies and arrange for private placements of equity issued directly to us by private real estate companies.

Purchases of small-cap REITs on the open market . We believe that small-capitalization REITs (typically less than $250 million) are largely ignored by institutional investors and by Wall Street analysts, and as a result they often trade for significant discounts to their NAV. While these REITs tend to be highly illiquid with very small trading volumes, our smaller size allows us to focus on these REITs and to purchase them in quantities that are meaningful for us. Similar to the shares of NTRs we purchase at discounts to NAV, we believe these acquisitions can provide superior risk-adjusted returns.

Our Corporate Information

Our offices are located at 1640 School Street, Moraga, California 94556, and our telephone number is (925) 631-9100 or (800) 854-8357.

Investments

We engage in various investment strategies in order to achieve our overall investment objectives. The strategy we select depends upon, among other things, market opportunities, the skills and experience of the Adviser's investment team and our overall portfolio composition. We generally seek to acquire securities that produce ongoing distributable income for investors, yet with a primary focus on purchasing such securities at a discount from what the Adviser estimates to be the actual value of the real estate underlying the securities.

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Types of Investments

We target the following real estate-related investments.

·	Real Estate-Related Limited Partnerships. Limited partnerships which may be public or private, and which were formed primarily to own real property. They may actively operate the property, they may develop the property, or they may passively own property operated by a third party.

·	REITs. Corporations or trusts that are formed to own real property and are exempted from corporate income tax provided that they distribute at least 90.0% of their net income in the form of dividends to their stockholders.

Other Real Estate-Related Investments. May include equity interests in LLCs, tenancies-in-common, mortgages, loans, bonds, or any security whose underlying value derives from real estate. We may invest in other real estate-related investment entities. We do not invest in general partnerships, joint ventures, or other entities that do not afford limited liability to their security holders. However, limited liability entities in which we may invest may in turn hold interests in general partnerships, joint ventures, or other non-limited liability entities.

Targeted Securities

Our Adviser has advised on a significant number of investments in the real estate industry. We leverage this prior investing experience to continue to target attractive investments in the real estate industry. Securities to be acquired by us generally consist of the following:

Securities Issued by Owners of Real Property. We acquire securities issued by limited partnerships, REITs or other investment entities that have invested directly or indirectly in real property, real estate joint ventures, or other real property based investments. We buy securities issued by entities owning a variety of property types, including apartments, shopping centers, office buildings, nursing homes, min-warehouses, and hotels.

Direct Real Property Obligations, Derivatives, and Other Securities. We may also acquire (i) individual mortgages secured by real property (i.e., originate, or purchase outstanding loans secured by real estate), (ii) securities of issuers that own mortgages secured by income-producing real property, and (iii) using no more than 20.0% of our capital available for investment, securities of issuers that own assets other than real estate.

We generally acquire securities in one of two ways:

Securities Issued Previously Pursuant to a Registration Statement. In general, we seek to acquire securities originally registered by the issuer with the SEC. These target securities are typically public limited partnership interests and shares in REITs issued by national real estate syndicators and companies. These issuers typically have hundreds or thousands of limited partners or stockholders and own numerous real property assets.

Securities Issued in Private Transactions. We may acquire securities that are or were privately placed by issuers that (i) are limited partnerships, REITs, or other real estate-related entities, (ii) have sold their securities in private offerings to only a limited number of investors who have met suitability standards that are generally higher than those imposed by public partnerships, and (iii) have invested in only a single parcel or a few parcels of real property.

Investment Selection

Our Adviser's investment team is responsible for all aspects of our investment process. The current members of the investment team are C.E. Patterson, Glen Fuller, Chip Patterson, Robert Dixon, Paul Koslosky, and Christine Simpson. The investment strategy involves a team approach, whereby potential transactions are screened by various members of the investment team.

Our process for acquiring targeted real estate-related securities typically involves three steps: (i) identifying securities of the type we may be interested in acquiring; (ii) evaluating the securities to estimate their value to us, and (iii) either acquiring securities on national markets or locating securities holders who may be interested in selling such securities on secondary markets. Different circumstances may require different procedures, or different combinations of procedures, and we adjust our acquisition strategy to fit the particular circumstances. Nonetheless, the typical stages of our investment selection process are as follows:

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Deal Generation/Origination

We source investments through long-standing relationships with industry contacts, brokers, commercial and investment bankers, entrepreneurs, services providers such as lawyers and accountants, as well as current and former clients, portfolio companies and investors. Our Adviser's investment team supplements these lead generators by also utilizing broader marketing efforts, such as advertisements in real estate periodicals, newspapers and other publications, attendance at prospective borrower industry conventions, an active calling effort to smaller private equity firms and sponsors, web presence and search tools.

Screening

In screening potential investments, the Adviser's investment team utilizes a value-oriented investment philosophy and commits resources to managing downside exposure.

Due Diligence

In conducting due diligence, the Adviser uses publicly available information as well as information from its relationships with former and current management teams, consultants, competitors and investment bankers. Our Adviser's due diligence typically includes:

·	review of historical and prospective financial information and regulatory disclosures;

·	research relating to the company's management, industry, markets, products and services and competitors;

·	verification of collateral; and

·	asset and business value appraisals by third party advisers.

Upon the completion of due diligence and a decision to proceed with an investment in a company, the investment professionals leading the investment present the investment opportunity to the Adviser's investment team, which then determines whether to pursue the potential investment. Additional due diligence with respect to any investment may be conducted on our behalf by attorneys and independent accountants prior to the closing of the investment, as well as other outside third-party advisers, as appropriate. Any fees and expenses incurred by the Adviser in connection with due diligence investigations undertaken by third parties is subject to reimbursement by us, if not otherwise reimbursed by the prospective borrower, which reimbursements are in addition to any management or incentive fees payable by us under our Investment Advisory Agreement with the Adviser.

Managerial Assistance

As a BDC, we offer, and must provide upon request, significant managerial assistance to our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. We may also receive fees for these services. The Adviser provides such managerial assistance on our behalf to portfolio companies that request this assistance.

Monitoring

Our Adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if it is meeting its business plan and to assess the appropriate course of action for each company. Our Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which include the following:

·	Assessment of success in adhering to each portfolio company's business plan and compliance with covenants;

·	Periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;

·	Comparisons to our other portfolio companies in the industry, if any;

·	Attendance at and participation in board meetings; and

·	Review of monthly and quarterly financial statements and financial projections for portfolio companies.

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Valuation Procedures

We determine our NAV consistent with accounting principles generally accepted in the United States of America ("GAAP") and the 1940 Act. Securities for which market quotations are readily available on an exchange will be valued at such price as of the closing price on the day closest to the valuation date. Where a security is traded but in limited volume, we may instead utilize the weighted average closing price of the security over the prior 10 trading days. We may also use published secondary market trading information for securities that do not trade on a national exchange in order to value assets.

Securities for which reliable market data are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Adviser or Board of Directors, does not represent fair value, which we expect will represent a substantial majority of the investments in our portfolio, shall each be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior management; and (iii) the Board of Directors will review the valuations determined by the Adviser and, where appropriate and necessary, a third-party valuation firm, and will use such valuations, as adjusted by the Board if appropriate, to determine the fair value of each investment in our portfolio.

The resources used to determine fair value for securities for which market data are not readily available or for which a pricing source is not sufficient may include the following:

·	private placements and restricted securities that do not have an active trading market;

·	securities whose trading has been suspended or for which market quotes are no longer available;

·	debt securities that have recently gone into default and for which there is no current market;

·	securities whose prices are stale;

·	securities affected by significant events; and

·	securities that the Investment Adviser believes were priced incorrectly.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.

Competition

We compete for investments with other BDCs and investment funds (including private equity funds). Additionally, because competition for investment opportunities generally has increased among alternative investment vehicles, such as hedge funds, those entities have begun to make non-traditional investments, including investments in real estate companies. As a result of these new entrants, competition for investment opportunities in real estate-related companies may intensify. Many of these entities have greater financial and managerial resources than we do, or may not be subject to comparable regulation. We believe we are able to compete with these entities primarily on the basis of the experience and contacts of the Adviser, our responsive and efficient investment analysis and decision-making processes, the investment terms we offer, and our willingness to make smaller investments. For additional information concerning the competitive risks we face, see "Risk Factors — Risk Relating to Our Business and Structure — We may face increasing competition for investment opportunities."

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Staffing

We do not currently have any employees. Our day-to-day investment operations are managed by the Adviser. Our Adviser may hire additional investment professionals, based upon its needs. We also entered into an administration agreement with MacKenzie (the " Administration Agreement "), under which, we reimburse MacKenzie for our allocable portion of overhead and other expenses incurred by it in performing its obligations, including rent, the fees and expenses associated with performing compliance functions, and the compensation of our chief financial officer, our chief compliance officer (or "CCO"), and any administrative support staff.

Board Approval of the Investment Advisory and Sub-Advisory Agreements

Our investment advisory and administrative services agreements were approved by our board of directors in May 2012 and July 2012, and renewed in October 2014 and October 2015. Such approvals were made in accordance with, and on the basis of an evaluation satisfactory to our board of directors as required by, Section 15(c) of the 1940 Act and applicable rules and regulations thereunder, including a consideration of, among other factors, (i) the nature, quality, and extent of the advisory and other services to be provided under the agreements, (ii) the investment performance of the personnel who manage investment portfolios with objectives similar to ours, to the extent available, (iii) comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives, to the extent available and (iv) information about the services to be performed and the personnel performing such services under each of the agreements.

Item 1A. RISK FACTORS

Investing in our common stock involves a number of significant risks. In addition to the other information contained in the Registration Statement and any accompanying prospectus supplement, stockholders should consider carefully the following information regarding our common stock. The risks set out below may not be the only risks we face, but are the risks of which we are presently aware. If any of the following risk are realized, our business, financial condition and results of operations could be materially and adversely affected. In such case, our NAV and the price of our common stock could decline, and stockholders may lose all or part of their investment.

Risks Relating to Our Business and Structure

Our investment portfolio is recorded at fair value, with our Board of Directors having final responsibility for overseeing, reviewing and approving, in good faith, its estimate of fair value and, as a result, there will be uncertainty as to the value of our portfolio investments.

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined by us in accordance with our written valuation policy. Our Board of Directors has final responsibility for overseeing, reviewing and approving, in good faith, our estimate of fair value. Typically, there is no public market for the securities of the privately held companies in which we invest. As a result, we value these securities quarterly at fair value based on input from management and our audit committee, with the oversight, review and approval of our Board of Directors.

The determination of fair value and consequently, the amount of unrealized gains and losses in our portfolio, are to a certain degree, subjective and dependent on a valuation process approved by our Board of Directors. Certain factors that may be considered in determining the fair value of our investments include external events, such as private mergers, sales and acquisitions involving comparable companies. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. Our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Due to this uncertainty, our fair value determinations may cause our NAV on a given date to materially understate or overstate the value that we may ultimately realize on one or more of our investments. As a result, investors purchasing our common stock based on an overstated NAV would pay a higher price than the value of our investments might warrant. Conversely, investors selling Shares during a period in which the NAV understates the value of our investments receive a lower price for their Shares than the value of our investments might warrant.

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We have limited operating history as a BDC.

As a result of our limited operating history as a BDC, we are subject to many of the business risks and uncertainties associated with recently formed businesses, including the risk that we do not achieve our investment objective and that the value of your investment could decline substantially.

Our financial condition and results of operations depend on our ability to effectively manage and deploy capital.

Our ability to achieve our investment objective depends on our ability to effectively manage and deploy capital, which depend, in turn, on the Adviser's ability to identify, evaluate and monitor, and our ability to finance and invest in, companies that meet our investment criteria.

Accomplishing our investment objective on a cost-effective basis is largely a function of the Adviser's handling of the investment process, its ability to provide competent, attentive and efficient services and our access to investments offering acceptable terms. In addition to monitoring the performance of our existing investments, the Adviser's investment team is also called upon, from time to time, to provide managerial assistance to some of our portfolio companies. These demands on their time may distract them or slow the rate of investment.

Even if we are able to grow and build upon our investment operations, any failure to manage our growth effectively could have a material adverse effect on our business, financial condition, results of operations and prospects. The results of our operations depend on many factors, including the availability of opportunities for investment, readily accessible short- and long-term funding alternatives in the financial markets and economic conditions. Furthermore, if we cannot successfully operate our business or implement our investment policies and strategies as described herein, it could negatively impact our ability to pay dividends.

We are dependent upon the Adviser's key personnel for our success.

We depend on the diligence, skill and network of business contacts of the investment professionals of the Adviser. The investment professionals at the Adviser evaluate, negotiate, structure, close and monitor our investments. Our success depends on the continued service of our investment team and the other senior investment professionals available to the Adviser. We cannot assure you that unforeseen business, medical, personal or other circumstances would not lead any of the members of the investment team to terminate their relationship with us, and we do not purchase any "key man" insurance to cover the Adviser's personnel. The loss of one or more of the investment team or other senior investment professionals who serve on the Adviser's investment team could have a material adverse effect on our ability to achieve our investment objectives as well as on our financial condition and results of operations. In addition, we can offer no assurance that the Adviser will continue indefinitely as our investment adviser.

The members of the Adviser's investment team are and may in the future become affiliated with entities engaged in business activities similar to those conducted by us, and may have conflicts of interest in allocating their time. We expect that the investment team dedicates a significant portion of their time to our activities; however, they are engaged in other business activities which could divert their time and attention in the future.

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Our success depends on the ability of the Adviser to attract and retain qualified personnel in a competitive environment.

Our growth requires that the Adviser retains and attract new investment and administrative personnel in a competitive market. Its ability to attract and retain personnel with the requisite credentials, experience and skills depends on several factors including its ability to offer competitive wages, benefits and professional growth opportunities. Many of the entities, including investment funds (such as private equity funds and mezzanine funds) and traditional financial services companies, with which it competes for experienced personnel have greater resources than the Adviser has.

We are dependent on MacKenzie Capital Management's key personnel for our success.

We depend on the skill, experience, and care of the professionals at MacKenzie to record, administer, and manage our business, including our stockholder records and financial records, preparing and filing reports to our stockholders and with the SEC and our tax returns. We cannot assure you that these key personnel will not terminate their relationship with MacKenzie. The loss of one or more of these professionals could have a material adverse effect on our ability to achieve our business objectives.

There are significant potential conflicts of interest respecting the Adviser's activities that could impact our investment returns.

The Adviser's investment team presently manages 50 private funds. In addition, our executive officers and directors, as well as the current and future members of the Adviser, may serve as officers, directors or principals of other entities that operate in the same or a related line of business as we do. Accordingly, they may have obligations to investors in those entities, the fulfillment of which obligations may not be in the best interests of us or our stockholders. Any affiliated investment vehicle formed in the future and managed by the Adviser or its affiliates may, notwithstanding different stated investment objectives, have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. As a result, the Adviser may face conflicts in allocating investment opportunities between us and such other entities. It is possible that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by the Adviser or an investment manager affiliated with the Adviser. In any such case, when the Adviser identifies an investment, it will be forced to choose which investment fund should make the investment. The Adviser has an allocation policy designed to equitably distribute such investment opportunities consistent with the requirements of the 1940 Act.

If the Adviser forms other affiliates in the future, we may co-invest on a concurrent basis with such other affiliates, subject to compliance with our Charter, the 1940 Act, applicable regulations, regulatory guidance and our allocation procedures.

There are significant potential conflicts of interest respecting the Adviser's compensation that could impact our investment returns.

In the course of our investing activities, we pay management and incentive fees to the Adviser and reimburses the Adviser for certain expenses it incurs. As a result, investors in our common stock invest on a "gross" basis and receive dividends on a "net" basis after expenses, resulting in a lower rate of return than an investor might achieve through direct investments. Accordingly, there may be times when the management team of the Adviser has interests that differ from those of our stockholders, giving rise to a conflict. The Adviser is not reimbursed for any performance-related compensation for its employees.

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There are significant potential conflicts of interest respecting our Administrator that could impact our investment returns.

Under the Administration Agreement with MacKenzie, MacKenzie granted us a royalty-free license to use the name "MacKenzie." Under the Administration Agreement, we have the right to use the "MacKenzie" name for so long as the Adviser or one of its affiliates remains our investment adviser. In addition, we pay MacKenzie, an affiliate of the Adviser, our allocable portion of overhead and other expenses incurred by MacKenzie in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the compensation of MacKenzie's chief financial officer and any administrative support staff. These arrangements create conflicts of interest that our Board of Directors must continue to monitor.

There are significant potential conflicts of interest respecting related party transactions that could impact our investment returns.

In the ordinary course of business, we may enter into transactions with portfolio companies that may be considered related party transactions. Related party transactions carry with them the risk that their terms could benefit such parties, to our detriment. In order to ensure that we do not engage in any transactions with any persons affiliated with us that are prohibited by the 1940 Act, we have implemented certain written policies and procedures, described in our prospectus contained in the Registration Statement, under "Certain Relationships and Transactions."

Our incentive fee structure and the formula for calculating the management fee may incentivize the Adviser to pursue speculative investments, use leverage when it may be unwise to do so, or refrain from deleveraging when it would otherwise be appropriate to do so.

The incentive fee payable by us to the Adviser may create an incentive for the Adviser to pursue investments on our behalf that are riskier or more speculative than would be the case in the absence of such compensation arrangement. The incentive fee payable to the Adviser is calculated based on a percentage of our return on invested capital. In addition, the base management fee is calculated on the basis of our "Managed Funds", including assets acquired through the use of leverage. This may encourage the Adviser to use leverage to increase the aggregate amount of and the return on our investments, even when it may not be appropriate to do so, and to refrain from de-levering when it would otherwise be appropriate to do so. Under certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of our common stock. In addition, the Adviser receives the incentive fee based, in part, upon net capital gains realized on our investments. This could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.

The incentive fee payable by us to the Adviser also may induce the Adviser to invest on our behalf in instruments that have a deferred interest feature, even if such deferred payments would not provide cash necessary to enable us to pay current dividends to our stockholders. Under these investments, we would accrue interest over the life of the investment but would not receive the cash income from the investment until the end of the term. Our net investment income used to calculate the income portion of our investment fee, however, includes accrued interest. Thus, a portion of this incentive fee would be based on income that we have not yet received in cash.

Although we do not currently expect to do so, we may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to the extent we so invest, will bear our ratable share of any such investment company's expenses, including management and performance fees. We will also remain obligated to pay management and incentive fees to the Adviser with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of our stockholders will bear his or her share of the management and incentive fee of the Adviser as well as indirectly bearing the management and performance fees and other expenses of any investment companies in which we invest.

A general increase in interest rates will likely have the effect of making it easier for the Adviser to receive incentive fees, without necessarily resulting in an increase in our net earnings.

Any general increase in interest rates typically leads to higher investment returns on our investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate and may result in a substantial increase in the amount of incentive fees payable to the Adviser under the Advisory Agreement without any additional increase in relative performance on the part of the Adviser.

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Our Adviser has the right to resign on 120 days' notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.

Our Adviser has the right, under the Advisory Agreement, to resign at any time upon not less than 120 days' written notice, whether we have found a replacement or not. If the Adviser resigns, we may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 120 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay dividends are likely to be adversely affected and the market price of our Shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by the Adviser and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our financial condition, business and results of operations.

Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.

We have elected to be treated as a BDC under the 1940 Act. The 1940 Act imposes numerous constraints on the operations of BDCs. For example, BDCs must invest at least 70.0% of their gross assets in specified types of securities, primarily in private companies or thinly traded U.S. public companies, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our stockholders, we may elect to withdraw our status as a BDC. If we decide to withdraw our election, or if we otherwise fail to qualify, or maintain our qualification, as a BDC, we may be subject to the substantially greater regulation under the 1940 Act as a registered closed-end investment company. Compliance with such regulations would significantly decrease our operating flexibility, and could significantly increase our costs of doing business.

Regulations governing our operation as a BDC affect our ability to raise additional capital and the way in which we do so. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.

We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as "senior securities," up to the maximum amount permitted by the 1940 Act. However, we have no current intention to borrow money for investment purposes. Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 200.0% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for dividends to our common stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. If we issue preferred stock, the preferred stock would rank "senior" to common stock in our capital structure, preferred stockholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in your best interest.

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We have and may continue to sell common stock at a price below NAV under certain circumstances.

