Annual Report by Investment Company (Form N-CSR)
SECURITIES AND EXCHANGE COMMISSION
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number:
811-02328
(Exact Name of Registrant as Specified in Charter)
(Address of Principal Executive Offices)(
(
Registrant's Telephone Number, including Area Code:
(866) 228-4853
Date of Fiscal Year End:
Date of Reporting Period:
| Item 1. | Reports to Stockholders. |
| (a) |
Distribution Policy
| Table of Contents |
| Annual Report | |
1 |
| Performance Overview |
Annual Update:
The Fund has outperformed the S&P 500 Index, DJIA, and Morningstar US Large Value Index on an annualized net assets basis since affiliates of
On a market price basis, the Fund gained 29.37% for the Period, which represents underperformance relative to the Fund's NAV retuof 35.47%. The discount at the beginning of the Period was -20.3%, and at the end of the Period it had widened to -23.9%.
More detail on various holding Period returns can be found in the table below:
| 3 months | 6 months | One Year | Three Years* | Five Years* | Ten Years* | Since January 2002** | |
| 7.59% | 18.83% | 35.47% | 16.10% | 14.24% | 11.14% | 9.77% | |
| STEW (Market) | 6.35% | 17.05% | 29.37% | 12.82% | 11.98% | 10.59% | 8.31% |
| S&P 500 Index† | 7.15% | 15.07% | 33.89% | 11.44% | 15.77% | 13.35% | 9.71% |
| DJIA†† | 8.47% | 17.09% | 27.19% | 11.44% | 12.14% | 12.17% | 9.42% |
| Morningstar US Large Value Index††† | 4.23% | 12.73% | 27.83% | 13.58% | 11.10% | 10.21% | 8.00% |
| * | Average annual returns. |
| ** | Annualized since |
| † | The S&P 500 Index is widely regarded as the best single gauge of large-cap |
| †† | The Dow Jones Industrial Average ("DJIA"), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities. |
| ††† | The Morningstar US Large Value Index measures the performance of |
The performance data quoted represents past performance. Past performance is no guarantee of future results. Fund returns include reinvested dividends and distributions, but do not reflect the reduction of taxes a stockholder would pay on Fund distributions or the sale of Fund shares and do not reflect brokerage commissions, if any. Returns of the S&P 500 Index, the DJIA and Morningstar US Large Value Index include reinvested dividends and distributions, but do not reflect the effect of commissions, expenses or taxes, as applicable. You cannot invest directly in any of these indices. The investment retuand the principal value of an investment will fluctuate and shares, if sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted.
This has been an interesting year in the market, and SRH is pleased with the NAV performance of the Fund. During the Period, the Fund not only outperformed the benchmarks referenced above but also surpassed the 32.63% retuof
| www.srhtotalreturnfund.com | 2 |
| Performance Overview |
downturns and underperform during significant market upswings. To achieve outperformance in a year of substantial market gains is particularly gratifying to us as sub-advisor.
However, it is important to acknowledge that the Fund's discount has widened, which remains a challenge. The SRH investment team regularly discusses the persistence of the discount and explores potential actions that could be recommended to the Fund's Board of Directors ("Board"). While numerous potential remedies have been considered, it is important to recognize that many of them benefit short-term shareholders, often at the expense of long-term shareholders. Our investment philosophy remains firmly focused on the long-term horizon, as we believe that investment success is driven by this approach. While we had hoped that strong NAV performance, combined with consistent distribution increases, would positively impact the discount, it appears that further time or additional measures may be needed.
Turning to the broader market, equities performed well during the Period. Notably, only four of the "Magnificent Seven" stocks outperformed the S&P 500 during the Period. This suggests that there was broader participation in the market rally, providing more opportunities for stock selection to enhance returns. Concurrently, NVIDIA (NVDA) received considerable media attention, and we estimate that it contributed 6.0% to the S&P 500's overall retuduring the Period. We remain hopeful that we are nearing the end of the market cycle in which large cap technology stocks dominate, and are entering a phase where smaller, value-oriented stocks can perform well. Nonetheless, we believe that by adhering to our disciplined investment philosophy, we will continue to identify idiosyncratic value opportunities, regardless of the broader market environment.
The Fund follows a managed distribution program that seeks to deliver part of the Fund's long-term total retupotential through regular quarterly distributions at a fixed rate per share. Distributions under the managed distribution program may consist of net investment income, realized capital gains and retuof capital, or any combination thereof. During the Period, the Fund made quarterly distributions to shareholders in aggregate totaling
For the fourth consecutive year, the Board has approved an increase in the quarterly distribution. Effective
The largest contributors to performance during the Period were
During the Period, the Fund reduced its position in
| Annual Report | |
3 |
| Performance Overview |
The Fund repurchased and retired 626,974 shares of its Common Stock during the Period, at an average price of
The following table shows the top ten holdings in the Fund as of
| Holding | Symbol(s) | Percentage of Total Managed Assets |
| BRK/A and BRK/B | 38.2% | |
| JPMorgan Chase & Co. | JPM | 11.0% |
| EPD | 5.4% | |
| YUM | 5.1% | |
| EVR | 3.9% | |
| Cash and Short-Term Investments | OPGXX | 3.7% |
| MSFT | 3.6% | |
| CSCO | 3.1% | |
| UTF | 3.1% | |
| Charles |
SCHW | 2.7% |
As always, we appreciate your continued support of the Fund.
| Sincerely, | |
| Portfolio Manager | Portfolio Manager |
The views and opinions in the preceding commentary are as of the date of this letter and are subject to change at any time. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice and is not intended to predict or depict performance of any investment.
Portfolio weightings and other figures in the foregoing commentary are provided as of period-end, unless otherwise stated.
Note to Stockholders on the Fund's Discount. As most stockholders are aware, the Fund's shares presently trade at a significant discount to net asset value. The Board is aware of this, monitors the discount and periodically reviews the limited options available to mitigate the discount. In addition, there are several factors affecting the Fund's discount over which the Board and management have little control. In the end, the market sets the Fund's share price. For long-term stockholders of a closed-end fund, we believe the Fund's discount should only be one of many factors taken into consideration at the time of your investment decision.
