Your capital sits in the same loans as ours. how the preferred return accrues

The Fund buys a share of the loans 42 Solutions originates — by true sale, at the full note rate 42 Solutions earns on its own share. No markup or spread taken in between. Here’s exactly how that works, and what you own when you invest.

What you actually own

When you invest, you receive an interest in 42 Income Fund LLC. The Fund, in turn, purchases undivided, pro-rata participation interests in loans that 42 Solutions originates, under a Master Loan Participation and Servicing Agreement.

Each participation is a true sale of a beneficial interest in the underlying loan, at the full note rate, ranking equally with the share 42 Solutions keeps for itself. The Fund is entitled to its pro-rata share of every dollar of interest and principal collected on that loan, with no loan-level subordination between the Fund and 42 Solutions. We do not take a spread.

The Fund does not originate loans and is not the lender of record. 42 Solutions is the lender of record and services every loan.

The monthly cycle

Borrowers pay interest monthly. That interest flows to the Fund in proportion to its participation in each loan, and the Manager expects to distribute to investors on or about the 15th of each month.

Distributions depend on cash actually collected from the loans. We expect the 15th to be the normal rhythm, but no distribution date is assured, and a month where borrower payments come in late is a month where the distribution follows.

How the preferred return accrues

The targeted 10% preferred return begins accruing the day your capital contribution is accepted — not when the money is deployed into a loan, and not at the start of the next quarter. From day one.

It accrues daily and it is cumulative. If the Fund’s net cash flow in a given month isn’t enough to pay your full preferred return, the shortfall carries forward. It stays owed to you, and it is paid before 42 Solutions earns a dollar in any later period.

THE DRIP

Instead of taking distributions in cash, you can elect to reinvest them as additional capital contributions. Your balance increases, and the preferred return accrues on the larger balance — so the target return compounds.

You can opt in or out on seven days’ written notice. The Manager may suspend, limit, or terminate the DRIP at any time.

HOW THE MONEY IS DIVIDED

START

Interest income from the loans

FIRST

To you — the targeted 10% preferred return

Your accrued preferred return, including any amount carried forward from a short month, is paid in full before anything else happens.

THEN

To 42 Solutions

Whatever remains is paid as a subordinated servicing fee. In a weak period, that is zero.

What we don’t charge

42 Capital Management LLC manages the Fund and charges it no management fee. The Manager is not expected to receive any distribution or other compensation from the Fund at all.

42 Solutions has agreed to bear the Fund’s recurring operating expenses — tax return preparation and Schedule K-1s, fund administration and accounting, blue sky filings and renewals, annual Form D amendments, and document updates — so those costs never reduce what reaches you.

And if the Fund ever forecloses and later sells the collateral, 42 Solutions receives no subordinated fee on those proceeds.

Nothing is taken off the top. We are paid last, and only out of what is left.

The preferred return is a targeted, priority return only and is not guaranteed. No return of capital is guaranteed and investors may lose their entire investment. The Private Placement Memorandum and subscription documents control in all respects.

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