We may not generally issue and sell our common stock at a price below NAV per Share. We have, and may continue to, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current NAV per Share of our common stock if our Board of Directors determines that such sale is in the best interests of the Company and its stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount). If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that time will decrease, and you may experience dilution.

We may borrow money, which would magnify the potential for gain or loss on amounts invested and will increase the risk of investing in us.

The use of leverage magnifies the potential for gain or loss on amounts invested and, therefore, increases the risks associated with investing in our securities. We may borrow from and issue senior debt securities to banks, insurance companies and other lenders in the future, however we have no current intention to borrow for investment purposes. Holders of these senior securities would have fixed dollar claims on our assets that would be superior to the claims of our common stockholders, and we would expect such lenders to seek recovery against our assets in the event of a default. If the value of our assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have had we not leveraged. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could also negatively affect our ability to make dividend payments on our common stock. Leverage is generally considered a speculative investment technique. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, as the management fee payable to the Adviser, are payable based on our Managed Funds, including those assets acquired through the use of leverage, the Adviser has a financial incentive to incur leverage which may not be consistent with our stockholders' interests. In addition, our common stockholders will bear the burden of any increase in our expenses as a result of leverage, including any increase in the management fee payable to the Adviser.

As a BDC, we are required to meet an asset coverage ratio, defined generally under the 1940 Act as the ratio of our gross assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities, of at least 200.0% after each issuance of senior securities. If this ratio declines below 200.0%, we may not be able to incur additional debt and could be required by law to sell a portion of our investments to repay some debt when it is disadvantageous to do so, which could have a material adverse effect on our operations, and we may not be able to make distributions. The amount of any leverage that we employ would depend on the Adviser's and our Board of Directors' assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.

Any debt facility into which we may enter would likely impose financial and operating covenants that restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a REIT under the Code.

We may experience fluctuations in our quarterly results.

We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the level of portfolio dividend and fee income, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

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Our Board of Directors is authorized to reclassify any unissued shares of common stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners.

Under the Maryland General Corporation Law (or " MGCL ") and our Charter, our Board of Directors is authorized to classify and reclassify any authorized but unissued shares of stock into one or more classes of stock, including preferred stock. Prior to issuance of shares of each class or series, the Board of Directors will be required by the MGCL and our Charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. The cost of any such reclassification would be borne by our common stockholders. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote separately from the holders of common stock on a proposal to cease operations as a BDC. In addition, the 1940 Act provides that holders of preferred stock are entitled to vote separately from holders of common stock to elect two preferred stock directors. We currently have no plans to issue preferred stock. The issuance of preferred shares convertible into shares of common stock may also reduce the net income and NAV per Share of our common stock upon conversion, provided, that we are only permitted to issue such convertible preferred stock to the extent we comply with the requirements of Section 61 of the 1940 Act, including obtaining common stockholder approval. These effects, among others, could have an adverse effect on your investment in our common stock.

Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.

Our Board of Directors has the authority to modify or waive our investment objective, current operating policies, investment criteria and strategies without prior notice and without stockholder approval. Our investment objective is not fundamental and may be changed without stockholder approval. Stockholders will receive notice within 60 days if the Board of Directors decides to change our investment objective. The principal investment strategies are not fundamental and may be changed without prior notice. We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, NAV, operating results and value of our stock. However, the effects might be adverse, which could negatively impact our ability to pay you dividends and cause you to lose all or part of your investment.

There is a risk that our stockholders may not receive dividends or that our dividends may not grow over time.

We may make dividends on a quarterly basis to our stockholders only out of assets legally available for distribution. Our assets would be "legally available" if, after giving effect to the dividend, (i) we would be able to pay any outstanding debt, and (ii) our total assets would be greater than the sum of our total liabilities plus the amount needed to satisfy any preferential rights upon dissolution held by any stockholders who have preferential rights on dissolution superior to those receiving the dividend, if we were to be dissolved at the time of distribution. We plan on making dividends only from income and gains on our portfolio, will not borrow to make distributions, and do not intend on making distributions from our offering proceeds, though we are not prohibited from borrowing for dividends or distributing up to approximately 5.0% of our offering proceeds. Funding dividends by returning capital would decrease our assets actually invested according to our investment objectives, and borrowing to fund distributions would increase the risks associated with leverage as discussed elsewhere in this annual report.

We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. In addition, due to the asset coverage test applicable to us as a BDC, we may be limited in our ability to make distributions.

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Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.

We and our portfolio companies are subject to applicable local, state and federal laws and regulations. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and our stockholders, potentially with retroactive effect. Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities. Such changes could result in material differences to our strategies and plans and may result in our investment focus shifting from the areas of expertise of the Adviser's investment team to other types of investments in which the investment team may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment.

We incur significant costs as a result of being a public company.

As a public company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Securities Exchange Act of 1934 (" 1934 Act "), as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, and other rules implemented by the SEC.

An extended continuation of the disruption in the capital markets and the credit markets could impair our ability to raise capital and negatively affect our business.

As a BDC, we may need to raise additional capital for investment purposes. Without sufficient access to the capital markets or credit markets, we may be forced to curtail our business operations or we may not be able to pursue new business opportunities. Since the middle of 2007, the capital markets and the credit markets have experienced periodic volatility and disruption and, accordingly, there has been and may continue to be uncertainty in the financial markets in general. Ongoing disruptive conditions in the financial industry and the impact of new legislation in response to those conditions could restrict our business operations and could adversely impact our results of operations and financial condition.

If we are unable to renew or replace any debt facilities and consummate new facilities on commercially reasonable terms, our liquidity could be reduced significantly. If we are unable to repay amounts outstanding under any such facilities and are declared in default or are unable to renew or refinance these facilities, we would not be able to initiate significant originations or to operate our business in the normal course. These situations may arise due to circumstances that we may be unable to control, such as inaccessibility to the credit markets, a severe decline in the value of the U.S. dollar, a further economic downturn or an operational problem that affects third parties or us, and could materially damage our business. Moreover, we are unable to predict when economic and market conditions may become more favorable.

As a REIT, we are subject to a corporate level tax on certain built in gains if in certain assets were sold during the 10-year period following such election.

A REIT generally operates without incurring any corporate level federal income tax, which is accomplished by the REIT annually distributing at least 90.0% of its REIT taxable income. If it satisfies the minimum distribution requirement, the REIT generally is entitled to a deduction for dividends paid. The REIT stockholders are then required to report the REIT dividend as ordinary income. A REIT stockholder's receipt of dividends generally will not qualify as qualified dividend income or for the dividends received deduction discussed above.

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As a REIT, we are subject to a corporate level tax on certain built-in gains embedded in certain assets if such assets are sold during the 10-year period following conversion. Built-in gain assets are assets whose fair market value exceeds the REIT's adjusted tax basis at the time of conversion. In addition, a REIT may not have any earnings and profits accumulated in a non-REIT year. Thus, upon conversion to a REIT, the putative REIT is generally required to distribute to its stockholders all accumulated earnings and profits, if any. Such distribution would be taxable to the stockholders as dividend income, and, as discussed above, may qualify as QDI for non-corporate stockholders and for the dividends received deduction for corporate stockholders.

The foregoing is a general and abbreviated summary of the provisions of the Code and the Treasury Regulations in effect as they directly govern the taxation of us and our security holders. These provisions are subject to change by legislative and administrative action, and any such change may be retroactive. Security holders (and prospective holders) are urged to consult their tax advisers regarding specific questions as to U.S. federal, foreign, state, local income or other taxes.

Loss of our status as a REIT would have significant adverse consequences.

If we lose our REIT status in any taxable year, we would be subject to federal income tax (including any applicable minimum tax) on our taxable income computed in the usual manner for corporate taxpayers without any deduction for distributions to our stockholders. Unless entitled to relief under specific statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status, assuming we had previously been treated as a REIT. To renew our REIT qualification at the end of such a four-year period, we would be required to distribute all of our current and accumulated earnings and profits before the end of the period and the funds available for satisfying our obligations and for distribution to our stockholders could be significantly reduced. In addition, we would be subject to the built-in gain tax based upon the values at the time of REIT election.

As a REIT, we are required to make distributions, other than capital gain distributions, to our stockholders each year in the amount of at least 90.0% of our REIT taxable income. As a result, we may continue to need additional capital to make new investments. If additional funds are unavailable or not available on favorable terms, our ability to make new investments will be impaired.

As a REIT, we are required to distribute at least 90.0% of our REIT taxable income, and as such we may require additional capital to make new investments or carry existing investments. We may acquire additional capital from the issuance of securities senior to our common shares, including additional borrowings or other indebtedness or the issuance of additional securities. We may also acquire additional capital through the issuance of additional equity. However, we may not be able to raise additional capital in the future on favorable terms or at all. Unfavorable economic conditions could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. We may issue debt securities, other instruments of indebtedness or preferred stock, and we borrow money from banks or other financial institutions, which we refer to collectively as "senior securities." As a result of issuing senior securities, we will also be exposed to typical risks associated with leverage, including increased risk of loss. If we issue preferred securities which will rank "senior" to our common shares in our capital structure, the holders of such preferred securities may have separate voting rights and other rights, preferences or privileges more favorable than those of our common shares, and the issuance of such preferred securities could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for security holders or otherwise be in our best interest.

To the extent our ability to issue debt or other senior securities is constrained, we will depend on issuances of additional common shares to finance new investments. If we raise additional funds by issuing more of our common shares or senior securities convertible into, or exchangeable for, our common shares, the percentage ownership of our stockholders at that time would decrease, and you may experience dilution.

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As a REIT, we may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

Since we contemplate investing in real estate through partnerships and other REITs, we may have to recognize taxable income attributable to those investments prior to the time we receive cash distributions with respect to such investments. As indicated above, in order to benefit from REIT taxation, we need to distribute at least 90.0% of our REIT taxable income. If we do not receive cash representing such income at the same time as we recognize such income, we may have cash flow difficulties in order to make the required distributions necessary to benefit from REIT taxation.

We may in the future choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive.

We may in the future elect to pay dividends in our own stock, as opposed to cash. In such case or in the event you participate in the dividend reinvestment plan (our " DRIP "), you may be required to pay tax in excess of the cash you receive from us.

Risks Related to Our Investments

We have not yet identified the portfolio companies we will invest in using the additional proceeds of the IPO.

While we have made new investments with the proceeds raised from the IPO, we have not yet identified all of the additional potential investments for our portfolio that we will acquire with the proceeds of the IPO. As a result, you will be unable to evaluate any future portfolio company investments prior to purchasing our shares. Additionally, the Adviser will select our investments subsequent to the closing of the IPO, and our stockholders will have no input with respect to such investment decisions. These factors increase the uncertainty, and thus the risk, of investing in our Shares.

The achievement of our investment objectives cannot be guaranteed.

We may not be successful in locating real estate-related securities suitable for purchase. We may not be able to purchase securities at an acceptable price. Even if suitable securities are located at an acceptable price, our performance is affected by many factors that are beyond the control of the Adviser, including unpredictable economic and financial events. Accordingly, we do not guarantee our dividends or the return of your capital. For example, a review of the performance of prior funds sponsored by the Adviser reveals that not all such funds are successful, or will be successful, in producing their targeted returns.

The indirect ownership of real properties involves a number of risks.

Our investments are primarily in entities that directly or indirectly own real property, real estate joint ventures, or other real property-based investments. As a result, an investment in us is subject to all of the risks inherent in real estate investments. Among these are the following:

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·	the operation of real property is subject to the general competitive conditions in the relevant real estate markets, which have suffered in the recent economic crisis;

·	downturns in local economies, overbuilding and other general economic conditions may adversely affect the operations of real property, especially with the current economic conditions;

·	indebtedness secured by a portfolio of real properties may bear a variable interest rate that could result in increased debt service payments (and reduced cash flow) if interest rates rise;

·	the lack or uncertainty of availability or high cost of financing, especially in current markets, may adversely affect the ability of the real estate owners to sell their properties and the terms of any such sales;

the availability and cost of financing or refinancing is uncertain, especially in current markets, and may adversely affect the ability of the real estate owners to sell their properties and the terms of any such sales (for example, some of the REITs in which previous funds have invested have struggled to refinance their existing indebtedness, resulting in a depressed stock price, and, in some cases, causing issuers to file for bankruptcy protection);

·	the real properties may be damaged and suffer losses which are not adequately insured;

·	property tax reform, rent control, and other regulatory and governmental action may adversely affect the value of the real properties; and

·	energy shortages and allocations and increased energy prices in the areas where the real properties are located may adversely affect their operations or otherwise reduce their value.

Investment in mortgage loans or issuers that own or originate mortgage loans involves a number of risks.

We may make investments in mortgage loans or in issuers that own or originate mortgage loans. As a result, an investment in the Company is subject to all of the risk inherent with mortgage loans. Among these are the following:

We are at risk of defaults by the borrowers on those mortgage loans. These defaults may be caused by many conditions beyond the control of us or the Adviser, including interest rate levels and local and other economic conditions affecting real estate values, including the turmoil in the credit markets that began in 2007 and has continued. Our Adviser will not know whether the values of the properties securing the mortgage loans will remain at the levels existing on the dates of origination of those mortgage loans. If the values of the underlying properties drop, our risk will increase because of the lower value of the security associated with such loans;

If an issuer in which we invest relies on originating, holding, or servicing mortgage loans for a significant portion of its income, defaults on such mortgage loans could impair the value of the issuer itself and consequently put our investment in such issuer at risk (for example, previous funds managed by the Adviser suffered losses investing in mortgage companies or originators);

Fixed-rate, long-term mortgage loans could yield a return that is lower than the then-current market rates if interest rates rise. If interest rates decrease, we could be adversely affected to the extent that mortgage loans are prepaid because we may not be able to generate equivalent returns upon reinvestment of the funds;

·	Declines in real estate values may induce mortgagors to voluntarily default on their loans, increasing the risk of foreclosure and loss of capital (for example, some of the hotel REITs have just "walked away" from the hotels they owned);

·	Issuers may file for bankruptcy if they cannot meet the demands of their debt service, and bankruptcy judges have wide latitude to modify the terms of indebtedness, which could result in lower than expected returns on our investment; and

Delays in liquidating defaulted mortgage loans could reduce our or an issuer's investment returns. If there are defaults under those mortgage loans, we or the issuer may not be able to repossess and sell the underlying properties quickly. The resulting time delay could reduce the value of our or the issuer's investment in the defaulted mortgage loans. An action to foreclose on a property securing a mortgage loan is regulated by state statutes and regulations and is subject to many of the delays and expenses of other lawsuits if the defendant raises defenses or counterclaims. Further, given the recent economic events, foreclosure actions may flood the courthouses, causing further delays in prosecuting such actions. In the event of default by a mortgagor, these restrictions, among other things, may impede our or an issuer's ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us or the issuer on the mortgage loan. For example, previous funds managed by the Administrator have invested in a mortgage where the borrower defaulted. The Administrator began foreclosure proceedings in July 2007, but did not get a foreclosure sale set until December 2009 due to various circumstances beyond the control of our Adviser. Thereafter, the foreclosure was further delayed by a bankruptcy filing that has yet to be resolved.

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We do not participate in the management of the real estate owned by our portfolio companies.

The issuers of the securities held by us typically have exclusive management and control of the operation of their real estate portfolios, and we therefore typically rely exclusively on the management capabilities of such issuers, regardless of whether the Adviser agrees with the decisions of such issuers (though as a BDC, we offer to provide managerial assistance to our portfolio companies). If the Adviser decides that an action taken by an issuer is contrary to our interests, we may take legal action to protect our interests. We could be forced to bear the costs of a challenge or lawsuit, which could be substantial, and there can be no certainty that legal action undertaken to halt any such actions would be successful.

Information on our target securities may be difficult to obtain.

Complete and current information regarding securities to be acquired and properties owned by issuers of such securities (particularly properties which may be performing poorly) may in many cases (particularly in the case of securities of companies not registered with the SEC) not be available to the Adviser or, even if available, it may not be economical for the Adviser to obtain such information. As a result, we may purchase securities with less than adequate information. Further, the information that is obtained may not be reliable. For example, prior funds sponsored by the Administrator invested in a company that filed for bankruptcy protection. Those funds lost all their invested capital. The company had untruely stated that none of its loans were cross‑collateralized (meaning that one failed property or development would not impair the value of the other properties). The company had several loans go into default, thereby impairing the value of all its remaining properties.

Investments in publicly traded securities present market risks that are less prevalent with private securities.

Publicly traded investments such as REITs present certain market risks that are not present when investing directly in real estate or in private partnerships that own real estate. The trading price of public securities can change in response to various factors, not all of which relate to the real estate owned by the entities. A "bear market" can cause all publicly traded securities to trade at lower prices, even if the fundamental economic factors driving the value of real estate remain unchanged. If the trading price of a public entity is too adversely affected by such factors, it can be subject to takeover attempts by opportunistic investors who see the ability to acquire assets at below NAV. Because we may not likely be a significant holder of such securities, there may be little or nothing that we or the Adviser can do to prevent the sale of such entities at prices that are below the estimated NAV of the real estate owned by the entities, which would adversely affect our performance.

Investments in privately held securities may present more risks than investments in publicly held securities.

Privately held partnerships and companies, unlike public entities, are not required to file periodic reports with the SEC or state securities regulators. As a result, the Adviser's evaluation of a possible investment in a private entity may be based on incomplete or misleading information. In addition, as privately held entities generally have significantly fewer investors than public companies, a private issuer may be more concerned about a possible takeover by an investor such as us. The private issuer may therefore be more reluctant to approve a transfer of securities to us or admit us as a record owner, which would result in the loss of rights associated with record ownership, including voting rights.

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Accurate valuation of illiquid real estate-related securities is difficult.

Our Adviser's techniques used to value our target securities necessarily involve reliance on both objective and subjective criteria and assumptions and predictions that may or may not be realized. As a result, despite the Adviser's analysis, there is no assurance that any particular investment is in fact be made by us on terms that reflect the true economic value of the securities purchased.

We compete with other entities and persons to purchase real estate-related securities.

The market for the real estate-related securities sought by us is limited and generally inefficient, and competition for these securities may reduce the availability and increase the prices of the securities. For example, in the previous two years, at least two new competitors have entered the marketplace buying some of the same type of securities that we intended to buy.

Lack of Diversification.

Some of our investments and target portfolio companies are private partnerships or other privately held entities that invest in only a single parcel of real property. Due to such issuers' lack of diversification, the value of their securities may be more volatile than securities issued by entities with larger, more diverse portfolios.

The hotel and lodging industry has unique risks.

We have invested, and may invest in, interests in hotel or lodging property portfolios. An investment in these securities is subject to the special risks inherent in investments in the hotel and lodging industry. However, the hotel and lodging industry risk is not a principal risk, as we will not concentrate our investments in this specific industry. Lodging properties are management and labor intensive and particularly susceptible to the impact of economic and other conditions outside the control of the portfolio managers. Also, compared to other types of properties, hotel maintenance typically involves maintenance of corresponding personal property such as furniture and supplies. As a result, hotels may be exposed to more fluctuations in costs and inflation, and be subject to more potential liability, from events such as property loss or theft, labor difficulties, supplier problems and personal injuries. Demand for particular accommodations and related hotel services may vary seasonally and may be affected by economic recessions, changes in travel patterns caused by airline schedules and strikes and other factors, including current economic conditions. To meet competition in the industry, to maintain franchise standards, or to maintain economic values, continuing expenditures must be made for modernizing, refurnishing, and maintaining existing facilities prior to the expiration of their anticipated useful lives. If such expenditures are not made, the value and profitability of the hotels may be diminished. In addition, inflationary pressures could increase operating expenses of the hotels, including energy costs, above expected levels, and have secondary effects upon occupancy rates in such hotels by increasing the expense or decreasing the availability of means of travel. All of the factors noted above may contribute to producing operating results of wider variation than for other types of properties.

We are susceptible to claims under Federal and state securities laws.

Due in part to the diverse and relatively risky nature of our acquisition procedures, we may be more susceptible to investigations, litigation, or other proceedings under securities laws. Any such investigation, litigation, or other proceeding undertaken by state or Federal regulatory agencies or private parties could necessitate the expenditure of material amounts of our capital for legal and other costs. Moreover, the dedication of human and capital resources of the Adviser and MacKenzie to such proceedings could limit MacKenzie's effectiveness in managing the Company, even if we are ultimately successful in its defense. If and to the extent that claims or suits for rescission are brought and successfully concluded for acts or omissions constituting offenses under Federal or applicable state securities laws, we could be materially and adversely affected, jeopardizing our ability to operate successfully.