Note to Stockholders on Concentration of Investments. The Board feels it is important that stockholders be aware of the Fund's high concentration in a small number of positions. Concentrating investments in fewer securities may involve a degree of risk that is greater than a fund having less concentrated investments spread over a greater number of securities. In particular, the Fund is highly concentrated in
| www.srhtotalreturnfund.com | 4 |
| Performance Overview |
| Annual Report | |
5 |
| Performance Overview |
Growth of
Comparison of change in value of a hypothetical
Past performance does not guarantee future results. Performance will fluctuate with changes in market conditions. Current performance may be lower or higher than the performance data shown. Performance information does not reflect the deduction of taxes that stockholders would pay on Fund distributions or the sale of Fund shares. An investment in the Fund involves risk, including loss of principal.
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| Performance Overview |
The table below is a summary of the distributions paid for the year ended
| Per Share of Common Stock | ||||||||||||||
| Net Asset Value | Market Price | Distribution Paid* | ||||||||||||
| $ | 17.79 | $ | 14.06 | $ | 0.1375 | |||||||||
| 18.27 | 14.25 | 0.1375 | ||||||||||||
| 19.65 | 15.42 | 0.1375 | ||||||||||||
| 20.08 | 15.50 | 0.1375 | ||||||||||||
| * | Please refer to page 32 for classifications of distributions. |
INVESTMENTS AS A % OF NET ASSETS
APPLICABLE TO COMMON STOCKHOLDERS
Holdings are subject to change
| Annual Report | |
7 |
| Statement of Investments |
| Description | Shares | Value (Note 2) | ||||||
| DOMESTIC COMMON STOCK - 95.27% | ||||||||
| Capital Goods - 2.87% | ||||||||
| 680,000 | $ | 60,826,000 | ||||||
| 100,000 | 40,611,000 | |||||||
| Consumer Discretionary Distribution - 1.94% | ||||||||
| 650,000 | 41,138,500 | |||||||
| Consumer Services - 6.44% | ||||||||
| 900,000 | 17,181,000 | |||||||
| 858,000 | 119,210,520 | |||||||
| 136,391,520 | ||||||||
| Consumer Staples Distribution - 2.16% | ||||||||
| 495,000 | 45,787,500 | |||||||
| Diversified - 42.20% | ||||||||
| 1,028 | 744,313,120 | |||||||
| 310,000 | 149,736,200 | |||||||
| 894,049,320 | ||||||||
| 105,000 | 31,991,400 | |||||||
| Charles |
750,000 | 62,070,000 | ||||||
| 300,000 | 92,370,000 | |||||||
| JPMorgan Chase & Co. | 1,028,000 | 256,712,160 | ||||||
| 500,000 | 43,385,000 | |||||||
| 486,528,560 | ||||||||
| Household & Personal Products - 1.88% | ||||||||
| 290,000 | 39,921,400 | |||||||
| Insurance - 2.76% | ||||||||
| 220,000 | 58,528,800 | |||||||
| Semiconductors - 1.36% | ||||||||
| 1,200,000 | 28,860,000 | |||||||
| Software & Tech Services - 4.00% | ||||||||
| 200,000 | 84,692,000 | |||||||
See Accompanying Notes to Financial Statements.
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| Statement of Investments |
| Description | Shares | Value (Note 2) | ||||||
| Technology, Hardware & Equipment - 3.47% | ||||||||
| 1,240,000 | $ | 73,420,400 | ||||||
| Transportation - 1.30% | ||||||||
| 750,000 | 27,517,500 | |||||||
| TOTAL DOMESTIC COMMON STOCK | ||||||||
| (Cost |
2,018,272,500 | |||||||
| FOREIGN COMMON STOCK - 2.22% | ||||||||
| Commercial Services & Supplies - 2.22% | ||||||||
| 1,000,000 | 47,100,000 | |||||||
| TOTAL FOREIGN COMMON STOCK | ||||||||
| (Cost |
47,100,000 | |||||||
| CLOSED-END FUNDS - 3.41% | ||||||||
| 2,750,000 | 72,104,999 | |||||||
| TOTAL CLOSED-END FUNDS | ||||||||
| (Cost |
72,104,999 | |||||||
| LIMITED PARTNERSHIPS - 5.93% | ||||||||
| 3,650,000 | 125,669,500 | |||||||
| TOTAL LIMITED PARTNERSHIPS | ||||||||
| (Cost |
125,669,500 | |||||||
| TOTAL |
||||||||
| (Cost |
2,263,146,999 | |||||||
See Accompanying Notes to Financial Statements.
| Annual Report | |
9 |
| Statement of Investments |
| Description | Shares | Value (Note 2) | ||||||
| SHORT TERM INVESTMENTS - 4.07% | ||||||||
| MONEY MARKET FUNDS - 4.07% | ||||||||
| 86,331,848 | $ | 86,331,848 | ||||||
| TOTAL MONEY MARKET FUNDS | ||||||||
| (Cost |
86,331,848 | |||||||
| TOTAL SHORT TERM INVESTMENTS | ||||||||
| (Cost |
86,331,848 | |||||||
| TOTAL INVESTMENTS - 110.90% | 2,349,478,847 | |||||||
| (Cost |
||||||||
| SENIOR NOTES (NET OF DEFERRED OFFERING COST OF |
(223,549,919 | ) | ||||||
| OTHER ASSETS AND LIABILITIES, NET - (0.35%) | (7,326,964 | ) | ||||||
| NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS - 100.00% | $ | 2,118,601,964 | ||||||
| (a) | Non-income producing security. |
| (b) | For additional information on portfolio concentration, see Note 2. |
| (c) | A portion of the security is held as collateral for the written call options in the amount of |
Percentages are stated as a percent of Net Assets Applicable to Common Stockholders.