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Our purchase of securities may be subject to complex tender offer rules.

Because of the nature of the market for real estate-related securities, we expect to buy securities from time to time through tender offers. Federal securities laws impose a number of obligations and requirements upon a party who undertakes a tender offer. Sanctions and penalties could be imposed on us if we do not fully comply with these complex requirements. Further, because of the perceived hostile nature of tender offers, some issuers may respond by taking legal action against us and our affiliates. We could be forced to bear some of the costs of a suit, which could be substantial, and there can be no certainty that we would be successful in fighting such a suit. Likewise, we may participate in legal actions against issuers to force them to provide investor lists when their governing documents so require, but the issuers refuse to comply.

Issuers of securities we own may vote to change the structure of the portfolio company or propose a "roll-up."

In recent years, general partners of portfolio company targets have successfully consolidated several related limited partnerships into larger entities (these consolidations are sometimes referred to as "roll-ups"). The new entities have usually been in the form of infinite-life REITs or master limited partnerships, and often are listed to trade on one of the stock exchanges. In other cases, limited partners have been asked to approve the conversion of their partnership interests into common stock of a new corporation or into unsecured debentures. In most roll-ups to date, the sponsoring general partners used an estimated market price for shares of the new entity to determine the exchange value for the limited partnership units. Shares of the new entities may fall below the exchange value and historically have often traded substantially below the exchange value. If the Adviser decides that a roll-up proposed by a portfolio company is contrary to our interests, we may take legal action to protect our interests. We could be forced to bear the costs of a suit, which could be substantial, and there can be no certainty that legal action undertaken to halt a roll-up by a portfolio company would be successful.

Our Adviser may experience a substantial delay in identifying and locating suitable investments for us.

It may take time for the Adviser to identify suitable securities for investment. Moreover, once suitable securities are identified, a considerable delay may be experienced in consummating their purchase. In such event, corresponding delays would be experienced by us before distributions and allocations are received from our investments.

We may temporarily invest our cash reserves in volatile securities.

Our Adviser may at times make the decision to invest some of our cash reserves into publicly traded REITs as a means to earn better than money market rates. This action has risk associated with it as the market for such publicly traded assets may be volatile. In the past few years, some such investments made by other funds managed by the Adviser have declined dramatically in value, making it impossible to recover the cash reserves unless and until the market price of the securities returns to previous levels. In some cases, such issuers have ceased operations, resulting in a loss of capital for such funds.

We may use leverage, including margin accounts.

We may utilize short-term borrowing and may acquire securities or make distributions through use of brokerage margin account loan agreements. Utilization of margin loans involves the risk of losses greater than the equity involved. Any such borrowing is subject to the leverage limitations under the 1940 Act that are described above.

The FDIC deposit insurance limits may be exceeded.

Our cash deposits with banks are insured by the Federal Deposit Insurance Corporation up to $250,000 per account. We may at times exceed such limits in our deposit accounts, which could subject us to a loss of any amount over such limit if the deposit institution were to fail.

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The tax consequences of an investment in us depends on the activities and reporting positions taken by the entities in which we invest.

We have little or no control over the reporting activities of the issuers of securities we buy. Accordingly, it is not possible to determine the potential tax consequences generated by an investment in us. Our Adviser typically does not prepare or review income tax information returns of the issuers of securities in which we invest. These issuers have made and will make a number of decisions on such tax matters as the expensing or capitalizing of particular items, the proper period over which capital costs may be depreciated or amortized, the allocation of acquisition costs between real property, improvements and personal property, and many other items. An IRS audit of an issuer's information return may result in the disallowance of certain deductions and may cause audits of your individual returns. An opinion of counsel generally is not available with respect to these issues, either because they involve factual determinations, or because they involve legal doctrines not fully developed under existing case law.

Our taxable gain or loss will likely be measured by the issuer's tax basis in the real property, rather than by our purchase price for its securities.

Some of our investments are and will be made through partnerships and other REITs. The Federal income tax basis of the real estate held by those entities may be based upon their purchase price paid, as opposed to the purchase price we paid to acquire those securities. Thus, there is a risk that we may have to report more income or gain on such entities disposition of its real estate than the amount of income or gain we would have reported if we purchased the real property directly.

An issuer of securities in which we invest could be deemed a "publicly traded partnership."

Some of our investments are and will be made through partnerships. If interests in a partnership are traded on an established exchange or readily tradable on a secondary exchange (or substantial equivalent) the partnership is treated as a publicly traded partnership. As such, the partnership might be treated as a C corporation, resulting in its income being subject to double level taxation. In addition, the real estate held within the partnership would no longer be taken into account in satisfying the REIT asset test.

We are currently in a period of capital markets disruption and we do not expect these conditions to improve in the near future.

The U.S. capital markets have experienced volatility and disruption for several years and the U.S. economy was recently in a period of recession. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. We believe these conditions may continue for a prolonged period of time or worsen in the future. A prolonged period of market illiquidity may have an adverse effect on our business, financial condition and results of operations. Unfavorable economic conditions could also increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could limit our investment originations, limit our ability to grow and negatively impact our operating results.

The recent economic recession could impair our portfolio companies and harm our operating results.

Certain of our portfolio companies may still be susceptible to the effects of the recent recession and may be unable to repay our loans during this period. Therefore, assets may become non‑performing and the value of our portfolio may decrease during this period. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. The recent recession could lead to financial losses in our portfolio and a decrease in revenues, net income and the value of our assets.

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A portfolio company's failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross‑defaults under other agreements and jeopardize our portfolio company's ability to meet its obligations under the debt securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. Any extension or restructuring of our loans could adversely affect our cash flows. In addition, if one of our portfolio companies were to go bankrupt, even though we may have structured our interest as senior debt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt holding and subordinate all or a portion of our claim to that of other creditors.

The lack of liquidity in our investments may adversely affect our business.

We invest in many companies whose securities are not publicly traded, and whose securities are subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to achieve liquidity in our investments in the near-term. Our investments are usually subject to contractual or legal restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments. The illiquidity of most of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.

Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.

Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as "follow-on" investments, in order to (i) increase or maintain in whole or in part our equity ownership percentage; (ii) exercise warrants, options or convertible securities that were acquired in the original or a subsequent financing; or (iii) attempt to preserve or enhance the value of our investment. We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments. We have the discretion to make any follow-on investments, subject to the availability of capital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we do not want to increase our concentration of risk, we prefer other opportunities, we are subject to BDC requirements that would prevent such follow-on investments, or the follow-on investment would affect our REIT tax status.

Our portfolio may lack diversification among portfolio companies, subjecting us to a risk of significant loss if one or more of these companies fail to perform.

Our portfolio may hold a limited number of portfolio companies. We do not have fixed guidelines for diversification, and our investments may be concentrated in relatively few companies. As our portfolio is less diversified than the portfolios of some larger funds, we are more susceptible to failure if a single investment fails. Similarly, the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment.

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We do not intend to concentrate our portfolio on any specific geographic area, however, we may be subjected to a risk of significant loss if there is a downturn in a particular area in which a number of our investments are concentrated.

We do not intend to concentrate our portfolio on any specific geographic areas. However, a downturn in any particular area in which we are invested could significantly impact the aggregate returns we realize. As of June 30, 2016, our investments in Florida represented approximately 9.5% of the total fair value, our investments in California represented approximately 6.5% of the total fair value, Georgia represented approximately 6.1% of the total fair value and our investments in Texas represented approximately 7.0% of the total fair value. If a geographic area in which we have significant investments suffers from adverse business or economic conditions a material portion of our investment portfolio could be affected adversely, which, in turn, could adversely affect our financial position and results of operations.

We may not realize gains from our equity investments.

We may invest in warrants or other equity securities. Investments in equity securities involve a number of significant risks, including the risk of further dilution as a result of additional issuances, inability to access additional capital and failure to pay current dividends. Investments in preferred securities involve special risks, such as the risk of deferred distributions, credit risk, illiquidity and limited voting rights. In addition, we may from time to time make non-control, equity investments in portfolio companies. Our goal is ultimately to realize gains upon our disposition of such equity interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We often seek puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer. We may be unable to exercise these put rights for the consideration provided in our investment documents if the issuer is in financial distress.

Item 1B. Unresolved Staff Comments

None.

Item 2. PROPERTIES

We do not own any real estate or other physical properties. We use the office space of the Administrator located at 1640 School Street, Moraga, California 94556 and reimburse the cost to the Administrator pursuant to the Administration agreement. We believe that the office facilities of the Administrator are suitable and adequate for our business as it is currently conducted.

Item 3. LEGAL PROCEEDINGS

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our securities are currently not listed on any exchange, and we do not intend to list our securities on any securities exchange until at least 2024. Therefore, we do not expect a public market for them to develop in the foreseeable future. Therefore, a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, if at all.

We are currently offering shares of our common stock on a continuous basis at a current offering price of $10 per Share. We may not generally issue and sell our common stock at a price below NAV per Share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current NAV per Share of our common stock if our Board of Directors determines that such sale is in the best interests of the Company and our stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount).

Holders

As of September 22, 2016, we had 4,057,319.49 shares of common stock outstanding, held by a total of 1,333 stockholders.

Dividends and Taxable Income

We began paying quarterly dividends to our stockholders beginning with the quarter ended June 30, 2014, and to the extent that we have income from operations available, we distribute quarterly dividends to our stockholders. Our quarterly dividends, if any, will be determined by our Board of Directors after a quarterly review and distributed pro-rata to holders of our Shares. Any dividends to our stockholders will be declared out of assets legally available for distribution. In no event are we permitted to borrow money to make dividends if the amount of such dividend would exceed our annual accrued and received revenues, less operating costs. Dividends in kind are not permitted, except as provided in our Charter.

We have elected to be treated as a REIT under the Code and as a REIT, we are not subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions. To the extent that we satisfy the annual distribution requirement but distribute less than 100% of the taxable income, we will either be subject to U.S. federal corporate income tax on our undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year. We are also subject to tax on built-in gains we realize during the first ten years following REIT election.

We have a dividend reinvestment plan (DRIP) that provides for reinvestment of our dividends and other distributions on behalf of stockholders, provided that, the individual stockholder has elected to participate in the DRIP, and that the DRIP is permitted by the state in which the individual stockholders resides. We can offer no assurance that we will achieve results that will permit the payment of any cash dividends and, if we issue senior securities, we are prohibited from paying dividends if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if dividends are limited by the terms of any of our borrowings.

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During the years ended June 30, 2016 and 2015, we issued 104,128.70 and 8,708.11 shares of our common stock, respectively, in connection with the dividend reinvestment plan.

The following tables reflect the cash dividends per Share that the Company has paid on its common stock during the years ended June 30, 2016 and 2015.

	Dividends
During the Quarter Ended	Per Share	Amount
Three months ended September 30, 2015	$ 0.300	$ 623,394
Three months ended December 31, 2015	0.210	520,306
Three months ended March 31, 2016	0.250	676,145
Three months ended June 30, 2016	0.175	557,661
	$ 0.935	$ 2,377,506


	Dividends
During the Quarter Ended	Per Share	Amount
Three months ended September 30, 2014	$ 0.300	$ 255,442
Three months ended December 31, 2014	0.175	186,812
Three months ended March 31, 2015	0.175	233,445
Three months ended June 30, 2015	0.175	296,887
	$ 0.825	$ 972,586

On August 7, 2016, the Company's Board of Directors approved a dividend of $0.25 per Share to the holders of record on June 30, 2016, which was paid on August 15, 2016.

Recent Sale of Unregistered Securities

None.

Issuer Purchases of Equity Securities

The following table presents information with respect to the Company's purchases of its common stock during the year ended June 30, 2016:

Period	Total Number of Shares Purchased	Average Price Paid Per Share	Cumulative Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans
December 7, 2015 through January 7, 2016	74,285.56	$ 9.00	74,285.56	$ -

February 18, 2016 through March 21, 2016	51,994.84	$ 9.00	126,280.41	-

May 26, 2016 through June 26, 2016	43,327.08	$ 9.00	169,607.49	-

There were no such purchases as of June 30, 2015.

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Item 6. SELECTED FINANCIAL DATA

The selected financial data below reflects our operations for our fiscal years ended June 30, 2016 (" Fiscal 2016 "), June 30, 2015 (" Fiscal 2015 "), June 30, 2014 (" Fiscal 2014 "), June 30, 2013 (" Fiscal 2013 ") and for the period from Inception (January 25, 2012) through June 30, 2012. The selected financial data have been derived from audited financial statements. The data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

					For the period from Inception (Jan 25, 2012) through June 30, 2012
	For the Year Ended June 30, :
Statement of operations data:	2016	2015	2014	2013
Investment income
Dividend and distribution income	$ 2,522,528	$ 532,036	$ 597,847	$ 77,011	$ -
Interest and other income	113,877	70,533	26,097	889	-
Total investment income	2,636,405	602,569	623,944	77,900	-
Operating expenses
Base management fee	845,264	495,285	233,599	72,822	-
Subordinated incentive fee	14,969	46,748	-	-	-
Administrative cost reimbursements	120,000	120,000	60,000	32,000	-
Organization costs	-	-	-	74,410	52,759
Amortization of deferred offering costs	-	35,402	389,423	-	-
Professional fees	140,550	145,597	121,387	-	-
Other general and administrative	146,643	122,699	110,122	10,249	182
Total operating expenses	1,267,426	965,731	914,531	189,481	52,941
Net investment income (loss)	1,368,979	(363,162)	(290,587)	(111,581)	(52,941)
Net realized gain on sale of investments	2,809,740	1,578,081	632,703	56,219	-
Net unrealized gain (loss) on investments	(16,668)	1,803,714	192,524	120,065	-
Total net realized and unrealized gain on investments	2,793,072	3,381,795	825,227	176,284	-
Income tax (provision) benefit (note 2)	1,412	188,949	(373,580)	-	-
Net increase (decrease) in net assets resulting from operations	$ 4,163,463	$ 3,207,582	$ 161,060	$ 64,703	$ (52,941)
Weighted average common Shares outstanding	3,073,448	1,541,525	763,813	269,268	36,000

Per Share data:
Net investment income (loss) per Share	$ 0.45	$ (0.24)	$ (0.38)	$ (0.41)	$ (1.47)
Net realized gain on sale of investments per Share	$ 0.91	$ 1.03	$ 0.83	$ 0.21	$ -
Net unrealized gain (loss) on investments	$ (0.01)	$ 1.17	$ 0.25	$ 0.44	$ -
Net increase (decrease) in net assets resulting from operations per Share	$ 1.35	$ 2.08	$ 0.21	$ 0.24	$ (1.47)
Dividend paid per Share	$ 0.935	$ 0.825	$ 0.175	$ -	$ -

Statement of assets and liabilities data:	June 30, 2016	June 30, 2015	June 30, 2014	June 30, 2013	June 30, 2012
Investments at fair value	$ 39,176,772	$ 18,645,022	$ 5,905,995	$ 6,855,708	$ -
Cash and cash equivalents	$ 2,350,435	$ 4,297,086	$ 3,522,751	$ 262,806	$ 161,069
Total assets	$ 42,315,221	$ 23,218,204	$ 9,546,162	$ 7,593,598	$ 367,412
Total liabilities	$ 2,019,789	$ 879,765	$ 781,373	$ 299,666	$ 60,353
Total net assets	$ 40,295,432	$ 22,338,439	$ 8,764,789	$ 7,293,932	$ 307,059
Net asset value per Share at end of the year	$ 9.93	$ 10.17	$ 9.81	$ 10.02	$ 8.53
Shares outstanding at end of the year	4,057,319.49	2,196,612.73	893,807.67	728,217.00	36,000.00

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements by MacKenzie Realty Capital, Inc. contained herein, other than historical facts, may constitute "forward-looking statements." These statements may relate to, among other things, future events or our future performance or financial condition. In some cases, you can identify forward-looking statements by terminology such as "may," "might," "believe," "will," "provided," "anticipate," "future," "could," "growth," "plan," "intend," "expect," "should," "would," "if," "seek," "possible," "potential," "likely" or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. For a discussion of factors that could cause our actual results to differ from forward-looking statements contained herein, please see the discussion under the heading "Risk Factors" above.

We may experience fluctuations in our operating results due to a number of factors, including the return on our equity investments, the interest rates payable on our debt investments, the default rates on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Overview

We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a BDC under the 1940 Act. Our objective is to generate both current income and capital appreciation through real estate-related investments. We have elected to be treated as a REIT under the Code and as a REIT, we are not be subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions. To the extent that we satisfy the annual distribution requirement but distribute less than 100% of our taxable income, we will be subject to an excise tax on our undistributed taxable income.

We are managed by the Adviser, and MacKenzie provides the non-investment management services and administrative services necessary for us to operate.

Investment Plan

Our investments are generally expected to range in size from $10,000 to $3 million. However, we may make smaller or larger investments from time to time on an opportunistic basis. We focus primarily on real estate-related securities. We purchase most of our securities (i) directly from existing security holders, (ii) through established securities markets, and (iii) in the case of unregistered, privately offered securities, directly from issuers. We invest primarily in debt and equity securities issued by U.S. companies that primarily own commercial real estate that are either illiquid or not listed on any exchange.

We generally seek to invest in interests of real estate-related limited partnerships and REITs. Under normal market conditions, we invest at least 80.0% of our total assets in common stocks and other equity or debt securities issued by real estate companies, including REITs and similar REIT-like entities. A real estate company is one that (i) derives at least 50.0% of its revenue from the ownership, construction, financing, management or sale of commercial, industrial or residential real estate and land; or (ii) has at least 50.0% of its assets invested in such real estate. We do not invest in general partnerships, joint ventures, or other entities that do not afford limited liability to their security holders. However, limited liability entities that we may invest in may in turn hold interests in general partnerships, joint ventures, or other non-limited liability entities. We generally consider purchasing securities issued by entities that have (i) completed the initial offering of their securities, (ii) operated for a period of at least two years, and typically more than five years, from the completion of their initial offering, and (iii) fully invested their capital in real properties or other real estate-related investments.

We may also acquire (i) individual mortgages secured by real property (i.e., we may originate such loans or we may purchase outstanding loans secured by real estate), (ii) securities of issuers that own mortgages secured by income producing real property, and (iii) using no more than 20.0% of our available capital, securities of issuers that own assets other than real estate.

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Investment income

We generate revenues in the form of capital gains and dividends on dividend-paying equity securities or other equity interests that we acquire, in addition to interest on any debt investments that we hold. Further, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees are generated in connection with our investments and recognized as earned.

Expenses

Our primary operating expenses include the payment of: (i) base management fees and investment advisory fees (which include the Portfolio Structuring Fee) to the Adviser; (ii) our allocable portion of overhead and other expenses incurred by MacKenzie in performing its obligations under the Administration Agreement; and (iii) other operating expenses as detailed below. Our investment advisory fees compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing, monitoring and servicing our investments. See "Investment Advisory Agreement." Our expenses must be billed to and paid by us, except that a sponsor may be reimbursed for actual cost of goods and services used by us and certain necessary administrative expenses. We bear all other expenses of our operations and transactions, including:

·	the cost of calculating our NAV, including the cost of any third-party valuation services;

·	the cost of effecting sales and repurchases of our Shares and other securities;

·	interest payable on debt, if any, to finance our investments;

·	fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and third-party advisory fees;

·	transfer agent and safekeeping fees;

·	fees and expenses associated with marketing efforts;

·	federal and state registration fees, any stock exchange listing fees in the future;

·	federal, state and local taxes;

·	Independent Directors' fees and expenses;

·	brokerage commissions;

·	fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums;

·	direct costs and expenses of administration and sub-administration, including printing, mailing, long distance telephone and staff;

·	fees and expenses associated with independent audits and outside legal costs;

·	costs associated with our reporting and compliance obligations under the 1934 Act, the 1940 Act and applicable federal and state securities laws; and

all other expenses incurred by either MacKenzie or us in connection with administering our business, including payments under the Administration Agreement that are based upon our allocable portion of overhead and other expenses incurred by MacKenzie in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and any administrative support staff.

In addition, we incurred $550,000 of organization and offering expenses since 2012 related to our initial public offering. Any additional expenses incurred have been paid or will be paid by the Adviser.

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Dividend Policy

We began paying quarterly dividends to our stockholders beginning with the quarter ended June 30, 2014, and to the extent that we have income from operations available, we intend to continue distributing quarterly dividends to our stockholders. Our quarterly dividends, if any, are determined by our Board of Directors after a quarterly review and distributed pro-rata to holders of our Shares. Any dividends to our stockholders are declared out of assets legally available for distribution. In no event are we permitted to borrow money to pay dividends if the amount of such dividend would exceed our annual accrued and received revenues, less operating costs. Dividends in kind are not permitted, except as provided in our Charter.

We have elected to be treated as a REIT under the Code and as a REIT, we are required to distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions. We can offer no assurance that we will achieve results that will permit the payment of cash dividends required by the Code and, to the extent that we issue senior securities, we are prohibited from paying dividends if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if dividends are limited by the terms of any of our borrowings.

Our current intention is to make any dividends in additional Shares under our DRIP to stockholders who have elected to participate in our DRIP unless participation in the DRIP is restricted by a state securities regulator.

Critical Accounting Policies

In addition to the discussion below, our critical accounting policies are discussed in note 2 of our financial statements, which are part of this Annual Report beginning on page F-1.

Revenue Recognition

Distributions received from investments are evaluated by management and recorded as dividend income or a return of capital (reduction of investment) on the ex-dividend date. Operational dividends or distributions received from portfolio investments are recorded as investment income. Distributions resulting from the sale or refinance of an investee's underlying assets are compared to the estimated value of the remaining assets and are recorded as a return of capital or as investment income as appropriate.

Realized gains or losses on investments are recognized in the period of disposal, distribution, or exchange and are measured by the difference between the proceeds from the sale or distribution and the cost of the investment. Investments are disposed of on a first-in, first-out basis. Net change in unrealized gain (loss) reflects the net change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gains or losses.

Fair Value Measurements

GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observables used in measuring investments at fair value. Market price is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observables and a lesser degree of judgment used in measuring fair value.

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Investments measured and reported at fair value are classified and disclosed in one of the following categories:

Level I – Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded equity securities. The Company does not adjust the quoted price for these investments even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

Level II – Price inputs are quoted prices for similar financial instruments in active markets; quoted prices for identical or similar financial instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets. Investments which are generally included in this category are publicly traded equity securities with restrictions.

Level III – Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair values for these investments are estimated by management using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, financial condition, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant judgment by management. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had an active market for these investments existed.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management's assessment of the significance of a particular input to the fair value measurement, in its entirety, requires judgment and considers factors specific to the investment.

Valuation of Investments

The Company's financial statements include investments that are measured at their estimated fair values in accordance with GAAP. Our valuation procedures are summarized below:

Securities for which market quotations are readily available on an exchange will be valued at such price as of the closing price on the day closest to the valuation date. Where a security is traded but in limited volume, we may instead utilize the weighted average closing price of the security over the prior 10 trading days. We may also use published secondary market trading information for securities that do not trade on a national exchange in order to value assets. When doing so, we determine whether the trading price obtained is sufficient according to GAAP to determine the fair value of the security. If determined adequate, we use the trading price obtained.

Securities for which reliable market data are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Adviser or Board of Directors, does not represent fair value, which we expect will represent a substantial majority of the investments in our portfolio, shall each be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior management; and (iii) the Board of Directors will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the Adviser and, where appropriate and necessary, the respective third‑party valuation firms.

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The recommendation of fair value will generally be based on the following factors, as relevant:

·	the nature and realizable value of any collateral;

·	the portfolio company's ability to make payments;

·	the portfolio company's earnings and discounted cash flow;

·	the markets in which the issuer does business; and

·	comparisons to publicly traded securities.

Securities for which market data are not readily available or for which a pricing source is not sufficient may include the following:

·	private placements and restricted securities that do not have an active trading market;

·	securities whose trading has been suspended or for which market quotes are no longer available;

·	debt securities that have recently gone into default and for which there is no current market;

·	securities whose prices are stale;

·	securities affected by significant events; and

·	securities that the Investment Adviser believes were priced incorrectly.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our financial statements will express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.

Portfolio Investment Composition

The following table summarizes the composition of our investments at cost and fair value as of June 30, 2016 and 2015:

	June 30, 2016		June 30, 2015
Asset Type	Cost	Fair Value	Cost	Fair Value
Publicly Traded Company	$ 10,917,013	$ 11,475,174	$ 3,851,842	$ 3,411,454
Non Traded Company	11,406,586	11,609,041	6,763,831	8,838,025
LP Interest	14,390,162	15,793,475	5,246,418	5,642,367
Investment Trust	258,435	195,065	319,906	285,100
Note	104,942	104,017	346,723	468,076
Total	$ 37,077,138	$ 39,176,772	$ 16,528,720	$ 18,645,022

Determination of NAV

We determine the NAV of our investment portfolio each quarter (and as of each bi-monthly closing when our offering continues) by subtracting our total liabilities from the fair value of our gross assets. We conduct the valuation of our assets and determine our NAV consistent with GAAP and the 1940 Act, and report our NAV in our periodic reports filed with the SEC under the 1934 Act. Our valuation procedures are summarized above under the critical accounting policies section:

Our NAV as of June 30, 2016, was $9.93 per Share, compared to $10.17 per Share at June 30, 2015, a $0.24 per Share decrease of approximately 2.4%. The net decrease was due to decreases resulting from (i) dividends to stockholders of $0.77 per Share, which was calculated using the weighted average shares outstanding during the year ended June 30, 2016, (ii) issuance of Shares, net of selling commissions and dealer manager fees, below NAV, resulting in a decrease of $0.87 per Share and (iii) a net unrealized loss of $0.01 per Share. The decreases in NAV were partially offset by the increases from (i) net investment income of $0.45 per Share (ii) net realized gain on sale of investments of $0.91 per Share and (iii) repurchases of outstanding Shares below NAV resulting in an increase of $0.05 per Share.

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Results of Operations

Investment income

Dividend and distribution income: Dividend and distribution income for Fiscal 2016 was $2,522,528 compared to $532,036 for Fiscal 2015. The increase of approximately $2 million or 374% in dividend and distribution income was mainly due to large distributions received during Fiscal 2016. Approximately $1.4 million of the increase during Fiscal 2016 resulted from sales distributions received from Uniprop Manufactured Housing Income Fund II, LP, Rancon Realty IV, Resource Real Estate Investors 6, L.P, KBS Real Estate Investment Trust, Inc., InvenTrust Properties Corp. and BR Cabrillo LLC. The remaining increase of approximately $0.6 million was attributed to an increase in our investment portfolio of approximately $20.5 million since June 30, 2015.

Fiscal 2015 dividend and distribution income decreased by $65,811 or 11% compared to Fiscal 2014. Dividend and distribution income for Fiscal 2014 was $597,847. The decrease was primarily due to Fiscal 2014 income containing large sales distributions of $372,427 from Post Street Renaissance Partners and Brown Palace. This decrease was offset by a total increase of $306,616 resulting from acquisition of new investments in Fiscal 2015 with cost basis of $17.6 million that provided dividend and distributions in Fiscal 2015 and sales distribution from Secured Income, LP during Fiscal 2015.

Interest and other income: Interest and other income for Fiscal 2016 was $113,877 compared to $70,533 for Fiscal 2015. This increase of $43,344, or 61%, was primarily due to the recognition of loan extension fees from BR Cabrillo during Fiscal 2016.

Fiscal 2015 interest and other income increased by $44,436 or 170% compared to Fiscal 2014. Total interest and other income for Fiscal 2014 was $26,097. The increase was due to BR Cabrillo note earning full year of interest in Fiscal 2015 compared to only one quarter in Fiscal 2014, and reinstatement of TTLC Note on accrual status in Fiscal 2015.

Operating Expenses

Base management fee: The base management fee for Fiscal 2016 was $845,264 compared to $495,285 for Fiscal 2015. The increase was due to the increase in the managed funds during Fiscal 2016. The managed funds as of June 30, 2016 were approximately $40.6 million compared to $22.0 million as of June 30, 2015.

Fiscal 2015 base management fee increased by $261,686 or 112% compared to Fiscal 2014. The base management fee for Fiscal 2014 was $233,599. The increase was due to the increase in the managed funds during Fiscal 2015. The managed funds as of June 30, 2015 was approximately $21.9 million compared to $8.9 million as of June 30, 2014.

Subordinated incentive fee: Subordinated incentive fee has two parts—the income fee and the capital gains fee. The subordinated income fee for Fiscal 2016 was $14,969 compared to $46,748 for Fiscal 2015. The decrease in the subordinated income fee was primarily due to the increase in contributed capital during Fiscal 2016. The increase in capital raised the net investment income threshold required to earn the income fee.

During the nine months ended March 31, 2016, the Company had accrued estimated capital gains fees of $818,043 based on the net realized gains on investments during the nine months ended March 31, 2016. However, due to unrealized depreciation recorded during the three months ended June 30, 2016, the estimated fees previously accrued were subsequently determined to have not been incurred and payable as of June 30, 2016. Accordingly, the capital gains fees recorded for the nine months ended March 31, 2016, were fully reversed during the three months ended June 30, 2016, resulting in no capital gains fee for Fiscal 2016. The Company did not record any subordinated capital gains fee for Fiscal 2015.

Fiscal 2015 subordinated incentive fee increased by $46,748 or 100% compared to Fiscal 2014. There was no subordinated incentive fee for Fiscal 2014. The increase was due to the accrual of incentive fee (income fee) during Fiscal 2015 that was deferred in Fiscal 2014 since the Company had not meet the dividend payment threshold as of June 30, 2014. The fee was deemed payable as of June 30, 2015 after the Company met the 7% dividend payment threshold during Fiscal 2015.

Administrative cost reimbursements: Costs reimbursed to Mackenzie for all three years; Fiscal 2016, 2015 and 2014 were $120,000. These reimbursement amounts remained unchanged during Fiscal 2014 through Fiscal 2016 as the allocable portion of overhead and other expenses incurred by MacKenzie also remained comparable during those periods.

Other operating expenses: Other operating expenses for Fiscal 2016 were $287,193 as compared to $303,698 for Fiscal 2015. The decrease was primarily due to the decrease in amortization of deferred offering costs during Fiscal 2016. The deferred offering costs of $424,825 were fully amortized in the quarter ended September 30, 2014.

Fiscal 2015 other operating expenses decreased by $317,234 or 51% compared to Fiscal 2014. Other operating expenses for Fiscal 2014 was $620,932. The decrease was primarily due to the decrease in amortization of deferred offering costs during Fiscal 2015 as a result of the deferred offering costs of $424,825 being fully amortized as of September 30, 2014 .

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Net realized gain on sale of investments

Total net realized gains for Fiscal 2016 and 2015 were $2,809,740 and $1,578,081, respectively. During Fiscal 2016, disposal and liquidation activities of non traded REIT securities generated $2.5 million of net realized gains and limited partnership securities generated $0.3 million of net realized gains. Of the total net realized gains from the non traded REIT securities, $1.0 million was from the redemption of SmartStop Self Storage, Inc. shares, $0.9 million was from the liquidation of Landmark Apartment Trust, Inc. and $0.6 million was from the disposal of KBS Real Estate Investment Trust, Inc. Net realized gains of $0.3 million from limited partnership securities were primarily from the liquidations of Rancon Realty Fund V and Del Taco Restaurant Properties I.

During Fiscal 2015, the disposal of publicly traded securities generated $0.9 million and the disposal of non-traded REIT securities generated $0.7 million. The net realized gains from publicly traded securities were primarily from the disposal of Apple Hospitality REIT, Inc., Xenia Hospitality REIT, Inc., and Empire State Realty Trust, Inc. The net realized gains from the non traded REIT securities were primarily from the disposal of TEIR REIT, Inc. shares.

Total net realized gains for Fiscal 2014 was $632,703, of which, $356,790 was generated from the disposals of Publicly traded securities and the remaining $275,913 was generated from the disposals of limited partnership securities. The net realized gains from publicly traded securities were primarily from the disposal of some of the Empire State Realty Trust, Inc. and Apple Hospitality Trust, Inc. shares. The net realized gains from the limited partnership securities were primarily from the liquidation of CRI Hotel Income Partners, LP, and the disposals of 60 East 42 ^nd St. Associates, LLC and 25 West 57 ^th St. Associates, LLC.

Net unrealized gain (loss) on investments

The Company recorded an unrealized loss of $16,668 for Fiscal 2016 compared to an unrealized gain of $1,803,714 in Fiscal 2015, which is a decrease of approximately $1.8 million, or 101%. Of the total decrease, $1 million was due to the decrease in the fair value of InvenTrust Properties Corp. during Fiscal 2016, $0.2 million was due to the decrease in fair value of Rancon Realty Fund IV as a result of large sales distributions paid during Fiscal 2016 and the remaining $0.6 million was due to an increase in dispositions during Fiscal year 2016 compared to Fiscal 2015 resulting in larger amount of unrealized gains being realized in Fiscal 2016.

Fiscal 2015 net unrealized gain on investments increased by $1.6 million or 837% compared to Fiscal 2014. The net unrealized gain for Fiscal 2014 was $192,524. This increase was primarily due to net increase in investment portfolio of $10.94 million since June 30, 2014. As of June 30, 2015, we had investments with a cost basis of $16.53 million, compared to $5.59 million as of June 30, 2014. In addition, three new investments (TIER REIT, Inc., SmartStop Self Storage, Inc. and KBS Real Estate Investment Trust, Inc.) acquired after June 30, 2014, resulted in significant fair value appreciation during Fiscal 2015. These three investments contributed approximately $1.65 million of unrealized gain during Fiscal 2015.

Income tax provision (benefit)

We did not record any income tax expenses for Fiscal 2016, or 2015, as we have elected to be treated as a REIT for tax purposes beginning with the tax year ended December 31, 2014. As a REIT, the Company is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other conditions.

The Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2015, and 2014. Therefore, the Company did not incur any tax expense or excise tax for those periods. In addition, during tax year ended December 31, 2016, we intend to pay the requisite amount of dividends to stockholders such that the Company would not pay any income taxes on its income. Therefore, the Company did not record any income tax provisions during the year ended June 30, 2016, and 2015.

The income tax benefit of $1,412 reflected in the statements of operations for Fiscal 2016, was the adjustment for the difference between the actual and estimated tax on the built-in gains realized during the 2014 tax year. The income tax benefit of $188,949 reflected in the statements of operations for Fiscal 2015, was the reversal of income tax provisions recorded during the period from January 1, 2014, through June 30, 2014, during which the Company had not qualified to be treated as a REIT. This reversal occurred after the Company qualified to be treated as a REIT during the quarter ended December 31, 2014. For Fiscal 2014, the Company recorded income tax provision of $373,580 treating the Company as a corporation for federal and state income tax purposes since we did not reach to our REIT qualification conclusion until the quarter ended December 31, 2014. Of this tax provision amount, $188,949 was reversed in Fiscal 2015 after the Company qualified to be treated as a REIT beginning with tax year 2014.

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Liquidity and Capital Resources

Capital Resources

We filed a Registration Statement on Form N-2 with the Securities and Exchange Commission to register the sale of 5,000,000 Shares, under which we seek to raise up to $50,000,000 in our IPO. As of June 30, 2016, under our current offering we have sold 3,385,862 Shares with gross proceeds of $33,830,074 and issued 112,848 Shares under our DRIP with gross proceeds of $1,015,642. As of June 30, 2016, 169,607.47 Shares have been repurchased under our Share Repurchase Program at an aggregate price of $1,526,467. We do not have any plans to issue any preferred equity. We plan to fund future investments with the net proceeds raised in the IPO and any future offerings of securities and cash flows from operations, as well as interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. We may also fund a portion of our investments through borrowings from banks and issuances of senior securities; however, we do not have any current plans to borrow money. We are currently selling our Shares on a continuous basis at a price of $10 which may be below NAV per Share from time to time, as approved by our stockholders.

Our aggregate borrowings (if any), secured and unsecured, are expected to be reasonable in relation to our net assets and will be reviewed by the Board of Directors, at least quarterly. The maximum amount of such borrowing is limited by the 1940 Act.

Our primary uses of funds are investing in portfolio companies, paying cash dividends to holders of our common stock (primarily from investment income and realized capital gains), making payments to any lenders or senior security holders, and the payment of operating expenses. If we sell all of the Shares registered under the Registration Statement in the IPO, we expect to have received investable cash of approximately $43.5 million.

Cash Flows:

For Fiscal 2016, we experienced a net decrease in cash of $1.95 million. During this period, we generated $14.8 million of cash from our financing activities and used $16.8 million in operating activities.

Net cash outflow of $16.8 million from operating activities was primarily due to the cash outflow of $30.7 million from purchases of investments offset by cash inflows of $12.5 million from sales of investments, $0.4 million from distributions received from our investments that are considered return of capital and $1 million from investment income, net of the Company's operating expenses.

Net cash inflow of $14.8 million from financing activities resulted from the sale of Shares under our current offering with gross proceeds of $20.2 million (including the $1.0 million net increase in capital pending acceptance) offset by cash outflows of $1.5 million from Share redemptions, $1.4 million from dividend payments and $2.5 million from selling commissions and fees payments.

Contractual Obligations

We have entered into two contracts under which we have material future commitments, the Advisory Agreement, under which the Adviser serves as our investment adviser, and the Administration Agreement, under which MacKenzie furnishes us with certain non-investment management services and administrative services necessary to conduct our day-to-day operations. Each of these agreements is terminable by either party upon proper notice. Payments under the Advisory Agreement in future periods (after the up-front payment of the portfolio structuring fee during the IPO) are (i) a percentage of the value of our Managed Funds; and (ii) incentive fees based on our income and our performance above specified hurdles (except in the year of liquidation). Payments under the Administration Agreement will occur on an ongoing basis as expenses are incurred on our behalf by MacKenzie. However if MacKenzie withdraws as our administrator, it is liable for any expenses we incur as a result of such withdrawal.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Borrowings

We do not have any current plans to borrow money or issue preferred securities. In the event that we do so borrow, we would expect to be subject to various customary covenants and restrictions on our operations, such as covenants which would (i) require us to maintain certain financial ratios, including asset coverage, debt to equity and interest coverage, and a minimum net worth, and/or (ii) restrict our ability to incur liens, additional debt, merge or sell assets, make certain investments and/or distributions or engage in transactions with affiliates.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our portfolio, as well as our future investments, primarily consists of equity and debt securities issued by smaller U.S. companies that primarily own commercial real estate that are either illiquid or not listed on any exchange, and our investments in these securities are considered speculative in nature. Our investments do and will often include securities that are subject to legal or contractual restrictions on resale that adversely affect the liquidity and marketability of such securities. As a result, we are subject to risk of loss which may prevent our stockholders from achieving price appreciation, dividend distributions and a return of their capital.

At June 30, 2016, financial instruments that subjected us to concentrations of market risk consisted principally of equity investments, which represented approximately 93% of our total assets as of that date. As discussed in Note 3 to our financials statement ("Investments"), these investments primarily consist of securities in companies with no readily determinable market values and as such are valued in accordance with our fair value policies and procedures. Our investment portfolio also includes shares of publicly traded REITs, which are valued at recently quoted trading prices. Our investment strategy represents a high degree of business and financial risk due to the fact that portfolio company investments are generally illiquid and in small and middle market companies. We may make short-term investments in cash equivalents, U.S. government securities and other high-quality investments that mature in one year or less, pending investments in portfolio companies made according to our principal investment strategy.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements and notes to the financial statement are set forth beginning on page F-1 in this Annual Report on Form 10-K and are incorporated herein by reference.

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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the 1934 Act) as of the end of the period covered by this report as required by paragraph (b) of Rule 13a-15 or 15d-15 of the 1934 Act. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed by us in the reports we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rules 13a-15(f) and 15d-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Our internal control over financial reporting includes those policies and procedures that:

1.	Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and the dispositions of our assets;

2.	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and

3.	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management's assessment of the effectiveness of our internal control system as of June 30, 2016, was based on the framework for effective internal control over financial reporting described in Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, as of June 30, 2016, our system of internal control over financial reporting was effective at the reasonable assurance level.

This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding control over financial reporting. Management's report was not subject to attestation by the company's independent registered public accounting firm pursuant to Section 989G of the Dodd-Frank Wall Street and Consumer Protection Act, which exempts non-accelerated filers from the auditor attestation requirement of section 404 (b) of the Sarbanes-Oxley Act.