Written Call Options:
| Description | Exercise Price |
Premiums Received |
Expiration Date |
Number of Contracts |
Notional Value |
Value (Note 2) |
||||||||||||||||
| $ | 270 | $ | 4,265,961 | (1,050) | $ | (31,991,400 | ) | $ | (6,556,200 | ) | ||||||||||||
| $ | 4,265,961 | $ | (31,991,400 | ) | $ | (6,556,200 | ) | |||||||||||||||
See Accompanying Notes to Financial Statements.
| www.srhtotalreturnfund.com | 10 |
| Statement of Assets and Liabilities |
| ASSETS: | ||||
| Investments, at value | ||||
| Cost ( |
$ | 2,349,478,847 | ||
| Dividends and interest receivable | 1,507,004 | |||
| Prepaid expenses and other assets | 79,542 | |||
| Total Assets | 2,351,065,393 | |||
| LIABILITIES: | ||||
| Written options, at value | ||||
| (Premiums received |
6,556,200 | |||
| Senior notes (net of deferred offering cost of |
223,549,919 | |||
| Investment advisory fees payable (Note 4) | 1,646,939 | |||
| Interest payable on senior notes (Note 10) | 439,379 | |||
| Administration fees payable (Note 4) | 164,979 | |||
| Printing fees payable | 32,575 | |||
| Custody fees payable | 17,638 | |||
| Legal fees payable | 22,300 | |||
| Accrued expenses and other payables | 33,500 | |||
| Total Liabilities | 232,463,429 | |||
| NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS | $ | 2,118,601,964 | ||
| NET ASSETS (APPLICABLE TO COMMON STOCKHOLDERS) CONSIST OF: | ||||
| Par value of common stock (authorized 249,990,000 shares at |
$ | 964,415 | ||
| Paid-in capital in excess of par value of common stock | 513,210,797 | |||
| Total distributable earnings | 1,604,426,752 | |||
| NET ASSETS (APPLICABLE TO COMMON STOCKHOLDERS) | $ | 2,118,601,964 | ||
| Net Asset Value, Per Share of Common Stock Outstanding ( |
$ | 21.97 | ||
See Accompanying Notes to Financial Statements.
| Annual Report | |
11 |
| Statement of Operations |
For the Year Ended
| INVESTMENT INCOME: | ||||
| Dividends | $ | 28,864,990 | ||
| Interest | 6,725,842 | |||
| Total Investment Income | 35,590,832 | |||
| EXPENSES: | ||||
| Investment advisory fees (Note 4) | 18,515,458 | |||
| Interest on senior notes (Note 10) | 6,119,915 | |||
| Administration fees (Note 4) | 1,856,294 | |||
| Directors' fees and expenses (Note 4) | 243,473 | |||
| Printing fees | 98,518 | |||
| Legal fees | 114,822 | |||
| Custody fees | 52,651 | |||
| Insurance expense | 47,227 | |||
| Audit and tax fees | 45,200 | |||
| Transfer agency fees | 45,213 | |||
| Offering costs (Note 10) | 190,869 | |||
| Other | 216,202 | |||
| Total Expenses | 27,545,842 | |||
| Net Investment Income | 8,044,990 | |||
| REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: | ||||
| Net realized gain/(loss) on: | ||||
| Investments | 51,262,224 | |||
| Written options | (4,921,390 | ) | ||
| Net realized gain | 46,340,834 | |||
| Long-term capital gain distributions from other investment companies | 1,441,153 | |||
| Net change in unrealized appreciation/depreciation on: | ||||
| Investments | 496,365,599 | |||
| Written options | (4,762,634 | ) | ||
| Net change in unrealized appreciation | 491,602,965 | |||
| NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS | 539,384,952 | |||
| NET INCREASE IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS RESULTING FROM OPERATIONS | $ | 547,429,942 | ||
See Accompanying Notes to Financial Statements.
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| Statements of Changes in Net Assets |
| For the Year Ended |
For the Year Ended |
|||||||
| OPERATIONS: | ||||||||
| Net investment income | $ | 8,044,990 | $ | 11,493,968 | ||||
| Net realized gain on investments and written options | 46,340,834 | 44,240,641 | ||||||
| Long-term capital gain distributions from other investment companies | 1,441,153 | 2,698,091 | ||||||
| Net change in unrealized appreciation on investments and written options | 491,602,965 | 81,879,653 | ||||||
| Net Increase in Net Assets Applicable to Common Stockholders Resulting from Operations | 547,429,942 | 140,312,353 | ||||||
| DISTRIBUTIONS TO COMMON STOCKHOLDERS (NOTE 9): | ||||||||
| From distributable earnings | (52,352,982 | ) | (48,632,411 | ) | ||||
| From tax retuof capital | (850,558 | ) | - | |||||
| Total Distributions: Common Stockholders | (53,203,540 | ) | (48,632,411 | ) | ||||
| CAPITAL SHARE TRANSACTIONS (NOTE 8): | ||||||||
| Repurchase of fund shares | (9,297,208 | ) | (3,536,681 | ) | ||||
| (9,297,208 | ) | (3,536,681 | ) | |||||
| Net Increase in Net Assets Applicable to Common Stockholders | 484,929,194 | 88,143,261 | ||||||
| NET ASSETS: | ||||||||
| Beginning of period | 1,633,672,770 | 1,545,529,509 | ||||||
| End of period | $ | 2,118,601,964 | $ | 1,633,672,770 | ||||
See Accompanying Notes to Financial Statements.
| Annual Report | |
13 |
| Statement of Cash Flows |
For the Year Ended
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
| Net increase in net assets applicable to Common Stockholders resulting from operations | $ | 547,429,942 | ||
| Adjustments to reconcile change in net assets applicable to Common Stockholders resulting from operations to net cash provided by operating activities: | ||||
| Purchase of investment securities | (138,597,805 | ) | ||
| Net sales of short-term investment securities | 54,694,802 | |||
| Proceeds from disposition of investment securities | 140,837,027 | |||
| Premiums paid on closing written options transactions | (10,026,597 | ) | ||
| Premiums received from written options transactions | 6,048,273 | |||
| Net realized (gain)/loss on: | ||||
| Investments | (52,703,377 | ) | ||
| Written options | 4,921,390 | |||
| Net change in unrealized appreciation/(depreciation) on: | ||||
| Investments | (496,365,599 | ) | ||
| Written options | 4,762,634 | |||
| Amortization of offering costs | 190,869 | |||
| (Increase)/Decrease in assets: | ||||
| Dividends and interest receivable | 1,049,669 | |||
| Prepaid expenses and other assets | (7,212 | ) | ||
| Increase/(Decrease) in liabilities: | ||||
| Interest payable on senior notes | 2,415 | |||
| Investment advisory fees payable | 302,168 | |||
| Administration fees payable | 29,995 | |||
| Directors' fees and expenses payable | (4,629 | ) | ||
| Legal fees payable | 1,228 | |||
| Audit and tax fees payable | (43,500 | ) | ||
| Custody fees payable | 9,362 | |||
| Printing fees payable | (47,769 | ) | ||
| Accrued expenses and other payables | 17,462 | |||
| Net Cash Provided by Operating Activities | 62,500,748 | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
| Cash distributions paid to Common Stockholders | (53,203,540 | ) | ||
| Repurchase of fund shares | (9,297,208 | ) | ||
| (62,500,748 | ) | |||
| Net increase in cash | - | |||
| Cash, beginning balance | - | |||
| Cash, ending balance | $ | - | ||
| Cash paid for interest on senior notes during the period was: | $ | 6,117,500 | ||
See Accompanying Notes to Financial Statements.
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Page Intentionally Left Blank
| Financial Highlights |
Contained below is selected data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data for the periods indicated. This information has been determined based upon information provided in the financial statements and market price data for the Fund's shares.
| OPERATING PERFORMANCE: |
| Net asset value - Beginning of Period |
| INCOME FROM INVESTMENT OPERATIONS: |
| Net investment income(a) |
| Net realized and unrealized gain/(loss) on investments |
| Net Increase from Operations Applicable to Common Stockholders |
| DISTRIBUTIONS TO COMMON STOCKHOLDERS |
| Distributable earnings |
| Tax retuof capital |
| Total Distributions Paid to Common Stockholders |
| CAPITAL SHARE TRANSACTIONS: |
| Impact of Capital Share Transactions(a) |
| Total Capital Share Transactions |
| Net Increase/(Decrease) in Net Asset Value |
| Common Share Net Asset Value - End of Period |
| Common Share Market Price - End of Period |
| Total Return, Common Share Net Asset Value(b) |
| Total Return, Common Share Market Price(b) |
| RATIOS TO AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:(c) |
| Ratio of operating expenses to average net assets including waiver |
| Ratio of operating expenses to average net assets excluding waiver |
| Ratio of operating expenses to average net assets excluding interest on borrowings |
| Ratio of net investment income to average net assets including waiver |
| Ratio of net investment income to average net assets excluding waiver |
| SUPPLEMENTAL DATA: |
| Portfolio turnover rate |
| Net Assets Applicable to Common Stockholders, End of Period (000s) |
| Number of Common Shares Outstanding, End of Period (000s) |
| BORROWINGS AT END OF PERIOD |
| Aggregate Amount of Senior Notes Outstanding (000s) |
| Asset Coverage Per |
See Accompanying Notes to Financial Statements.
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| Financial Highlights |
| For the Year Ended 2024 |
For the Year Ended 2023 |
For the Year Ended 2022 |
For the Year Ended 2021 |
For the Year Ended 2020 |
||||||||||||||
| $ | 16.83 | $ | 15.88 | $ | 15.69 | $ | 13.29 | $ | 13.56 | |||||||||
| 0.08 | 0.12 | 0.11 | 0.01 | 0.06 | ||||||||||||||
| 5.58 | 1.32 | 0.55 | 2.79 | (0.01 | ) | |||||||||||||
| 5.66 | 1.44 | 0.66 | 2.80 | 0.05 | ||||||||||||||
| (0.54 | ) | (0.50 | ) | (0.48 | ) | (0.41 | ) | (0.39 | ) | |||||||||
| (0.01 | ) | - | - | - | (0.02 | ) | ||||||||||||
| (0.55 | ) | (0.50 | ) | (0.48 | ) | (0.41 | ) | (0.41 | ) | |||||||||
| 0.03 | 0.01 | 0.01 | 0.01 | 0.09 | ||||||||||||||
| 0.03 | 0.01 | 0.01 | 0.01 | 0.09 | ||||||||||||||
| 5.14 | 0.95 | 0.19 | 2.40 | (0.27 | ) | |||||||||||||
| $ | 21.97 | $ | 16.83 | $ | 15.88 | $ | 15.69 | $ | 13.29 | |||||||||
| $ | 16.73 | $ | 13.42 | $ | 13.31 | $ | 13.02 | $ | 10.91 | |||||||||
| 35.47 | % | 10.06 | % | 4.96 | % | 21.86 | % | 2.04 | % | |||||||||
| 29.37 | % | 4.71 | % | 6.01 | % | 23.18 | % | (0.45 | %) | |||||||||
| 1.49 | % | 1.60 | % | 1.61 | % | 1.65 | %(d) | 1.16 | %(d) | |||||||||
| 1.49 | % | 1.60 | % | 1.61 | % | 1.68 | % | 1.17 | % | |||||||||
| 1.16 | % | 1.20 | % | 1.20 | % | 1.24 | % | 1.12 | % | |||||||||
| 0.44 | % | 0.74 | % | 0.70 | % | 0.07 | %(d) | 0.52 | %(d) | |||||||||
| 0.44 | % | 0.74 | % | 0.70 | % | 0.04 | % | 0.51 | % | |||||||||
| 7 | % | 10 | % | 10 | % | 6 | % | 6 | % | |||||||||
| $ | 2,118,602 | $ | 1,633,673 | $ | 1,545,530 | $ | 1,534,631 | $ | 1,305,895 | |||||||||
| 96,442 | 97,068 | 97,333 | 97,802 | 98,271 | ||||||||||||||
| $ | 225,000 | (e)(f) | $ | 225,000 | (e)(f) | $ | 223,169 | (e) | $ | 222,978 | (e) | $ | 222,749 | (e) | ||||
| 10,416 | 8,261 | 7,925 | 7,882 | 6,863 | ||||||||||||||
See Accompanying Notes to Financial Statements.