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Changes in internal controls over financial reporting

There have been no changes in our internal control over financial reporting (identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the 1934 Act) during Fiscal 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. OTHER INFORMATION

None.

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PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Board of Directors and Executive Officers

Our business and affairs are managed under the direction of our Board of Directors. Accordingly, our Board provides broad supervision over our affairs, including supervision of the duties performed by the Adviser and MacKenzie. Certain employees of MacKenzie are responsible for our day-to-day operations. The names, ages and addresses of our Directors and specified executive officers, together with their principal occupations and other affiliations during the past five years, are set forth below. Each Director and officer holds office for a one year term to which he or she is elected and until his successor is duly elected and qualifies, or until he resigns or is removed in the manner provided by law. Our Board consists of a majority of Independent Directors. The Director who is an "interested person" (as defined in the 1940 Act) is referred to as an " Interested Director ," a director who is not an Interested Director is referred to herein as an "Independent Director." The address for all officers and Directors is 1640 School Street, Moraga, California 94556. None of our Directors or officers serve as a director for any other company which (i) has a class of securities registered under section 12 of the 1934 Act, (ii) is subject to section 15(d) of the 1934 Act, or (iii) is registered as an investment company under the 1940 Act; and we only have one investment portfolio.

Board of Directors

Name and Age	Position(s) Held with the Company	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years
C.E. "Pat" Patterson†, 75	Chairman of the Board of Directors	Since 2012	Mr. Patterson is co-founder and president of MacKenzie and the Adviser, and a director of their general partner, and a beneficial owner of all three companies, all since 1982. Mr. Patterson has spent his entire business career in the financial services industry. In 1982, Mr. Patterson founded Patterson Financial Services, Inc. (now MCM Advisers) with Berniece A. Patterson as a financial planning firm. As president of the Adviser, Mr. Patterson is responsible for all investment counseling activities. He supervises the analysis of investment opportunities for the clients of the firm. In February 1988, Mr. Patterson co-founded the predecessor of MacKenzie, which acts as the general partner and Manager to a number of prior investment funds. Mr. Patterson is the president of MacKenzie. Mr. Patterson is a former Certified Financial Planner, has completed the College of Financial Planning's Due Diligence course, and is a past member of both the Institute of Certified Financial Planners and the International Association for Financial Planning.
Tim Dozois, 54	Director	Since 2012	Mr. Dozois has been the Acting General Counsel and Secretary for Pendrell Corporation, a NASDAQ-listed company specializing in intellectual property solutions, since June of 2010. Prior to joining Pendrell, he spent more than 20 years supporting clients with securities law compliance, mergers, acquisitions, and real estate acquisition, financing, and management. From 1996 until 2010, Mr. Dozois served as an equity partner of Davis Wright Tremaine LLP, a Seattle-based law firm of approximately 500 lawyers. Mr. Dozois received his B.S. in Financial Management from Oregon State University and his J.D from the University of Oregon School of Law, where he was Order of the Coif.
Tom Frame, 74	Director	Since 2012	Mr. Frame was a co-founder of TransCentury Property Management and solely founded Paradigm Investment Corporation. TransCentury began in May of 1973 and has syndicated and managed over 10,000 residential units. During the last 35 years, Mr. Frame has been a principal in the acquisition, financing, restoration, and sale of over $500,000,000 in residential and commercial real estate. Paradigm was founded in June 1986 to sponsor and manage private, closed end "mutual funds." The last of the funds successfully liquidated in December of 2000. Mr. Frame received a BA degree from the University of Kansas in Mathematics in June 1964, a Juris Doctor degree from the San Francisco Law School in June 1975, and a MBA with honors from Pepperdine University in April 1986. Mr. Frame is currently managing his own investments which include residential units, commercial property, and a portfolio of securities.

† As a principal of both MacKenzie and the Adviser, Mr. Patterson is an Interested Director.

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Executive Officers

Our current officers are listed in the chart below. As affiliated persons of MacKenzie and/or the Adviser, the officers are "interested persons," as that term is defined in Section 2(a)(19) of the 1940 Act. The address for all officers is 1640 School Street, Moraga, California 94556.

Name and Age	Position(s) Held with the Company	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years
Robert Dixon, 45	Chief Executive Officer and President	Since 2012	Robert E. Dixon has been the senior vice president and co-chief investment officer of MacKenzie and the Adviser since 2005, and a director of their general partner, and a beneficial owner of all three companies since 2005. Mr. Dixon is C.E. and Berniece Patterson's son-in-law. Robert Dixon served as an officer and director of Sutter Holding Company, Inc. from March 2002 until 2005. Mr. Dixon has been president of Sutter Capital Management since its founding. Mr. Dixon received his Master of Business Administration degree from Cornell University in 1998 and has held the Chartered Financial Analyst® designation since 1996. Mr. Dixon received his bachelor's degree in economics from the University of California at Los Angeles in 1992.
Paul Koslosky, 54	Chief Financial Officer and Treasurer	Since 2012	Mr. Koslosky has been the chief financial officer and treasurer for the Adviser and MacKenzie since 2004. He owns a beneficial interest in each MacKenzie, the Adviser and their general partner. He is responsible for accounting and reporting for MacKenzie, the funds it manages, and other related business interests. Mr. Koslosky graduated from California State University, Hayward in 1983 with a Bachelor of Science degree in Business Administration. Prior to joining MacKenzie in 1997, he spent five years with Zellerbach Paper Company, a billion-dollar paper distributor, as staff accountant and, eventually, financial reporting manager. He worked for Doric Development, an Alameda, California real estate developer with numerous related business interests. At Doric he served as accounting manager responsible for the accounting and reporting for commercial development and construction. From 1995 to 1997 he served as controller at Doric.
Glen Fuller, 43	Chief Operating Officer	Since 2012	Mr. Fuller has been senior vice president and secretary of MacKenzie since 2000 and the Adviser since 2000, and a director of their general partner, and a beneficial owner of all three companies since 2000. Mr. Fuller is Berniece Patterson's son and C.E. Patterson's stepson. Prior to becoming senior vice president of MacKenzie, he was with MacKenzie for two years as a portfolio manager and research analyst. Prior to joining MacKenzie, Mr. Fuller spent two years running the over the counter trading desk for North Coast Securities Corp. (previously Morgan Fuller Capital Group) with responsibility for both the proprietary and retail trading desks. Mr. Fuller was also the registered options principal and registered municipal bond principal for North Coast Securities Corp., a registered broker-dealer. Mr. Fuller previously held his NASD Series 7, general securities registration. Mr. Fuller has a Bachelor of Arts in Management.
Chip Patterson, 45	General Counsel and Secretary	Since 2012	Chip Patterson has been the senior vice president and general counsel of MacKenzie and the Adviser since 2003, a director of their general partner since 2003, and a beneficial owner of all three companies since 2003. Chip Patterson is C.E. Patterson's son and Berniece Patterson's stepson. Chip Patterson graduated magna cum laude from the University of Michigan Law School with a Juris Doctor Degree and with high distinction and Phi Beta Kappa from the University of California at Berkeley with a Bachelor of Arts Degree in Political Science. Prior to joining MacKenzie in July 2003, he was a securities and corporate finance attorney with the national law firm of Davis Wright Tremaine LLP.
Jeri Bluth, 41	Chief Compliance Officer	Since 2012	Ms. Bluth has been the Chief Compliance Officer for MacKenzie and the Adviser since 2009. She owns a beneficial interest in each MacKenzie and the Adviser. Mrs. Bluth oversees compliance for all the funds advised by the Adviser, and she oversees the Company's compliance with its Code of Ethics, Bylaws, Charter, and applicable rules and regulations. Mrs. Bluth began her career with MacKenzie Patterson Fuller, Inc. in July of 1996 in the Investor Services Department. During Mrs. Bluth's career with MacKenzie, she graduated from St. Mary's College of California in June 2001, with a Bachelor of Arts degree in Business Management.
Christine Simpson, 51	Chief Portfolio Manager	Since 2012	Mrs. Simpson has been employed by MacKenzie and its affiliates since 1990, and has been the Adviser's Senior Vice President of Research and Trading since 2005. Mrs. Simpson is responsible for handling the day-to-day operations of The Adviser's research department. During Mrs. Simpson's career with MacKenzie, she graduated: with a Bachelor of Arts degree in Business Management from St. Mary's College of California in October 2004 (with honors), with a Masters of Science degree in Financial Analysis and Investment Management in September 2006, and a Masters in Business Administration in June 2008.

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Section 16(a) Beneficial Ownership Reporting Compliance

Pursuant to Section 16(a) of the 1934 Act, our officers and directors and persons beneficially owning 10% or more of our common stock (collectively, "reporting persons") must file reports on Forms 3, 4 and 5 regarding changes in their holdings of our equity securities with the SEC. Based solely upon a review of copies of these reports sent to the Secretary of the Company and/or written representations from reporting persons that no Form 5 was required to be filed with respect to Fiscal 2016, we believe that all Forms 3, 4, and 5 required to be filed by all reporting persons have been properly and timely filed with the SEC.

Code of Ethics

We have adopted a Code of Ethics which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individual's personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Chief Compliance Officer. Our Audit Committee is charged with approving any waivers under our Code of Ethics.

The Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (202) 942-8090. The Codes of Ethics are also available on the EDGAR database on the SEC's internet site at www.sec.gov, and, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102.

Audit Committee

The Board of Directors has established an Audit Committee in accordance with 1934 Act §3(a)(58)(A). The Audit Committee operates under a charter approved by our Board of Directors, which contains the responsibilities of the Audit Committee. The Audit Committee's responsibilities include establishing guidelines and making recommendations to our Board of Directors regarding the valuation of our loans and investments, selecting our independent registered public accounting firm, reviewing with such independent registered public accounting firm the planning, scope and results of their audit of our financial statements, pre‑approving the fees for services performed, reviewing with the independent registered public accounting firm the adequacy of internal control systems, reviewing our annual financial statements and periodic filings and receiving our audit reports and financial statements. The audit committee is currently composed of Messrs. Dozois and Frame, neither of whom is an "interested person" of ours as that term is defined in Section 2(a)(19) of the 1940 Act. Mr. Dozois serves as chairman of the audit committee.

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Item 11. EXECUTIVE COMPENSATION

We do not have a compensation committee because our executive officers do not receive any direct compensation from us.

Compensation of Directors

Our Independent Directors receive an annual retainer of $20,000. They also receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting in person and $500 for each telephonic meeting, and also receive $500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committee meeting. In addition, the chairman of the audit committee receives an annual fee of $1,000 and each chairman of any other committee receives an annual fee of $1,000 for their additional services, if any, in these capacities. No compensation is expected to be paid to directors who are "interested persons" as that term is defined in 1940 Act §2(a)(19).

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The following table details the compensation accrued to Directors fees during Fiscal 2016 . We maintain no pension, equity participation or retirement plans for our Directors.

Name & Position	Fiscal Year 2016 Fees ⁽¹⁾
C.E. "Pat" Patterson	$ -
Tim Dozois	24,000
Tom Frame	24,000
Total Fees	$ 48,000

⁽¹⁾ Consists only of directors' fees and does not include reimbursed expenses.

Compensation of Executive Officers

None of our officers receives direct compensation from us. We have not compensated our executive officers in any of the last three fiscal years. We do not provide any bonus, stock options, stock appreciation rights, non-equity incentive plans, non-qualified deferred compensation or pension benefits to our executive officers. Further, we have no agreements with any officer pertaining to change in control payments. All of our officers and staff are employed by MacKenzie or the Adviser, which pay all of their cash compensation.

Compensation Committee Interlocks and Insider Participation

We do not have a separate compensation committee utilized to determine the appropriate compensation payable to our executive officers and Directors. The Audit Committee, however, is responsible for, among other things, annually reviewing and approving the compensation policies for our Directors.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table contains ownership information, as of September 22, 2016, for our common stock for those persons who, directly or indirectly, own, control or hold with the power to vote, 5% or more of our common stock, and all of our officers and directors, as a group. Each of the owners is located at 1640 School Street, Moraga, California 94556. The percentage ownership is based on 4,766,075.36 Shares of common stock outstanding as of September 22, 2016.

Title of Class	Name of Beneficial Owner	Nature of Beneficial Ownership	Shares Owned	Percent of Class

Common Stock	All officers and directors as a group (6 persons)	Indirectly held	43,872	0.9%

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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We are managed by MacKenzie, which is owned by three sub-partnerships that are owned in varying percentages by MacKenzie and the Adviser employees and the extended family of Messrs. C.E. Patterson, Chip Patterson, Glen Fuller and Robert Dixon. The general partner of MacKenzie is MCM-GP, Inc., a California corporation owned by the same individuals. The majority of the beneficial interests of MacKenzie are owned by C.E. Patterson, Berniece A. Patterson, Robert Dixon, Glen Fuller, and Chip Patterson, in addition to other family members. Certain non-family employees of MacKenzie own minority interests in MacKenzie that represent in the aggregate less than 10% of the equity in MacKenzie. MacKenzie manages all of our affairs except for providing investment advice.

We are advised by the Adviser, whose investment team members have an average of nearly 20 years of experience investing in real estate-related securities. The Adviser is registered with the SEC and is owned by the same beneficial owners and in the same proportions as MacKenzie. The Adviser is led by its investment team: C.E. Patterson, Founder and Managing Director of the General Partner of MacKenzie and the Adviser; Glen W. Fuller, who serves as Chief Operating Officer and Managing Director of the General Partner of MacKenzie and the Adviser; Chip Patterson, who serves as Managing Director and General Counsel, and Director of the General Partner of MacKenzie and the Adviser; Robert E. Dixon, who serves as Chief Investment Officer and Managing Director of the General Partner of MacKenzie and the Adviser; Paul F. Koslosky, who serves as Chief Financial Officer and Treasurer of the General Partner of MacKenzie and the Adviser; and Christine E. Simpson, who serves as Chief Portfolio Manager and Senior Vice President of Research for the General Partner of MacKenzie and the Adviser.

We have entered into two affiliated contracts—the Advisory Agreement, under which the Adviser serves as our investment adviser, and the Administration Agreement, under which MacKenzie furnishes us with certain non-investment management services and administrative services necessary to conduct our day-to-day operations. Each of these agreements is terminable by either party upon proper notice. Payments under the Investment Advisory Agreement in future periods (after the up-front payment of the Portfolio Structuring Fee) are (i) a percentage of the value of our Managed Funds; and (ii) incentive fees based on our income and our performance above specified hurdles (except in the year of liquidation). In Fiscal 2016 and 2015, Management fees accrued and payable to the Adviser under the Advisory Agreement were $860,233 and $542,033, respectively. Administration fees accrued and payable under the Administration Agreement for Fiscal 2016 and 2015, were $120,000 and $120,000. Administration Agreement fees occur on an ongoing basis as expenses are incurred on our behalf by MacKenzie. However if MacKenzie withdraws as our administrator, it is liable for any expenses we incur as a result of such withdrawal.

The 1940 Act extensively regulates conflicts of interests between BDCs, their directors, investment advisers and their affiliates. For example, the 1940 Act and rules thereunder generally prohibit a BDC's employees, officers, directors, investment adviser and their affiliates from (i) selling securities or property to the BDC, (ii) buying securities or property from the BDC, (iii) borrowing money or property from the BDC, or (iv) entering into joint transactions with the BDC or a company controlled by it. The 1940 Act further prohibits a wider group of persons affiliated with a BDC from entering into such transactions with a BDC unless approved by the BDC's stockholders.

In order to ensure that we do not engage in any transactions with any persons affiliated with us that are prohibited by the 1940 Act, we have implemented certain written policies and procedures whereby our executive officers screen each of our transactions for any possible affiliations between the issuer in which we invest, us, companies controlled by us and our executive officers and directors. We do not enter into any agreements unless and until we are satisfied that doing so does not violate our Charter or raise concerns under the 1940 Act or, if such concerns exist, we have taken appropriate actions to seek board review and exemptive or other relief for such transaction. Our Board of Directors review these procedures on an annual basis.

Our directors have been divided into two groups — interested directors and Independent Directors. An interested director is an "interested person" as defined in 1940 Act §2(a)(19). Our only interested director is C.E. "Pat" Patterson. Our independent directors are Tim Dozois and Tom Frame.

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Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES:

The following table presents fees incurred for professional services rendered by Moss Adams, the Company's independent registered public accounting firm, for Fiscal 2016, Fiscal 2015 and Fiscal 2014:

Fee Category	Fiscal Year 2016 Fees	Fiscal Year 2015 Fees	Fiscal Year 2014 Fees
Audit Fees	$ 75,500	$ 74,500	$ 77,500
Audit-Related Fees	-	-	-
Tax Fees	-	-	-
Total Fees	$ 75,500	$ 74,500	$ 77,500

Audit Fees were for professional services rendered for the audit of our financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by Moss Adams in connection with statutory and regulatory filings or engagements and include quarterly reviews and security counts.

Audit-Related Fees were for assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements and are not reported under "Audit Fees." These services include accounting consultations in connection with acquisitions, consultations concerning financial accounting and reporting standards.

Tax Fees were for professional services for federal, state and international tax compliance, tax advice and tax planning and include preparation of federal and state income tax returns, and other tax research, consultation, correspondence and advice.

All Other Fees are for services other than the services reported above. During Fiscal 2016 and 2015, we paid Moss Adams, LLP $20,000 and $16,700, respectively for their review of the Registration Statement. However, these amounts were reimbursed by the Adviser under the Advisory Agreement.

The Audit Committee has concluded the provision of the non-audit services listed above is compatible with maintaining the independence of Moss Adams LLP. Moss Adams LLP did not bill the Adviser or MacKenzie, for any non-audit services in Fiscal 2016 or 2015.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.

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PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report on Form 10-K:

1.	The Financial Statements listed in the Index to Financial Statements on Page F-1.

2.	The Exhibits listed in the Exhibit Index below.

Exhibit No. 1		Description of Document

3(i)		Articles of Amendment and Restatement (incorporated by reference to Registrant's Post-Effective Amendment No. 1 to the Registration Statement on Form N-2, filed on August 2, 2013)

3(ii)		First Amended and Restated Bylaws (incorporated by reference to Registrant's Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed on July 19, 2013)

10.1		Investment Advisory Agreement with MCM Advisers, LP dated February 28, 2013 (incorporated by reference to Registrant's Post-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed on September 5, 2013)

10.2		Amendment to Investment Advisory Agreement (incorporated by reference to Registrant's Registration Statement on Form N-2 filed on August 1, 2016)

10.3		Form of Investment Adviser Introducing Agreement (incorporated by reference to Registrant's Registration Statement on Form N-2, filed on August 1, 2016)

10.4		Marketing Services Agreement with Arete Wealth Management, LLC (incorporated by reference to Registrant's Quarterly Report on Form 10-Q filed on May 9, 2014)

10.5		Form of Amended Marketing Services Agreement with Arete Wealth Management, LLC (incorporated by reference to Registrant's Post-Effective Amendment No. 4 to the Registration Statement on Form N-2 filed on August 6, 2014)

10.6		Form of Sales Agent Agreement (incorporated by reference to Registrant's Post-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed on September 5, 2013)

10.7		Form of Amended Sales Agent Agreement (incorporated by reference to Registrant's Post-Effective Amendment No. 4 to the Registration Statement on Form N-2 filed on August 6, 2014)

10.8		Form of Sales Agent Agreement (for use after August 6, 2014) (incorporated by reference to Registrant's Post-Effective Amendment No. 4 to the Registration Statement on Form N-2 filed on August 6, 2014)

10.9		Form of Investor Services Agreement with ACS Securities Services, Inc. (incorporated by reference to Registrant's Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2, filed on May 30, 2013)

10.10		Form of Administration Agreement with MacKenzie Capital Management, LP (incorporated by reference to Registrant's Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2, filed on May 30, 2013)

14		Code of Ethics for Principal Executive Officer and Principal Financial Officer ("Officer Code") (incorporated by referenced to Registrant's Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2, filed on May 30, 2013)

31.1		Section 302 Certification of Robert Dixon (President and Chief Executive Officer)

31.2		Section 302 Certification of Paul Koslosky (Treasurer and Chief Financial Officer)

32.1		Section 1350 Certification of Robert Dixon (President and Chief Executive Officer)

32.2		Section 1350 Certification of Paul Koslosky (Treasurer and Chief Financial Officer)

All other exhibits for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instruction or are inapplicable and therefore have been omitted.