| Annual Report | |
17 |
| Financial Highlights |
| (a) | Calculated based on the average number of common shares outstanding during each fiscal period. |
| (b) | Total retubased on per share net asset value reflects the effects of changes in net asset value on the performance of the Fund during each fiscal period. Total retubased on common share market value assumes the purchase of common shares at the market price on the first day and sale of common shares at the market price on the last day of the period indicated. Dividends and distributions, if any, are assumed to be reinvested at prices obtained under the Fund's distribution reinvestment plan. |
| (c) | Ratios do not reflect the proportionate share of income and expenses of the underlying investee funds (i.e. those listed under Money Market Funds or Closed-End Funds on the Statement of Investments). |
| (d) | Advisory, sub-advisory and administration fees were voluntarily waived, on amounts attributable to the proceeds of the senior notes issued that remained in cash or cash equivalents. |
| (e) | The amount shown is due to the issuance of senior notes (See Note 10). |
| (f) | Principal amount. Excludes the costs incurred in connection with the issuance of the senior notes. |
| (g) | Calculated by subtracting the Fund's total liabilities (excluding the principal amount of the senior notes) from the Fund's total assets and dividing by the principal amount of the senior notes, then multiplying by |
See Accompanying Notes to Financial Statements.
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| Notes to Financial Statements | |
NOTE 1. FUND ORGANIZATION
The Fund is considered an investment company for financial reporting purposes under generally accepted accounting principles in
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements is in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Portfolio Valuation: Equity securities including closed-end funds and limited partnerships for which market quotations are readily available (including securities listed on national securities exchanges and those traded over-the-counter) are valued based on the last sales price at the close of the applicable exchange. If such equity securities were not traded on the valuation date, but market quotations are readily available, they are valued at the bid price provided by an independent pricing service or by principal market makers. Equity securities traded on NASDAQ are valued at the NASDAQ Official Closing Price. Debt securities are valued at the mean between the closing bid and asked prices, or based on a matrix system which utilizes information (such as credit ratings, yields and maturities) from independent pricing services, principal market makers, or other independent sources. Money market mutual funds are valued at their net asset value per share. Short-term fixed income securities such as Commercial Paper, Bankers Acceptances and
For valuation purposes, the last quoted prices of non-
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| Notes to Financial Statements | |
of instruments trading in
Options are valued at the mean of the highest bid and lowest ask prices on the principal exchange on which the option trades. If no quotations are available, fair value procedures will be used. Fair value procedures will also be used for any options traded over-the-counter.
Various inputs are used to determine the value of the Fund's investments. Observable inputs are inputs that reflect the assumptions market participants would use based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions based on the best information available in the circumstances.
These inputs are summarized in the three broad levels listed below.
| Level 1 - | Unadjusted quoted prices in active markets for identical investments that the Fund has the ability to access |
| Level 2 - | Significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| Level 3 - | Significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) |
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| Notes to Financial Statements | |
The following is a summary of the Fund's investments by inputs used to value those investments and other financial instruments as of
| Investments in Securities at Value* |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Domestic Common Stock | $ | 2,018,272,500 | $ | - | $ | - | $ | 2,018,272,500 | ||||||||
| Foreign Common Stock | 47,100,000 | - | - | 47,100,000 | ||||||||||||
| Closed-End Funds | 72,104,999 | - | - | 72,104,999 | ||||||||||||
| Limited Partnerships | 125,669,500 | - | - | 125,669,500 | ||||||||||||
| Money Market Funds | 86,331,848 | - | - | 86,331,848 | ||||||||||||
| TOTAL | $ | 2,349,478,847 | $ | - | $ | - | $ | 2,349,478,847 | ||||||||
| Other Financial Instruments** |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Written Call Options | $ | (6,556,200 | ) | $ | - | $ | - | $ | (6,556,200 | ) | ||||||
| TOTAL | $ | (6,556,200 | ) | $ | - | $ | - | $ | (6,556,200 | ) | ||||||
| * | For detailed descriptions and other security classifications, see the accompanying Statement of Investments. |
| ** | Other financial instruments are derivative instruments reflected in the Statement of Investments. |
Cash and Cash Equivalents: Cash and cash equivalents may include demand deposits and highly liquid investments, typically with original maturities of three months or less. Cash and cash equivalents are carried at cost, which approximates fair value.
Securities Transactions and Investment Income: Securities transactions are recorded as of the trade date. Realized gains and losses from securities sold are recorded on the identified cost basis. Dividend income is recorded as of the ex-dividend date or for certain foreign securities, when the information becomes available to the Fund. Certain dividend income from foreign securities will be recorded, in the exercise of reasonable diligence, as soon as the Fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date and may be subject to withholding taxes in these jurisdictions. Withholding taxes on foreign dividends have been provided for in accordance with the Fund's understanding of the applicable country's tax rules and rates. Non-cash dividends included in dividend income, if any, are recorded at the fair value of the securities received. Interest income, including amortization of premium and accretion of discount on debt securities, as required, is recorded on the accrual basis using the effective yield method.
Foreign Currency Transactions: The Fund may invest a portion of its assets in foreign securities. In the event that the Fund executes a foreign security transaction, the Fund will generally enter into a forward foreign currency contract to settle the foreign security transaction. Foreign securities may carry more risk than
The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the
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21 |
| Notes to Financial Statements | |
assets and liabilities, other than investments in securities at fiscal period-end, resulting from changes in exchange rates.