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Index to Audited Financial Statements

Report of Independent Registered Public Accounting Firm	F-2

Statements of Assets and Liabilities as of June 30, 2016 and 2015	F-3

Schedule of Investments as of June 30, 2016	F-4

Schedule of Investments as of June 30, 2015	F-5

Statements of Operations for the Years Ended June 30, 2016, 2015, and 2014	F-6

Statements of Changes in Net Assets for the Years Ended June 30, 2016, 2015, and 2014	F-7

Statements of Cash Flows for the Years Ended June 30, 2016, 2015, and 2014	F-8

Notes to Financial Statements	F-9

F-1

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

MacKenzie Realty Capital, Inc.

We have audited the accompanying statement of assets and liabilities of MacKenzie Realty Capital, Inc. (a Maryland corporation) (the "Company"), including the schedule of investments, as of June 30, 2016 and 2015, and the related statements of operations, changes in net assets and cash flows for each of the three year period ended June 30, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MacKenzie Realty Capital, Inc. as of June 30, 2016 and 2015, the results of its operations and its cash flows for each of the three years in the period ended June 30, 2016, in conformity with accounting principles generally accepted in the United States of America.

/s/ Moss Adams

San Francisco, California

September 22, 2016

F-2

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Part I. FINANCIAL INFORMATION

MacKenzie Realty Capital, Inc.

Statements of Assets and Liabilities

	June 30, 2016	June 30, 2015
Assets
Investments, at fair value (cost of $37,077,138 and $16,528,720, respectively)	$ 39,176,772	$ 18,645,022
Cash and cash equivalents	2,350,435	4,297,086
Accounts receivable	438,956	87,689
Other assets	349,058	188,407
Total assets	$ 42,315,221	$ 23,218,204


Liabilities
Accounts payable and accrued liabilities	$ 90,956	$ 18,045
Capital pending acceptance	1,616,490	588,250
Due to related entities	266,980	228,803
Deferred tax liability	45,363	44,667
Total liabilities	2,019,789	879,765

Commitments and contingencies (Note 10)	-	-

Net assets
Common stock, $0.0001 par value, 80,000,000 shares authorized; 4,057,319.49 and 2,196,612.73 shares issued and outstanding, respectively	406	220
Capital in excess of par value	36,232,101	20,061,251
Accumulated undistributed net investment gain (loss)	367,490	(1,002,901)
Accumulated undistributed net realized gain	1,595,801	1,163,567
Accumulated undistributed net unrealized gain	2,099,634	2,116,302
Total net assets	40,295,432	22,338,439

Total liabilities and net assets	$ 42,315,221	$ 23,218,204

Net asset value per Share	$ 9.93	$ 10.17

The accompanying Notes to Financial Statements are an integral part of these financial statements.

F-3

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MacKenzie Realty Capital, Inc.

Schedule of Investments

June 30, 2016

Name		Asset Type	Shares/Units	Cost Basis	Total Fair Value	% of Net Assets
Ambase Corporation	(5)	Publicly Traded Company	250,000.00	$ 424,397	$ 357,500	0.88
Ashford Hospitality Prime, Inc.	(3)	Publicly Traded Company	54,027.00	795,610	763,942	1.90
Ashford Hospitality Trust, Inc.	(3)	Publicly Traded Company	150,000.00	912,218	805,500	2.00
Bluerock Residential Growth REIT, Inc.		Publicly Traded Company	147,858.00	1,621,715	1,922,154	4.77
CBL & Associates Properties, Inc.	(3)	Publicly Traded Company	54,000.00	646,753	502,740	1.25
Chatham Lodging Trust	(3)	Publicly Traded Company	15,000.00	323,032	329,700	0.82
Equity Commonwealth	(3) (5)	Publicly Traded Company	12,150.00	311,114	353,930	0.88
Independence Realty Trust, Inc.	(3)	Publicly Traded Company	72,000.00	542,232	588,960	1.46
Liberty Property Trust	(3)	Publicly Traded Company	14,000.00	474,607	556,080	1.38
New York REIT, Inc.	(3)	Publicly Traded Company	72,000.00	789,642	666,000	1.65
One Liberty Properties, Inc.	(3)	Publicly Traded Company	22,500.00	510,055	536,625	1.33
Sabra Health Care REIT, Inc.	(3)	Publicly Traded Company	26,300.00	538,275	542,832	1.35
TIER REIT, Inc.		Publicly Traded Company	147,649.00	1,922,622	2,263,459	5.62
VEREIT Inc.	(3)	Publicly Traded Company	126,800.00	1,104,741	1,285,752	3.19
Total Publicly Traded Company				10,917,013	11,475,174	28.48

American Finance Trust, Inc.	(4)	Non Traded Company	12,948.60	235,213	242,657	0.60
Apple REIT Ten, Inc.	(4)	Non Traded Company	260,641.12	2,410,057	2,820,137	7.00
American Realty Capital New York City REIT, Inc.	(4)	Non Traded Company	936.48	16,257	16,257	0.04
FSP Energy Tower	(4) (5)	Non Traded Company	7.00	294,350	225,132	0.56
FSP Grand Boulevard	(4)	Non Traded Company	7.00	279,104	294,021	0.73
FSP 1441 Main Street	(4)	Non Traded Company	11.55	398,163	415,800	1.03
FSP Satellite Place	(4)	Non Traded Company	5.00	195,035	176,836	0.44
FSP South 10th Street Corp. Liquidating Trust	(4) (5)	Non Traded Company	0.25	151	-	-
Highlands REIT Inc.	(4)	Non Traded Company	1,902,983.81	463,329	418,656	1.04
InvenTrust Properties Corp.	(4)	Non Traded Company	1,940,749.73	4,106,446	3,376,905	8.38
KBS Real Estate Investment Trust, Inc.	(4)	Non Traded Company	1,171,821.66	2,676,386	3,245,946	8.06
Phillips Edison Grocery Center REIT I, Inc	(4)	Non Traded Company	1,950.00	17,439	17,394	0.04
Sentio Healthcare Properties, Inc.	(4)	Non Traded Company	13,039.18	91,663	118,265	0.29
Strategic Realty Trust, Inc.	(4)	Non Traded Company	5,245.47	24,406	23,237	0.06
Summit Healthcare REIT, Inc.	(4) (5)	Non Traded Company	171,494.39	198,587	217,798	0.54
Total Non Traded Company (1)				11,406,586	11,609,041	28.81

Arrowpoint Burlington LLC	(4)	LP Interest	7.50	750,000	750,000	1.86
BR Beach House Investment Co	(4)	LP Interest	1,499,804.92	1,499,805	1,499,805	3.72
BR Riverside Investment	(4)	LP Interest	2,237,500.00	2,238,638	2,237,500	5.55
Britannia Preferred Members, LLC	(4) (5)	LP Interest	150,000.00	1,500,000	1,899,000	4.71
DRV Holding Company, LLC	(4) (5)	LP Interest	250.00	250,000	353,418	0.88
Inland Land Appreciation Fund II, L.P.	(4) (5)	LP Interest	210.97	8,667	24,046	0.06
MC 15 Preferred Equity, LLC	(4) (5) (2)	LP Interest	250,000.00	2,500,000	2,500,000	6.20
MPF Pacific Gateway - Class B	(2) (4) (5)	LP Interest	23.20	6,287	7,309	0.02
Rancon Realty Fund IV	(4) (5)	LP Interest	1,016.00	184,474	185,085	0.46
Redwood Mortgage Investors VIII	(4)	LP Interest	54,129.40	29,169	33,019	0.08
Resource Real Estate Investors 6, L.P.	(4)	LP Interest	42,600.00	169,548	169,974	0.42
Resource Real Estate Investors 7 L.P.	(4)	LP Interest	11,500.00	36,820	48,645	0.12
Satellite Investment Holdings, LLC - Class A	(4)	LP Interest	22.00	2,200,000	2,200,000	5.46
Secured Income, LP	(4) (5)	LP Interest	64,177.00	560,403	765,632	1.90
The Weatherly, LTD	(4) (5)	LP Interest	60.00	672,000	675,378	1.68
The Weatherly Building, LLC	(4) (5)	LP Interest	17.50	392,000	393,970	0.98
Uniprop Manufactured Housing Income Fund II, LP	(4)	LP Interest	113,764.00	567,351	1,006,811	2.50
VWC Savannah, LLC	(4) (5)	LP Interest	8.25	825,000	1,043,883	2.59
Total LP Interest				14,390,162	15,793,475	39.19

Coastal Realty Business Trust, REEP, Inc. - A	(2) (4) (5)	Investment Trust	72,320.00	73,555	99,078	0.25
Coastal Realty Business Trust, Series H2- A	(2) (4)	Investment Trust	47,284.16	184,880	95,987	0.23
Total Investment Trust				258,435	195,065	0.48

BR Cabrillo LLC Promissory Note	(4) (5)	Note		104,942	104,017	0.26
Total Note				104,942	104,017	0.26

Total Investments				$ 37,077,138	$ 39,176,772	97.22

(1) Investments primarily in non-traded public REITs or their successors.

(2) Investment in related party. See additional disclosures in note 5.

(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of June 30, 2016, the total percentage of non-qualifying assets is 16.38%, and as a business development company non-qualifying assets may not exceed 30% of our total assets.

(4) Investments in illiquid securities, or securities that are not traded on a national exchange. As of June 30, 2016, 65.46% of the Company's total assets are in illiquid securities.

(5) Investments in non-income producing securities. As of June 30, 2016, 21.75% of the Company's total assets are in non-income producing securities

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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MacKenzie Realty Capital, Inc.

Schedule of Investments

June 30, 2015

Name		Asset Type	Shares/Units	Cost Basis	Total Fair Value	% of Net Assets
American Realty Capital Properties, Inc.	(3) (5)	Publicly Traded Company	54,800.00	$ 514,633	$ 445,524	1.99
Ashford Hospitality Prime, Inc.	(3)	Publicly Traded Company	15,800.00	274,131	237,316	1.06
Ashford Hospitality Trust, Inc.	(3)	Publicly Traded Company	30,000.00	299,917	253,800	1.14
CBL & Associates Properties, Inc.	(3)	Publicly Traded Company	18,300.00	348,730	296,460	1.33
Equity Commonwealth	(3) (5)	Publicly Traded Company	12,150.00	311,114	311,890	1.39
Lexington Realty Trust	(3)	Publicly Traded Company	49,300.00	528,497	418,064	1.87
Liberty Property Trust	(3)	Publicly Traded Company	5,500.00	195,750	177,210	0.79
One Liberty Properties, Inc.	(3)	Publicly Traded Company	9,000.00	206,110	191,520	0.86
Rouse Properties Inc	(3)	Publicly Traded Company	20,700.00	377,231	338,445	1.52
Senior Housing Properties Trust	(3)	Publicly Traded Company	9,000.00	201,135	157,950	0.71
Winthrop Realty Trust Shares of Beneficial Interest	(3) (5)	Publicly Traded Company	38,500.00	594,594	583,275	2.61
Total Publicly Traded Company				3,851,842	3,411,454	15.27

Bluerock Residential Growth REIT, Inc. Class B2	(4)	Non Traded Company	1,429.61	17,211	18,099	0.08
Bluerock Residential Growth REIT, Inc. Class B3	(4)	Non Traded Company	1,429.61	15,781	18,099	0.08
FSP South 10th Street Corp. Liquidating Trust	(4) (5)	Non Traded Company	0.25	152	130	-
Hines Real Estate Investment Trust, Inc.	(4)	Non Traded Company	2,692.31	13,569	12,949	0.06
InvenTrust Properties Corp.	(4)	Non Traded Company	853,577.92	2,128,695	2,424,161	10.85
KBS Real Estate Investment Trust, Inc.	(4)	Non Traded Company	205,831.73	322,025	642,195	2.87
Landmark Apartment Trust, Inc.	(4)	Non Traded Company	179,421.12	770,227	893,517	4.00
SmartStop Self Storage, Inc.	(4)	Non Traded Company	124,588.73	1,094,503	1,639,588	7.34
TIER REIT, Inc.	(4)	Non Traded Company	186,508.00	2,401,668	3,189,287	14.28
Total Non Traded Company (1)				6,763,831	8,838,025	39.56

Del Taco Income Properties IV	(4)	LP Interest	2,296.00	59,696	65,275	0.29
Del Taco Restaurant Properties I	(4)	LP Interest	591.00	443,823	492,172	2.20
Del Taco Restaurant Properties II	(4)	LP Interest	892.00	179,815	200,878	0.90
DRV Holding Company, LLC	(4) (5)	LP Interest	500.00	500,000	552,785	2.47
El Conquistador Limited Partnership	(4)	LP Interest	2.00	80,976	47,107	0.21
Hotel Durant, LLC	(4)	LP Interest	7.10	577,299	366,106	1.64
Inland Land Appreciation Fund II, L.P.	(4) (5)	LP Interest	210.97	8,667	30,956	0.14
MPF Pacific Gateway - Class B	(2) (4) (5)		23.20	6,287	6,613	0.03
National Property Investors 6	(4) (5)	LP Interest	7.00	145	151	-
Post Street Renaissance Partners Class A	(4) (5)	LP Interest	9.10	16,981	20,336	0.09
Post Street Renaissance Partners Class D	(4) (5)	LP Interest	21.60	105,623	130,036	0.58
Rancon Realty Fund IV	(4) (5)	LP Interest	1,016.00	185,651	406,400	1.82
Rancon Realty Fund V	(4) (5)	LP Interest	1,156.00	213,661	233,455	1.05
Resource Real Estate Investors 6, L.P.	(4)	LP Interest	35,100.00	180,990	175,501	0.79
Secured Income, LP	(4) (5)	LP Interest	64,177.00	560,403	748,946	3.35
The Weatherly, LTD	(4) (5)	LP Interest	60.00	672,000	672,000	3.01
The Weatherly Building, LLC	(4) (5)	LP Interest	17.50	392,000	392,000	1.75
Uniprop Manufactured Housing Income Fund II, LP	(4)	LP Interest	53,202.00	237,401	276,118	1.24
VWC Savannah, LLC	(4) (5)	LP Interest	8.25	825,000	825,532	3.70
Total LP Interest				5,246,418	5,642,367	25.26

Coastal Realty Business Trust, REEP, Inc. - A	(2) (4) (5)		72,320.00	73,555	96,909	0.44
Coastal Realty Business Trust, Series H2- A	(2) (4)	Investment Trust	47,284.16	246,351	188,191	0.84
Total Investment Trust				319,906	285,100	1.28

BR Cabrillo LLC Promissory Note	(4) (5)	Note	346,723.32	346,723	468,076	2.10
Total Note				346,723	468,076	2.10

Total Investments				$ 16,528,720	$ 18,645,022	83.47

(1) Investments primarily in non-traded public REITs or their successors.

(2) Investment in related party. See additional disclosures in note 5.

(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of June 30, 2015, the total percentage of non-qualifying assets is 14.69%, and as a business development company non-qualifying assets may not exceed 30% of our total assets.

(4) Investments in illiquid securities, or securities that are not traded on a national exchange. As of June 30, 2015, the Company has 65.61% of its assets in illiquid securities.

(5) Investments in non-income producing securities. As of June 30, 2015, the Company has 25.52% of its assets in non-income producing securities.

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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MacKenzie Realty Capital, Inc.

Statements of Operations

	Year Ended June 30,
	2016	2015	2014
Investment income
Dividend and distribution income	$ 2,522,528	$ 532,036	$ 597,847
Interest and other income	113,877	70,533	26,097
Total investment income	2,636,405	602,569	623,944

Operating expenses
Base management fee	845,264	495,285	233,599
Subordinated incentive fee	14,969	46,748	-
Administrative cost reimbursements	120,000	120,000	60,000
Amortization of deferred offering costs	-	35,402	389,423
Professional fees	140,550	145,597	121,387
Other general and administrative	146,643	122,699	110,122
Total operating expenses	1,267,426	965,731	914,531

Net investment income (loss)	1,368,979	(363,162)	(290,587)

Realized and unrealized gain on investments
Net realized gain	2,809,740	1,578,081	632,703
Net unrealized gain (loss)	(16,668)	1,803,714	192,524
Total net realized and unrealized gain on investments	2,793,072	3,381,795	825,227

Income tax (provision) benefit (note 2)	1,412	188,949	(373,580)

Net increase in net assets resulting from operations	$ 4,163,463	$ 3,207,582	$ 161,060

Net increase in net assets resulting from operations per Share	$ 1.35	$ 2.08	$ 0.21

Weighted average common Shares outstanding	3,073,448	1,541,525	763,813

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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MacKenzie Realty Capital, Inc.

Statements of Changes in Net Assets

		For The Year Ended June 30,
		2016	2015	2014

Operations
	Net investment income (loss)	$ 1,368,979	$ (363,162)	$ (290,587)
	Net realized gain	2,809,740	1,578,081	632,703
	Net unrealized gain (loss)	(16,668)	1,803,714	192,524
	Income tax (provision) benefit	1,412	188,949	(373,580)
Net increase in net assets resulting from operations		4,163,463	3,207,582	161,060

Dividends
	Dividends to stockholders from net realized gain	(2,377,506)	(972,586)	(130,850)

Capital share transactions
	Issuance of common stock	19,248,674	12,925,611	1,655,790
	Issuance of common stock through reinvestment of dividends	937,158	78,373	111
	Redemption of common stock	(1,526,467)	-	-
	Selling commissions and fees	(2,488,329)	(1,665,330)	(215,254)
Net increase in net assets resulting from capital share transactions		16,171,036	11,338,654	1,440,647

Total increase in net assets		17,956,993	13,573,650	1,470,857

Net assets at beginning of the year		22,338,439	8,764,789	7,293,932

Net assets at end of the year		$ 40,295,432	$ 22,338,439	$ 8,764,789

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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MacKenzie Realty Capital, Inc.

Statement of Cash Flows

	For The Year Ended June 30,
	2016			2015			2014

Cash flows from operating activities:
Net increase in net assets resulting from operations	$	4,163,463		$	3,207,582		$	161,060
Adjustments to reconcile net increase in net assets resulting from
operations to net cash from operating activities:
Proceeds from sale of investments, net		12,496,611			8,120,686			2,289,429
Return of capital		407,050			78,068			1,304,778
Purchase of investments		(30,642,339	)		(17,555,986	)		(1,819,267	)
Net realized gain on investments		(2,809,740	)		(1,578,081	)		(632,703	)
Net unrealized loss (gain) on investments		16,668			(1,803,714	)		(192,524	)
Amortization of deferred offering costs		-			35,402			389,423
Changes in assets and liabilities:
Accounts receivable		(351,267	)		(74,820	)		(3,650	)
Other assets		(129,879	)		(85,883	)		(28,105	)
Accounts payable and accrued liabilities		55,342			(40,681	)		(205,895	)
Income tax payable		-			(160,362	)		160,362
Due to related entities		38,177			170,888			22,522
Deferred tax liability		696			(79,851	)		124,518
Net cash from operating activities		(16,755,218	)		(9,766,752	)		1,569,948

Cash flows from financing activities:
Proceeds from issuance of common stock		19,248,674			12,925,611			1,655,790
Redemption of common stock		(1,526,467	)		-			-
Dividends to stockholders		(1,440,348	)		(894,213	)		(130,739	)
Payment of selling commissions and fees		(2,501,532	)		(1,698,361	)		(215,254	)
Change in capital pending acceptance		1,028,240			208,050			380,200
Net cash from financing activities		14,808,567			10,541,087			1,689,997

Net increase (decrease) in cash and cash equivalents		(1,946,651	)		774,335			3,259,945

Cash and cash equivalents at beginning of the year		4,297,086			3,522,751			262,806

Cash and cash equivalents at end of the year	$	2,350,435		$	4,297,086		$	3,522,751

Non-cash financing activities:
Issuance of common stock through reinvestment of dividends	$	937,158		$	78,373		$	111

Supplemental disclosures:
Taxes paid	$	4,133		$	62,500		$	88,700

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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MacKenzie Realty Capital, Inc.

Notes to Financial Statements

June 30, 2016

NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION

MacKenzie Realty Capital, Inc. (the "Company") was incorporated under the general corporation laws of the State of Maryland on January 25, 2012. It is a non-diversified, closed-end investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended ("1940 Act"). The Company has elected to be treated as a real estate investment trust ("REIT") as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Company is authorized to issue 100,000,000 shares, of which (i) 80,000,000 are designated as Common Stock, with a $0.0001 par value per share; and (ii) 20,000,000 are designated as Preferred Stock, with a $0.0001 par value per share.

The Company filed its initial registration statement on June 1, 2012, with the Securities and Exchange Commission ("SEC") to register the initial public offering of 5,000,000 shares of the Company's common stock. The initial registration statement was declared effective by the SEC on August 2, 2013, and the offering commenced shortly thereafter. The Company has filed various post-effective amendments since the SEC granted the initial effectiveness for the purpose of updating the Registration Statement. The most recent post-effective amendment was filed on November 4, 2015, which the SEC declared effective on the same day. The Company commenced its operations on February 28, 2013, and its fiscal year-end is June 30.

The Company is externally managed by MacKenzie Capital Management, LP ("MacKenzie") under the administration agreement dated and effective as of February 28, 2013 (the "Administration Agreement"). MacKenzie manages all of the Company's affairs except for providing investment advice. The Company is advised by MCM Advisers, LP (the "Adviser") under the advisory agreement dated and effective as of February 28, 2013 (the "Investment Advisory Agreement"). The Investment Advisory Agreement was subsequently amended on August 6, 2014, and renewed on October 23, 2014, and again on October 23, 2015. The Company pursues a strategy focused on investing primarily in illiquid or non-traded debt and equity securities issued by U.S. companies generally owning commercial real estate. These companies are likely to be non-traded REITs, small-capitalization publicly traded REITs, public and private real estate limited partnerships, limited liability companies, and tenancies-in-common.

As of June 30, 2016, the Company has raised approximately $42.1 million (inclusive of the $6.9 million initial Legacy Funds capital investment) from the current offering, including proceeds from the dividend reinvestment plan ("DRIP") of approximately $1.0 million.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the requirements for reporting on Form 10-K and Regulation S-X. The Company follows the GAAP financial reporting standards for investment companies. Accordingly, the financial results of our portfolio investments are not consolidated in the Company's financial statements and the investments are recorded at estimated fair value in the statements of assets and liabilities with changes in unrealized gains (losses) in the fair value of such investments included within the Company's statement of operations.

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Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect reported asset values, liabilities, revenues, expenses and unrealized gains (losses) on investments during the reporting period. Material estimates that are susceptible to change, and actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. These balances are insured by the Federal Deposit Insurance Corporation ("FDIC") up to certain limits. At times the cash balances held in financial institutions by the Company may exceed these insured limits. Cash and cash equivalents are carried at cost which approximates fair value. There were no cash equivalents held as of June 30, 2016, and 2015.

Organization and Deferred Offering Costs

Organization costs include, among other things, the cost of legal services pertaining to the organization and incorporation of the business, incorporation fees and audit fees relating to the initial registration statement and the initial statement of assets and liabilities. These costs are expensed as incurred. Deferred offering costs include, among other things, legal fees and other costs pertaining to the preparation of the registration statements and pre- and post-effective amendments. These offering costs have been deferred and expensed over a twelve month period beginning on August 2, 2013 (the effective date of the Company's registration statement filed with the SEC).

As provided in the Investment Advisory Agreement, the organization and offering costs incurred and paid by the Company in excess of $550,000 are reimbursed by the Adviser. Accordingly, the Company incurred and paid the non-reimbursable organization costs of $125,175 and offering costs of $424,825 totaling $550,000 during the period from January 25, 2012 (inception) through June 30, 2013. All organization and offering costs incurred by the Company subsequent to June 30, 2013 have been reimbursed by the Adviser as disclosed in Note 5. The non-reimbursable organization costs of $125,175 were expensed as incurred during the period from January 25, 2012 (inception) through June 30, 2013. The non-reimbursable offering costs of $424,825 were deferred and expensed over a twelve month period beginning on August 2, 2013 (the effective date of the Company's registration statement filed with the SEC). Amortization of the deferred offering cost for the year ended June 30, 2015 and 2014, were $35,402 and $389,423, respectively. As the deferred offering cost was fully amortized as of August 2014, there was no amortization of deferred offering costs for the year ended June 30, 2016.

Income Taxes and Deferred Tax Liability

The Company has elected to be treated as a REIT for tax purposes under the Code and as a REIT, the Company is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other conditions. To the extent that the Company satisfies the annual distribution requirement but distributes less than 100% of its taxable income, it is either subject to U.S. federal corporate income tax on its undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year. The Company is also subject to tax on built-in gains it realizes during the first ten years following REIT election.

The Company satisfied the annual dividend payment and other REIT requirements for the tax years ended December 31, 2015, and 2014. Therefore, the Company did not incur any tax expense or excise tax for those years. In addition, for the tax year ended December 31, 2016, we intend to pay the requisite amount of dividends to stockholders such that the Company would not pay any income taxes on its income. Therefore, the Company did not record any income tax provisions during the years ended June 30, 2016, and 2015.

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The income tax benefit of $1,412 reflected in the statements of operations for the year ended June 30, 2016, was the adjustment for the difference between the actual and estimated tax on the built-in gains realized during tax year 2014. Prior to the effective date of its REIT election, the Company had net unrealized built-in gains of $239,595, for which the Company recorded an estimated tax liability of $95,431 as of December 31, 2013. Accordingly, in each subsequent tax year, the Company only records the difference between the actual and estimated tax on the built-in gains it realizes during each tax year as income tax expense or benefit. The remaining net unrealized built-in gains, which are subject to tax, as of June 30, 2016 and 2015 were $113,893 and $112,142, respectively. The deferred tax liabilities relating to those net unrealized built-in gains as of June 30, 2016 and 2015, were $45,363 and $44,667, respectively.

The income tax benefit of $188,949 reflected in the statements of operations for the year ended June 30, 2015, was the reversal of income tax provisions recorded during the year ended June 30, 2014 for the period from January 1, 2014, through June 30, 2014, during which the Company had not qualified to be treated as a REIT. This reversal occurred after the Company qualified to be treated as a REIT during the quarter ended December 31, 2014.

The Company follows ASC 740, Income Taxes, ("ASC 740") to account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the net unrealized investment gain (losses) on existing investments. In estimating future tax consequences, the Company considers all future events, other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period of enactment. In addition, ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. As of June 30, 2016, and 2015, there were no uncertain tax positions. Management ' s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.

Per Share Information

Net increase or decrease in net assets resulting from operations per common share is calculated using the weighted average number of common shares outstanding for the periods presented.

Subsequent Events

Subsequent events are events or transactions that occur after the date of the statements of assets and liabilities but before the date the financial statements are available to be issued. Subsequent events that provide additional evidence about conditions that existed at the date of the statement of assets and liabilities are considered in the preparation of the financial statements presented herein. Subsequent events that occur after the date of the statement of assets and liabilities that do not provide evidence about the conditions that existed as of the date of the statement of net assets are considered for disclosure based upon their significance in relation to the Company's financial statements taken as a whole.

Fair Value of Financial Instruments

Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The Company believes that the carrying amounts of its financial instruments, consisting of cash, accounts receivable, due to affiliates, interest payable to affiliates and other accrued expenses and liabilities approximate the fair values of such items.

Revenue Recognition

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Interest Income

Interest income is derived from the investments in notes and recorded on the accrual basis, which approximates the effective interest method, to the extent amounts are expected to be collected. Accrued interest is evaluated for collectability. When a debt security becomes 90 days or more past due and the Company does not expect the debtor to be able to service all of its debt or other obligations, the debt security will generally be placed on non-accrual status and the Company will cease recognizing interest income on that debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a debt security's status significantly improves with respect to the debtor's ability to service the debt or other obligations, or if a debt security is sold or written off, it will be removed from non-accrual status. As of June 30, 2016 and 2015, the Company did not have any investments that were more than 90 days past due or on non-accrual status. Additionally, the Company is not aware of any material changes to the creditworthiness of the borrowers underlying its debt investments.

Dividends and Distributions

Dividends (and distributions, if any) to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a quarterly dividend (or distribution, if any) is approved quarterly by the Board of Directors and is generally based upon management's estimate of the Company's earnings for the quarter.

Accounts Receivable

Accounts receivable represent dividends, distributions and sales proceeds recognized in accordance with our revenue recognition policy but not yet received as of the date of the financial statements. The amounts are generally fully collectible as they are recognized based on completed transactions. The Company monitors and adjusts its receivables and those deemed to be uncollectible are written-off only after all reasonable collection efforts are exhausted. All accounts receivable outstanding as of June 30, 2016, and 2015, were deemed fully collectible.

Capital Pending Acceptance

The Company admits new stockholders monthly and subscriptions are effective only upon the Company's acceptance. Any gross proceeds received from subscriptions which are not accepted as of the period-end are classified as capital pending acceptance in the statements of assets and liabilities. As of June 30, 2016 and 2015, capital pending acceptance were $1,616,490 and $588,250, respectively.

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Recent Accounting Pronouncements:

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). The update supersedes the revenue recognition requirements in ASC 605 , Revenue Recognition . Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 , Revenue from Contracts with Customers: Deferral of the Effective Date , which defers the effective date of ASU 2014-09 by one year for all entities. Accordingly, ASU 2014-09 will be effective for the annual reporting period beginning after December 15, 2017 , including interim periods within that reporting period. Early adoption would be permitted for annual reporting periods beginning after December 15, 2016. The adoption of the amended guidance in ASU 2014-09 is not expected to have a significant effect on our financial statements.

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (subtopic 205-40). Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The new standard provides guidance relative to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the standard and its operational and related disclosure requirements.

In February 2015, the FASB issued Accounting Standards Update 2015-02, Amendments to the Consolidation Analysis ("ASU 2015-02"). ASU 2015-02 eliminates the deferral of FAS 167, which allowed reporting entities with interests in certain investment funds to follow the previous consolidation guidance in FIN 46(R), and makes other changes to both the variable interest model and the voting model. ASU 2015-02 is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. A reporting entity may apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the period of adoption or may apply the amendments retrospectively. The Company is currently evaluating the effect the adoption of the amended guidance in ASU 2015-02 may have on our financial statements and disclosures.

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate NAV per Share (or Its Equivalent). This ASU removes, from the fair value hierarchy, investments which measure fair value using NAV per Share as a practical expedient. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. For public companies, this ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendment should be applied retrospectively to all periods presented. The Company will make the required changes to the fair value hierarchy disclosure as of the effective date of this new guidance.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities which amends the guidance related to the classification and measurement of investments in equity securities. The guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The ASU will also amend the guidance related to the presentation of certain fair value changes for financial liabilities measured at fair value and certain disclosure requirements associated with the fair value of financial instruments. For public companies, this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact that ASU 2016-01 will have on its financial statements and disclosures.

Valuation of Investments

The Company's financial statements include investments that are measured at their estimated fair values in accordance with GAAP. A fair value measurement represents the price at which an orderly transaction would occur between willing market participants at the measurement date. The Company develops fair values for investments based on available inputs which could include pricing that is observed in the marketplace.

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Examples of market information that the Company attempts to obtain include the following:

•

Recently quoted trading prices for the same or similar securities;

•

Recent purchase prices paid for the same or similar securities;

•

Recent sale prices received for the same or similar securities;

•

Relevant reports issued by industry analysts and publications; and

•

Other relevant observable and unobservable inputs, including liquidity discounts.

After considering all available indications of the appropriate rate of return that market participants would require, the Company considers the reasonableness of the range indicated by the results to determine an estimate that, in its opinion, is most representative of fair value.

The real estate securities in which the Company invests are, due to the absence of an efficient market, generally illiquid. Establishing fair values for illiquid investments is inherently subjective and is often dependent upon significant estimates and modeling assumptions. If either the volume and/or level of trading activity for an investment has significantly changed from normal market conditions, or price quotations or observable inputs are not associated with orderly transactions, the market inputs used might not be relevant. For example, recently quoted trading prices might not be relevant if a ready market does not exist for the quantity of investments that the Company may wish to sell.

In circumstances where relevant market inputs cannot be obtained, increased analysis and management judgment are required to estimate fair value. This generally requires the Company to establish the use of internal assumptions about future cash flows, including the cash flows of underlying real property, and appropriate risk-adjusted discount rates. Regardless of the valuation inputs used, the objective of fair value measurement is unchanged from what it would be if markets were operating at normal activity levels and/or transactions were orderly; that is, to determine the current exit price.

The Company is under no compulsion to dispose of its investments, and expects to hold them for a substantial period of time. Therefore, estimated values as determined above may not reflect amounts that could be realized upon actual sale at a future date.

Fair Value Measurements

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

Level I –

Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded equity securities. The Company does not adjust the quoted price for these investments even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

Level II –

Price inputs are quoted prices for similar financial instruments in active markets; quoted prices for identical or similar financial instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets. Investments which are generally included in this category are publicly traded equity securities with restrictions.

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Level III –

Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair values for these investments are estimated by management using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, financial condition, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant judgment by management. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had an active market for these investments existed.

NOTE 3 –INVESTMENTS

The following table summarizes the composition of the Company's investments at cost and fair value as of June 30, 2016 and 2015:

	June 30, 2016		June 30, 2015
Asset Type	Cost	Fair Value	Cost	Fair Value
Publicly Traded Company	$ 10,917,013	$ 11,475,174	$ 3,851,842	$ 3,411,454
Non Traded Company	11,406,586	11,609,041	6,763,831	8,838,025
LP Interest	14,390,162	15,793,475	5,246,418	5,642,367
Investment Trust	258,435	195,065	319,906	285,100
Note	104,942	104,017	346,723	468,076
Total	$ 37,077,138	$ 39,176,772	$ 16,528,720	$ 18,645,022

The following table presents fair value measurements of the Company's investments measured at fair value on a recurring basis as of June 30, 2016 according to the fair value hierarchy:

Asset Type	Total	Level I	Level II	Level III
Publicly Traded Company	$ 11,475,174	$ 11,117,674	$ 357,500	$ -
Non Traded Company	11,609,041	-	2,820,137	8,788,904
LP Interest	15,793,475	-	-	15,793,475
Investment Trust	195,065	-	-	195,065
Note	104,017	-	-	104,017
Total	$ 39,176,772	$ 11,117,674	$ 3,177,637	$ 24,881,461

The following table presents fair value measurements of the Company's investments measured at fair value on a recurring basis as of June 30, 2015 according to the fair value hierarchy:

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Asset Type	Total	Level I	Level II	Level III
Publicly Traded Company	$ 3,411,454	$ 3,411,454	$ -	$ -
Non Traded Company	8,838,025	-	36,198	8,801,827
LP Interest	5,642,367	-	-	5,642,367
Investment Trust	285,100	-	-	285,100
Note	468,076	-	-	468,076
Total	$ 18,645,022	$ 3,411,454	$ 36,198	$ 15,197,370

The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the year ended June 30, 2016:

Balance at July 1, 2015	$ 15,197,370
Purchases of investments	20,665,939
Transfers to Level I	(3,189,287)
Proceeds from sales, net	(9,647,307)
Return of capital	(368,550)
Net realized gains	2,857,770
Net unrealized gains	(634,474)
Ending balance at June 30, 2016	$ 24,881,461

The transfers of $3,189,287 from Level III to Level I category during the year ended June 30, 2016, relates to changes in tradability of the securities in an active market due to one of the Company's investments converting from a non-traded REIT shares to a publicly traded REIT shares. Transfers are assumed to have occurred at the beginning of the year.

Balance at July 1, 2014	$ 4,207,480
Purchases of investments	13,178,354
Transfer to Level I	(1,890,650)
Proceeds from sales, net	(3,305,802)
Return of capital	(10,850)
Net realized gain on sale of investments	674,913
Net unrealized gain	2,343,925
Ending balance at June 30, 2015	$ 15,197,370

The transfer of $1,890,650 from Level III to Level I during the year ended June 30, 2015, relates to changes in tradability of the securities in an active market due to one of the Company's investments in LP interest converting to publicly traded REIT shares during the year. Transfers are assumed to have occurred at the beginning of the year.

For the year ended June 30, 2016, changes in unrealized loss included in earnings relating to Level III investments still held at June 30, 2016, was $89,219. For the year ended June 30, 2015, changes in unrealized gain included in earnings relating to Level III investments still held at June 30, 2015 was $2,461,842.

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The following table shows quantitative information about significant unobservable inputs related to the Level II and III fair value measurements used at June 30, 2016:

Asset Type	Fair Value	Primary Valuation Techniques	Unobservable Inputs Used	Range	Wt. Average

Level II

Publicly Traded Company	$ 357,500	Market Activity	10 day average trading price
Non Traded Company	2,820,137	Market Activity	Publicly traded price of like security

	$ 3,177,637

Level III

Non Traded Company	$ 8,092,915	Market Activity	Acquisition cost
			Secondary market industry publication

Non Traded Company	695,989	Net Asset Value ⁽¹⁾	Capitalization rate	6.4% - 8.3%	7.3%
			Liquidity discount	22.3% -32.3%	26.5%
			Sponsor provided value

LP Interest	8,203,247	Market Activity	Acquisition cost
			Secondary market industry publication

LP Interest	7,590,228	Net Asset Value ⁽¹⁾	Capitalization rate	6.3% - 7.1%	6.9%
			Price per apartment unit
			Discount rate	30.0%
			Liquidity discount	15.0% - 38.0%	23.9%
			Sponsor provided value

Investment Trust	95,987	Market Activity	Secondary market industry publication
Investment Trust	99,078	Net Asset Value ⁽¹⁾	Capitalization rate	6.7%
			Liquidity discount	15.0%

Note	104,017	Net Asset Value ⁽¹⁾	Liquidity discount	52.3%

	$ 24,881,461

Valuation Technique Terms:

(1)	The net asset value of the issuer's shares was calculated by the Company.

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The Level II investments as of June 30, 2015, with total fair value of $36,198 included investments in a non-traded REIT, which were valued using quoted prices for similar security in an active market.

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2015:

Asset Type	Fair Value	Primary Valuation Techniques	Unobservable Inputs Used	Range	Wt. Average

Non Traded Company	$ 8,801,827	Market Activity	Acquisition Cost
			Secondary market industry publication

LP Interest	2,879,480	Market Activity	Acquisition Cost
			Secondary market industry publication
LP Interest	2,762,887	Net Asset Value ⁽¹⁾	Capitalization rate	6.5% - 7.5%	6.7%
			Comparable sales report
			Contracted sale of property
			Liquidity discount	10.0% - 40.0%	30.8%
			Sponsor provided value

Investment Trust	188,191	Market Activity	Secondary market industry publication
Investment Trust	96,909	Net Asset Value ⁽¹⁾	Capitalization rate	6.6%
			Liquidity discount	28.0%

Note	468,076	Net Asset Value ⁽¹⁾	Liquidity discount	15.0%
			Sponsor provided value
	$ 15,197,370

Valuation Technique Terms:

(1)	The net asset value of the issuer's shares was calculated by the Company.

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Unconsolidated Significant Subsidiaries

Our investments are generally in small and mid-sized companies in a variety of industries. In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, we must determine which of our unconsolidated controlled investments are considered "significant subsidiaries," if any. In evaluating these investments, there are three tests utilized to determine if any of our controlled investments are considered significant subsidiaries: the investment test, the asset test, and the income test. Rule 3-09 of Regulation S-X, requires separate audited financial statements of an unconsolidated majority-owned subsidiary in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information in an annual report if any of the three tests exceeds 10%.

As of June 30, 2016, and 2015, none of our investments was considered a significant subsidiary under Rule 3-09 and 4-08(g).

NOTE 4—MARGIN LOANS

The Company has a brokerage account through which it buys and sells publicly traded securities. The provisions of the account allow the Company to borrow between 50% and 70% of the equity of certain securities held in the account. Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of June 30, 2016, the Company had $5,844,828 of margin credit available for cash withdrawal or the ability to purchase up to $11,689,656 in additional shares. As of June 30, 2015, the Company had $3,001,900 of margin credit available for cash withdrawal or the ability to purchase up to $6,003,976 in additional shares. As of June 30, 2016, and 2015, the Company had not drawn any amount or purchased any shares under this short-term credit line.

NOTE 5 –RELATED PARTY TRANSACTIONS

Investment Advisory Agreement :

Under the Investment Advisory Agreement, the Company will pay the Adviser a fee for its services consisting of three components — a portfolio structuring fee, a base management fee and a subordinated incentive fee.