Distributions to Common Stockholders: It is the Fund's policy to distribute substantially all net investment income and net realized gains to stockholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code of 1986, as amended. Distributions to common stockholders are recorded on the ex-dividend date.
The Fund intends to distribute its net realized capital gains, if any, at least annually. At times, to maintain a stable level of distributions, the Fund may pay out less than all of its net investment income or pay out accumulated undistributed income, or retucapital, in addition to current net investment income. Any distribution that is treated as a retuof capital generally will reduce a stockholder's basis in his or her shares, which may increase the capital gain or reduce the capital loss realized upon the sale of such shares. Any amounts received in excess of a stockholder's basis are generally treated as capital gain, assuming the shares are held as capital assets.
Indemnifications: The Fund's organizational documents provide that its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, both in some of its principal service contracts and in the normal course of its business, the Fund enters into contracts that provide indemnifications to other parties for certain types of losses or liabilities. The Fund's maximum exposure under these arrangements is unknown as this could involve future claims against the Fund.
Federal Income Tax: For federal income tax purposes, the Fund currently qualifies, and intends to remain qualified as a regulated investment company under the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended, by distributing substantially all of its earnings to its stockholders. Accordingly, no provision for federal income or excise taxes has been made.
Income and capital gain distributions are determined and characterized in accordance with income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterization of distributions made by the Fund as a whole.
As of and during the year ended
NOTE 3. DERIVATIVE FINANCIAL INSTRUMENTS
As a part of its investment strategy, the Fund may invest to a lesser extent in derivatives contracts. In doing so, the Fund will employ strategies in differing combinations to permit them to increase, decrease, or change the level or types of exposure to market factors. Central to those strategies are features inherent in derivatives that make them more attractive for this purpose than equity or debt securities; they require little or no initial cash investment, they can focus exposure on only certain selected risk factors, and they may not require the ultimate receipt or delivery of the underlying security (or securities) to the contract. This may allow the Fund to pursue its objectives more quickly
| www.srhtotalreturnfund.com | 22 |
| Notes to Financial Statements | |
and efficiently than if it were to make direct purchases or sales of securities capable of affecting a similar response to market factors.
Risk of Investing in Derivatives: The Fund's use of derivatives can result in losses due to unanticipated changes in the market risk factors and the overall market. In instances where the Fund is using derivatives to decrease, or hedge, exposures to market risk factors for securities held by the Fund, there are also risks that those derivatives may not perform as expected, resulting in losses for the combined or hedged positions.
Derivatives may have little or no initial cash investment relative to their market value exposure and therefore can produce significant gains or losses in excess of their cost. This use of embedded leverage allows the Fund to increase its market value exposure relative to its net assets and can substantially increase the volatility of the Fund's performance.
Associated risks from investing in derivatives also exist and potentially could have significant effects on the valuation of the derivative and the Fund. Typically, the associated risks are not the risks that the Fund is attempting to increase or decrease exposure to, per its investment objectives, but are the additional risks from investing in derivatives.
Examples of these associated risks are liquidity risk, which is the risk that the Fund will not be able to sell or close out the derivative in a timely manner, and counterparty credit risk, which is the risk that the counterparty will not fulfill its obligation to the Fund. In addition, use of derivatives may increase or decrease exposure to the following risk factors:
Equity Risk: Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. Associated risks can be different for each type of derivative and are discussed by each derivative type in the notes that follow.
Option Contracts: The Fund may enter into options transactions for hedging purposes and for non-hedging purposes such as seeking to enhance return. The Fund may write put and call options on any stocks or stock indices, currencies traded on domestic and foreign securities exchanges, or futures contracts on stock indices, interest rates and currencies traded on domestic and, to the extent permitted by the
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| Notes to Financial Statements |
For the year ended
| Risk Exposure | Asset Derivatives Statement of Assets and Liabilities Location |
Value | Liability Derivatives Statement of Assets and Liabilities Location |
Value | ||||||||
| Equity Contracts (Written Options) |
N/A | N/A | Written options, at value | $ | 6,556,200 | |||||||
| Total | - | $ | 6,556,200 | |||||||||
For the year ended
| Risk Exposure | Statement of Operations Location | Realized Gain/ (Loss) on Derivatives |
Change in Unrealized Appreciation/ (Depreciation) on Derivatives |
|||||||
| Equity Contracts (Written Options) |
Net realized loss on written options/ Net change in unrealized depreciation on written options |
$ | (4,921,390 | ) | $ | (4,762,634 | ) | |||
| Total | $ | (4,921,390 | ) | $ | (4,762,634 | ) | ||||
The average monthly notional value of written option contracts for the Fund was
NOTE 4. ADVISORY FEES, ADMINISTRATION FEES AND OTHER AGREEMENTS
Paralel serves as the Fund's investment adviser pursuant to an advisory agreement with the Fund. The Fund pays Paralel an annual fee, calculated and paid monthly, equal to 0.90% of the first
Paralel is a wholly owned subsidiary of PRT. SRH may be deemed an affiliate of PRT and Paralel under the 1940 Act due to an indirect, non-controlling investment in PRT by
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| Notes to Financial Statements |
No persons (other than the Independent Directors) receive compensation from the
NOTE 5. SECURITIES TRANSACTIONS
Purchases and sales of securities, excluding short term securities, during the year ended
NOTE 6. PORTFOLIO INVESTMENTS AND CONCENTRATION
Under normal market conditions, the Fund intends to invest at least 80% of its net assets in common stocks. Common stocks include dividend-paying closed-end funds, open-end funds and REITs. The portion of the Fund's assets that are not invested in common stocks may be invested in fixed income securities and cash equivalents. The term "fixed income securities" includes bonds,
Concentration Risk: The Fund operates as a "non-diversified" investment company, as defined in the 1940 Act. As a result of being "non-diversified" with respect to 50% of the Fund's portfolio, the Fund must limit the portion of its assets invested in the securities of a single issuer to 5%, measured at the time of purchase. In addition, no single investment can exceed 25% of the Fund's total assets at the time of purchase. A more concentrated portfolio may cause the Fund's net asset value to be more volatile and thus may subject stockholders to more risk. Thus, the volatility of the Fund's net asset value and its performance in general, depends disproportionately more on the performance of a smaller number of holdings than that of a more diversified fund. As a result, the Fund is subject to a greater risk of loss than a fund that diversifies its investments more broadly.