The portfolio structuring fee is for the Adviser's initial work performed in connection with the acquisition of all of the Company's assets and equals 3.0% of the gross proceeds from the sale of the Company's Shares.

The base management fee is calculated based on the Company's "managed funds," which equal the price at which the Company's Shares are issued plus any borrowing for investment purposes. The base management fees range from 1.5% to 3.0%, depending on the level of the "managed funds."

The subordinated incentive fee has two parts— the income and the capital gains. The income component is (i) 100% of the Company's preliminary net investment income for any calendar quarter that exceeds 1.75% (7% annualized) but is less than 2.1875% (8.75% annualized) of the Company's "contributed capital" (defined as the number of Shares outstanding, multiplied by the price at which the Shares are sold), and (ii) 20% of the Company's preliminary net investment income for any calendar quarter that exceeds 2.1875% (8.75% annualized) of the Company's "contributed capital." The capital gains component is (i) 100% of the Company's realized capital gains annually generated by its investments above 7% and up to 8.75% of the Company's "contributed capital," and (ii) 20% of the Company's realized capital gains above 8.75% of the Company's "contributed capital," all computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. If the Company liquidates all of its assets, the capital gains component is 20.0% of realized capital gains (without the hurdle), computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. The capital gains component may not, in any event, exceed 20% of the Company's realized capital gains, net of all realized capital losses and unrealized capital depreciation.

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The portfolio structuring fees for the years ended June 30, 2016, 2015, and 2014 were $575,961, $390,210, and $57,953, respectively. The portfolio structuring fees were recorded as part of selling commissions and fees on the statements of change in net assets and statement of cash flows.

The base management fee is calculated on a quarterly basis at the end of each quarter based on the quarter ended managed funds and is payable in arrears. The base management fee for the years ended June 30, 2016, 2015, and 2014, were $845,264, $495,285, and $233,599, respectively. These base management fees were based on the following quarter ended managed funds (segregated in two columns based on the annual percentages the Company paid):

	Annual base management fee percentages		Total Managed Funds
	3.0%	2.0%
For the year ended June 30, 2016
Quarter ended:
September 30, 2015	$ 20,000,000	$ 5,777,367	$ 25,777,367
December 31, 2015	20,000,000	9,125,012	29,125,012
March 31, 2016	20,000,000	13,577,239	33,577,239
June 30, 2016	20,000,000	20,573,195	40,573,195

For the year ended June 30, 2015
Quarter ended:
September 30, 2014	$ 11,962,664	-	11,962,664
December 31, 2014	14,663,986	-	14,663,986
March 31, 2015	18,116,679	-	18,116,679
June 30, 2015	20,000,000	1,942,055	21,942,055

For the year ended June 30, 2014
Quarter ended:
September 30, 2013	$ 7,282,097	$ -	$ 7,282,097
December 31, 2013	7,282,097	-	7,282,097
March 31, 2014	7,644,094	-	7,644,094
June 30, 2014	8,938,071	-	8,938,071

The subordinated incentive fee (income fee) for the years ended June 30, 2016 and 2015, were $14,969 and $46,748, respectively. There were no subordinated incentive (income fees) incurred for years ended June 30, 2014.

The Company did not incur any incentive fees (capital gains) for the years ended June 30, 2015 and 2014. For the year ended June 30, 2016, the Company had accrued estimated capital gains fees of $818,043 as of March 31, 2016, based on the net realized gains on investments during the nine months ended March 31, 2016. However, due to the unrealized depreciation recorded during the three months ended June 30, 2016, the estimated fees accrued were subsequently determined to have not been earned and payable as of June 30, 2016. Accordingly, the estimated fees accrued for the nine months ended March 31, 2016, were fully reversed during the three months ended June 30, 2016.

Organization and Offering Costs Reimbursement:

As provided in the Investment Advisory Agreement, organization and offering costs incurred and paid by the Company in excess of $550,000 is reimbursed by the Adviser. As of June 30, 2016 and 2015, the Company had incurred $1,055,350 and $963,726 of organization and offering costs, respectively. Thus, according to the agreement, $505,350 and $413,726 of these amounts were reimbursable from the Adviser as of June 30, 2016 and 2015, respectively. As of June 30, 2016, the Adviser has reimbursed the Company in the amount of $489,464 and the remaining reimbursable amount of $15,886 was offset against the amount payable to the Adviser as of June 30, 2016 in the statements of assets and liabilities. As of June 30, 2015, the Adviser had reimbursed the Company in the amount of $405,433 and the remaining reimbursable amount of $8,293 was offset against the amount payable to the Adviser as of June, 2015 in the statements of assets and liabilities.

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Administration Agreement:

Under the Administration Agreement, the Company reimburses MacKenzie for its allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing the Company with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing the Company with other administrative services, subject to the Independent Directors' approval. In addition, the Company reimburses MacKenzie for the fees and expenses associated with performing compliance functions, and its allocable portion of the compensation of the Company's Chief Financial Officer, Chief Compliance Officer, Director of Accounting and Financial Reporting, and any administrative support staff.

The administrative cost reimbursements for the years ended June 30, 2016, 2015 and 2014, were $120,000, $120,000 and $60,000, respectively.

The table below outlines the related party expenses incurred for the years ended June 30, 2016, 2015, and 2014, and unpaid as of June 30, 2016, and 2015.

	Incurred For The Year Ended			Unpaid as of
Types and Recipient	June 30, 2016	June 30, 2015	June 30, 2014	June 30, 2016	June 30, 2015

Portfolio Structuring fee- the Adviser	$ 575,961	$ 390,210	$ 57,953	$ -	$ -
Base Management fees- the Adviser	845,264	495,285	233,599	252,866	159,710
Subordinated incentive fee- the Adviser	14,969	46,748	-	-	46,748
Administrative Cost Reimbursements- MacKenzie	120,000	120,000	60,000	30,000	30,000
Others expenses ⁽¹⁾ - MacKenzie				-	638
Organization & Offering Cost Reimbursement by the Adviser				(15,886)	(8,293)
Due to related entities				$ 266,980	$ 228,803

⁽¹⁾ Expenses paid by MacKenzie to third parties on behalf of the Company to be reimbursed

Related Party Investments :

	Number of shares at		Fair Value at		Amount of equity in net profit and loss		Amount of dividends/interest
Name of issuer and title of issue	June 30, :		June 30, :		For The Year Ended June 30,:		For The Year Ended June 30,:
	2016	2015	2016	2015	2016	2015	2016	2015
Controlled Investments:

Coastal Realty Business Trust, REEP, Inc.- A	72,320.00	72,320.00	$ 99,078	$ 96,909	$ -	$ 2,170	$ -	$ 2,170
Coastal Realty Business Trust, Series H2- A	47,284.16	47,284.16	$ 95,987	$ 188,191	$ 9,456	$ 14,776	$ 9,456	$ 14,776
MC 15 Preferred Equity, LLC	250,000.00	-	$ 2,500,000	$ -	$ (8,002)	$ -	$ -	$ -

Non-Controlled/Affiliate Investment:

MPF Pacific Gateway - Class B	23.20	23.20	$ 7,309.00	$ 6,613	$ -	$ -	$ -	$ -

Coastal Realty Business Trust ("CRBT"):

CRBT is a Nevada business trust whose trustee is MacKenzie. Each series of the trust has its own beneficiaries and own assets. The Company owns two series of CRBT and is the only beneficiary of such series. Under the terms of the agreement, there are no redemption rights to any of the series participants.

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The Company is the sole beneficiary of the following series as of June 30, 2016, and June 30, 2015:

·	CRBT, REEP, Inc.-A, which has an ownership interest in one of three general partners of a limited partnership which owns one multi-family property located in Frederick, Maryland.

·	CRBT, Series H2-A, which invests in shares of a REIT that owns a real estate portfolio totaling 105 properties within asset classes of ski and mountain lifestyle, senior housing, attractions, marinas and other lifestyle properties located in the United States and Canada.

MC 15 Preferred Equity, LLC:

MC 15 Preferred Equity, LLC is a holding company that owns preferred equity of a company that owns a commercial real estate property in Austin, Texas. The Company is a co-manager of MC 15 Preferred Equity, LLC and as of June 30, 2016, the Company had approximately 55.8% ownership interest in the company.

MPF Pacific Gateway:

MPF Pacific Gateway, which is managed by MacKenzie, is a holding company that owns an investment in a REIT Liquidating Trust. As of June 30, 2016 and 2015, the Company had a 15.82% ownership interest in MPF Pacific Gateway.

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NOTE 6 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights of the Company for the years ended June 30, 2016, 2015, 2014, 2013 and for the period from inception (January 25, 2012) through June 30, 2012.

	For The Year Ended												For the period from Inception (Jan 25, 2012) through June 30, 2012
	June 30, 2016			June 30, 2015			June 30, 2014			June 30, 2013
Per Share Data:

Beginning net asset value	$	10.17		$	9.81		$	10.02		$	8.53		$	-

Net investment income (loss) ⁽¹⁾		0.45			(0.24	)		(0.38	)		(0.41	)		(1.47	)
Net realized gain ⁽¹⁾		0.91			1.03			0.83			0.21			-
Net unrealized gain (loss) ⁽¹⁾		(0.01	)		1.17			0.25			0.44			-
Income tax (provision) benefit ⁽¹⁾		-			0.12			(0.49	)		-			-
Net increase in net assets resulting from operations		1.35			2.08			0.21			0.24			(1.47	)

Issuance of common stock at par		-			-			-			-			10.00
Issuance of common stock above (below) net asset value ⁽¹⁾ ⁽⁴⁾		(0.87	)		(1.09	)		(0.24	)		1.25			-
Redemption of common stock below net asset value ^{(1) (6)}		0.05			-			-			-			-
Dividends to stockholders from net realized gains ^{(1) (5)}		(0.77	)		(0.63	)		(0.18	)		-			-
Ending net asset value	$	9.93		$	10.17		$	9.81		$	10.02		$	8.53

Weighted average common Shares outstanding		3,073,448			1,541,525			763,813			269,268			36,000
Shares outstanding at the end of period		4,057,319.5			2,196,612.73			893,808			728,217			36,000
Net assets at the end of period	$	40,295,432		$	22,338,439		$	8,764,789		$	7,293,932		$	307,059
Average net assets ⁽²⁾	$	31,316,936		$	15,551,614		$	7,791,777		$	3,789,098		$	332,771

Ratios to average net assets
Total expenses		4.05	%		6.21	%		11.74	%		5.00	%		15.91	%
Net investment income (loss)		4.37	%		(2.34	)%		(3.73	)%		(2.94	)%		(15.91	) %
Total rate of return ^{(2) (3)}		13.29	%		20.63	%		2.07	%		1.71	%		(15.91	) %

(1) Based on weighted average number of shares of common stock outstanding for the period.

(2) Average net assets were derived from the beginning and ending period-end net assets.

(3) Total return is calculated based upon the change in value of the net assets. An individual stockholder's return may vary from this return based on the time of capital transactions.

(4) Net of sales commissions and dealer manager fees of $1.30 per share.

(5) Dividends are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP.

(6) Based on the most recent NAV issued as of March 31, 2016, and December 31, 2015, of $9.77 and $10.06 per share, respectively.

NOTE 7 – SHARE OFFERINGS AND FEES

During the year ended June 30, 2016, the Company issued 1,926,186 Shares with gross proceeds of $19,248,674, under the current offering and issued 104,129 Shares under the Company's dividend reinvestment plan ("DRIP") with gross proceeds of $937,158. For the year ended June 30, 2016, the Company incurred selling commissions and fees of $2,488,329 of which $575,961 represents the portfolio structuring fees paid to the Adviser under the Investment Advisory Agreement. No selling commissions and fees were incurred for the Shares issued under the DRIP.

During the year ended June 30, 2015, the Company issued 1,294,097 Shares with gross proceeds of $12,925,611, under the current offering and issued 8,708 Shares under the Company's dividend reinvestment plan ("DRIP") at an average price of $9 per Share with gross proceeds of $78,373. For the year ended June 30, 2015, the Company incurred selling commissions and fees of $1,665,330, of which $390,210 represents the portfolio structuring fees paid to the Adviser under the Investment Advisory Agreement. No selling commissions and fees were incurred for the Shares issued under the DRIP.

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NOTE 8 – SHARE REPURCHASE PLAN

During the year ended June 30, 2016, the Company, pursuant to its Share Repurchase Program, submitted tender offers on December 7, 2015, February 18, 2016, and May 26, 2016, to purchase its own Shares issued and outstanding at $9 per Share. The offers expired on January 7, 2016, March 21, 2016, and June 26, 2016. As of June 30, 2016, the Company repurchased a total of 169,607.47 of its Shares issued and outstanding from these offers for total cash payment of $1,526,467.

NOTE 9 – STOCKHOLDER DIVIDENDS AND INCOME TAXES

The following table reflects the cash dividends per Share that the Company has paid on its common stock during the year ended June 30, 2016.

	Dividends
During the Quarter Ended	Per Share	Amount
Three months ended September 30, 2015	$ 0.300	$ 623,394
Three months ended December 31, 2015	0.210	520,306
Three months ended March 31, 2016	0.250	676,145
Three months ended June 30, 2016	0.175	557,661
	$ 0.935	$ 2,377,506

Of the total dividends paid during the year ended June 30, 2016, $937,158 has been reinvested under the Company's DRIP.

The following table reflects the cash dividends per Share that the Company has paid on its common stock during the year ended June 30, 2015.

	Dividends
During the Quarter Ended	Per Share	Amount
Three months ended September 30, 2014	$ 0.300	$ 255,442
Three months ended December 31, 2014	0.175	186,812
Three months ended March 31, 2015	0.175	233,445
Three months ended June 30, 2015	0.175	296,887
	$ 0.825	$ 972,586

Of the total dividends paid during the year ended June 30, 2015, $78,373 has been reinvested under the Company's DRIP.

On August 7, 2016, the Company's Board of Directors approved a dividend of $0.25 per Share to the holders of record on June 30, 2016, which was paid in August 15, 2016.

Income Taxes

While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is December 31 of each year. The information presented in this footnote is based on our tax year end for each period presented, unless otherwise specified.

For income tax purposes, dividends paid and distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to stockholders for the tax year ended December 31, 2015, (the most recent tax year end completed and filed) and 2014, were as follows:

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	December 31, 2015	December 31, 2014
Ordinary income - earnings and profits from pre REIT qualification	$ -	$ 103,874
Capital gain	867,496	469,230
Ordinary income- Post REIT qualification	1,482,715	-
Total dividends	$ 2,350,211	$ 573,104

The tax character of dividends paid to stockholders since December 31, 2015 (the most recent tax year ended completed and filed) through June 30, 2016, is expected to be ordinary income and capital gains. Because of the difference between our fiscal and tax year ends, the final determination of the tax character of dividends will not be made until we file our tax return for the tax year ending December 31, 2016.

The components of undistributed earnings on a tax basis as of December 31, 2015 (the most recent tax year end completed and filed) and December 31, 2014, were as follows:

	December 31, 2015	December 31, 2014

Undistributed long term capital gain	$ 235,124	$ 6,372
Unrealized fair value appreciation	3,038,753	1,120,925
	$ 3,273,877	$ 1,127,297

The following table presents the aggregate gross unrealized appreciation, depreciation, and cost basis of investments for income tax purposes as of:

	June 30, 2016	June 30, 2015

Aggregate gross unrealized appreciation	$ 4,180,504	$ 2,909,892
Aggregate gross unrealized depreciation	(1,391,373)	(825,283)
Net unrealized appreciation	$ 2,789,131	$ 2,084,609

Aggregate cost (tax basis)	$ 36,387,641	$ 16,560,414

NOTE 10 – COMMITMENTS AND CONTINGENCIES

As of June 30, 2016, the Company did not have any outstanding commitments and contingencies. As of June 30, 2015, the Company had committed to loan an additional $172,000 to BR Cabrillo, LLC. The loan was fully disbursed as of April 1, 2016, and accrued interest at the rate of 15% per annum. The Company concluded that no accounting recognition or reporting for the estimated fair value of the undisbursed commitment was necessary as of June 30, 2015, because the loan terms was equivalent to the market terms for such commitments, and the borrower's credit condition had not changed significantly. As of June 30, 2015, the Company had sufficient unencumbered liquid assets to cover the amount of unfunded commitments.

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NOTE 11 – QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table presents selected unaudited quarterly financial data for each quarter during the years ended June 30, 2016, and 2015, and 2014.

	Quarter Ended
	September 30, 2015	December 31, 2015	March 31, 2016	June 30, 2016
Net investment gain (loss)	$ 366,519	$ (55,250)	$ (220,594)	$ 1,278,304
Net realized gain from sale of investments	$ 328,799	$ 1,079,176	$ 864,576	$ 537,189
Net unrealized gain (loss) on investments	$ 553,614	$ (420,803)	$ (309,836)	$ 160,357
Income tax (provision) benefit	$ 1,412	$ -	$ -	$ -
Net increase in net assets resulting from operations	$ 1,250,344	$ 603,123	$ 334,146	$ 1,975,850
Net increase in net assets resulting from operations per Share	$ 0.50	$ 0.22	$ 0.10	$ 0.52
Weighted average Share outstanding	2,476,514	2,778,183	3,236,743	3,812,155



	Quarter Ended
	September 30, 2014	December 31, 2014	March 31, 2015	June 30, 2015
Net investment gain (loss)	$ (190,469)	$ (97,302)	$ (37,164)	$ (38,227)
Net realized gain from sale of investments	$ 132,498	$ 189,256	$ 436,436	$ 819,891
Net unrealized gain on investments	$ 607,494	$ 176,927	$ 929,836	$ 89,457
Income tax (provision) benefit	$ (213,152)	$ 402,101	$ -	$ -
Net increase in net assets resulting from operations	$ 336,371	$ 670,982	$ 1,329,108	$ 871,121
Net increase in net assets resulting from operations per Share	$ 0.32	$ 0.50	$ 0.78	$ 0.42
Weighted average Share outstanding	1,066,094	1,334,447	1,696,306	2,078,452

	Quarter Ended
	September 30, 2013	December 31, 2013	March 31, 2014	June 30, 2014
Net investment loss	$ (177,900)	$ (119,854)	$ (132,616)	$ 139,783
Net realized gain (loss) from sale of investments	$ (852)	$ 410,262	$ 142,469	$ 80,824
Net unrealized gain on investments	$ 84,075	$ 48,249	$ 276,752	$ (216,552)
Income tax provision	$ -	$ (172,384)	$ (129,538)	$ (71,658)
Net increase (decrease) in net assets resulting from operations	$ (94,677)	$ 166,273	$ 157,067	$ (67,603)
Net increase (decrease) in net assets resulting from operations per Share	$ (0.13)	$ 0.23	$ 0.21	$ (0.08)
Weighted average Share outstanding	728,217	728,217	747,840	851,583

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MACKENZIE REALTY CAPITAL, INC.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MACKENZIE REALTY CAPITAL, INC.
	(Registrant)

	By:	/s/ Robert Dixon
		Robert Dixon
		Chief Executive Officer

	Date:	September 22, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Robert Dixon	Chief Executive Officer	September 22, 2016
Robert Dixon	(Principal Executive Officer)



/s/ Paul Koslosky	Chief Financial Officer	September 22, 2016
Paul Koslosky	(Principal Financial and Accounting Officer)



/s/ C.E. Patterson	Director	September 22, 2016
C.E. Patterson



/s/ Tim Dozois	Director	September 22, 2016
Tim Dozois


/s/ Tom Frame	Director	September 22, 2016
Tom Frame

TABLE OF CONTENTS

Part I. Financial Information Note 1 Principal Business and Organization Note 2 Summary Of Significant Accounting Policies Note 3 Investments Note 4 Margin Loans Note 5 Related Party Transactions Note 6 Financial Highlights Note 7 Share Offerings and Fees Note 8 Share Repurchase Plan Note 9 Stockholder Dividends and Income Taxes Note 10 Commitments and Contingencies Note 11 Quarterly Financial Data (unaudited)

Exhibits

31.1 Section 302 Certification of Robert Dixon (President and Chief Executive Officer) 31.2 Section 302 Certification of Paul Koslosky (Treasurer and Chief Financial Officer) 32.1 Section 1350 Certification of Robert Dixon (President and Chief Executive Officer) 32.2 Section 1350 Certification of Paul Koslosky (Treasurer and Chief Financial Officer)

MKZR 10-K Fiscal year ended June 30, 2016

Exhibits