As of
Foreign Issuer Risk: Investment in non-
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25 |
| Notes to Financial Statements |
or regulatory practices; (ii) many non-
NOTE 7. SIGNIFICANT STOCKHOLDERS
On
NOTE 8. SHARE REPURCHASES AND REDEMPTIONS
In accordance with Section 23(c) of the 1940 Act and the rules promulgated thereunder, the Fund may from time to time effect repurchases and/or redemptions of its Common Stock.
For the year ended
NOTE 9. TAX BASIS DISTRIBUTIONS AND TAX BASIS INFORMATION
As determined on
The character of distributions paid on a tax basis during the year ended
| Distributions Paid From: | ||||
| Ordinary Income | $ | 451,367 | ||
| Long-Term Capital Gain | 51,901,615 | |||
| 850,558 | ||||
| $ | 53,203,540 |
The character of distributions paid on a tax basis during the year ended
| Distributions Paid From: | ||||
| Ordinary Income | $ | 9,944,584 | ||
| Long-Term Capital Gain | 38,687,827 | |||
| $ | 48,632,411 |
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| Notes to Financial Statements |
The amount of net unrealized appreciation/(depreciation) and the cost of investment securities for tax purposes at
| Cost of investments for income tax purposes | $ | 742,761,856 | ||
| Gross appreciation on investments (excess of value over tax cost) | 1,620,249,363 | |||
| Gross depreciation on investments (excess of tax cost over value) | (13,532,372 | ) | ||
| Net depreciation of written call options | (2,290,239 | ) | ||
| Net unrealized appreciation on investments | $ | 1,604,426,752 |
As of
| Unrealized Appreciation | 1,604,426,752 | |||
| Total | $ | 1,604,426,752 |
The primary difference between book and tax appreciation or depreciation of investments is investments in partnerships.
NOTE 10. SENIOR NOTES
On
The table below sets forth a summary of the key terms of each series of Notes outstanding at
| Series | Principal Outstanding 2024 |
Payment Frequency |
Unamortized Offering Costs |
Estimated Fair Value November 30, 2024 |
Fixed Interest Rate |
Maturity Date | |||||||||||||||
| A | $ | 85,000,000 | Semi-Annual | $ | 498,284 | $ | 72,287,124 | 2.62 | % | ||||||||||||
| B | $ | 85,000,000 | Semi-Annual | $ | 555,457 | $ | 69,974,604 | 2.72 | % | ||||||||||||
| C | $ | 55,000,000 | Semi-Annual | $ | 396,340 | $ | 43,505,606 | 2.87 | % | ||||||||||||
The Fund incurred costs in connection with the issuance of the Notes. These costs, totaling
The Fund shall at all times maintain a current rating given by a NRSRO (
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27 |
| Notes to Financial Statements |
not at any time have any rating given by a NRSRO of less than Investment Grade with respect to the Notes. The Notes have been assigned an 'A' long-term rating by Fitch Ratings.
At
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| Report of Independent Registered Public Accounting Firm |
| To the Shareholders and Board of Directors of |
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the statement of investments, of
Basis for Opinion
These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of
We have served as the Fund's auditor since 2018.
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29 |
| Additional Information |
PORTFOLIO INFORMATION
The Fund files its complete schedule of portfolio holdings with the
PROXY VOTING
The policies and procedures used by the Fund to determine how to vote proxies relating to portfolio securities held by the Fund are available, without charge, (i) on the Fund's website at www.srhtotalreturnfund.com, (ii) on the
SENIOR OFFICER CODE OF ETHICS
The Fund files a copy of its code of ethics that applies to its principal executive officer, principal financial officer or controller, or persons performing similar functions (the "Senior Officer Code of Ethics"), with the
PRIVACY STATEMENT
Pursuant to SEC Regulation S-P (Privacy of Consumer Financial Information) the Board established the following policy regarding information about the Fund's stockholders. We consider all stockholder data to be private and confidential, and we hold ourselves to the highest standards in its safekeeping and use.
General Statement. The Fund may collect nonpublic information (e.g., your name, address, email address, Social Security Number, Fund holdings (collectively, "Personal Information")) about stockholders from transactions in Fund shares. The Fund will not release Personal Information about current or former stockholders (except as permitted by law) unless one of the following conditions is met: (i) we receive your prior written consent; (ii) we believe the recipient to be you or your authorized representative; (iii) to service or support the business functions of the Fund (as explained in more detail below), or (iv) we are required by law to release Personal Information to the recipient. The Fund has not and will not in the future give or sell Personal Information about its current or former stockholders to any company, individual, or group (except as permitted by law) and as otherwise provided in this policy.
In the future, the Fund may make certain electronic services available to its stockholders and may solicit your email address and contact you by email, telephone or
Use of Personal Information. The Fund will only use Personal Information (i) as necessary to service or maintain stockholder accounts in the ordinary course of business and (ii) to support business functions of the Fund and its affiliated businesses. This means that the Fund may share certain Personal Information, only as permitted by law, with affiliated businesses of the Fund, and that such information may be used for non-Fund-related solicitation. When Personal Information is
| www.srhtotalreturnfund.com | 30 |
| Additional Information |
shared with the Fund's business affiliates, the Fund may do so without providing you the option of preventing these types of disclosures as permitted by law.
Safeguards Regarding Personal Information. Internally, we also restrict access to Personal Information to those who have a specific need for the records. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard Personal Information. Any doubts about the confidentiality of Personal Information, as required by law, are resolved in favor of confidentiality.
NOTICE TO STOCKHOLDERS
The Fund designated the following as a percentage of taxable ordinary income distributions, or up to the maximum amount allowable, for the calendar year ended
| Qualified Dividend Income: | 100% |
| Dividend Received Deduction: | 100% |
In early 2024, if applicable, stockholders of record received this information for the distributions paid to them by the Fund during the calendar year 2023 via Form 1099. The Fund will notify shareholders in early 2025 of amounts paid to them by the Fund, if any, during the calendar year ended 2024.
Pursuant to Section 852(b)(3) of the Internal Revenue Code, the Fund designated
STOCKHOLDER MEETING RESULTS
On
Proposal 1: To elect Class III Directors to the Board of Directors to serve until the 2027 Annual Meeting of Stockholders.
Election of
| # of Votes Cast | % of Votes Cast | |
| For | 77,824,309 | 91.325% |
| Against/Withhold | 7,392,930 | 8.675% |
| TOTAL | 85,217,239 | 100.00% |
| Election of |
||
| # of Votes Cast | % of Votes Cast | |
| For | 78,449,128 | 92.058% |
| Against/Withhold | 6,768,111 | 7.942% |
| TOTAL | 85,217,239 | 100.00% |
SECTION 19(A) NOTICES
The following table sets forth the estimated amount of the sources of distribution for purposes of Section 19 of the Investment Company Act of 1940, as amended, and the related rules adopted thereunder. The Fund estimates the following percentages, of the total distribution amount per
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31 |
| Additional Information |
share, attributable to (i) current and prior fiscal year net investment income, (ii) net realized short- term capital gain, (iii) net realized long-term capital gain and (iv) retuof capital or other capital source as a percentage of the total distribution amount. These percentages are disclosed for the fiscal year-to-date cumulative distribution amount per share for the Fund.
The amounts and sources of distributions reported in these 19(a) notices are only estimates and not for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund's investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The Fund will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes.
| % Breakdown of the Total Cumulative | |||||||
| Total Cumulative Distributions for the year | Distributions for the year ended November | ||||||
| ended |
30, 2024 | ||||||
| Net | Net | ||||||
| Realized | Total Per | Net | Realized | Total Per | |||
| Net | Capital | Retuof | Common | Investment | Capital | Retuof | Common |
| Investment | Gains | Capital | Share | Income | Gains | Capital | Share |
| 11.74% | 72.25% | 16.01% | 100.00% | ||||
The Fund estimates that it has distributed more than its income and net realized capital gains; therefore, a portion of your distribution may be a retuof capital. A retuof capital may occur for example, when some or all of the money that you invested in the Fund is paid back to you. A retuof capital distribution does not necessarily reflect the Fund's investment performance and should not be confused with `yield' or `income'.
Stockholders should not draw any conclusions about the Fund's investment performance from the amount of the distribution or from the terms of the Fund's Plan.
DISCLAIMER
The Fund is not sponsored, endorsed, sold or promoted by
| www.srhtotalreturnfund.com | 32 |
| Summary of Dividend | |
| Reinvestment Plan | |
Registered holders ("Common Stockholders") of common shares (the "Common Shares") are automatically enrolled (the "Participants") in the Fund's Dividend Reinvestment Plan (the "Plan") whereupon all distributions of income, capital gains or managed distributions ("Distributions") are automatically reinvested in additional Common Shares. Common Stockholders who elect to not participate in the Plan will receive all distributions in cash paid by check in
Computershare Shareowner Services (the "Agent") serves as Agent for each Participant in administering the Plan. After the Fund declares a Distribution, if (1) the net asset value per Common Share is equal to or less than the market price per Common Share plus estimated brokerage commissions on the payment date for a Distribution, Participants will be issued Common Shares at the higher of net asset value per Common Share or 95% of the market price per Common Share on the payment date; or if (2) the net asset value per Common Share exceeds the market price plus estimated brokerage commissions on the payment date for a Distribution, the Agent shall apply the amount of such Distribution to purchase Common Shares on the open market and Participants will receive the equivalent in Common Shares valued at the weighted average market price (including brokerage commissions) determined as of the time of the purchase (generally, following the payment date of the Distribution). If, before the Agent has completed its purchases, the market price plus estimated brokerage commissions exceeds the net asset value of the Common Shares as of the payment date, the purchase price paid by the Agent may exceed the net asset value of the Common Shares, resulting in the acquisition of fewer Common Shares than if such Distribution had been paid in Common Shares issued by the Fund. If the Agent is unable to invest the full Distribution amount in purchases in the open market or if the market discount shifts to a market premium during the purchase period then the Agent may cease making purchases in the open market the instant the Agent is notified of a market premium and may invest the uninvested portion of the Distribution in newly issued Common Shares at the net asset value per Common Share at the close of business provided that, if the net asset value is less than or equal to 95% of the then current market price per Common Share, the dollar amount of the Distribution will be divided by 95% of the market price on the payment date. The Fund will not issue Common Shares under the Plan below net asset value.
There is no charge to Participants for reinvesting Distributions, except for certain brokerage commissions, as described below. The Agent's fees for the handling of the reinvestment of Distributions will be paid by the Fund. There will be no brokerage commissions charged with respect to shares issued directly by the Fund. However, each Participant will pay a pro rata share of brokerage commissions incurred with respect to the Agent's open market purchase in connection with the reinvestment of Distributions. The automatic reinvestment of Distributions will not relieve Participants of any federal income tax that may be payable on such Distributions.
The Fund reserves the right to amend or terminate the Plan upon 90 days' written notice to Common Stockholders of the Fund.
Participants in the Plan may (i) request a certificate, (ii) request to sell their shares, or (iii) withdraw from the Plan upon written notice to the Agent or by telephone in accordance with the specific procedures and will receive certificates for whole Common Shares and cash for fractional Common Shares.
All correspondence concerning the Plan should be directed to the Agent, Computershare Shareowner Services, P.O. Box 43078,
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|
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Summary of Updated Information Regarding the Fund |
The following information in this annual report is a summary of certain information about the Fund and changes since the last annual report dated
Investment Objective. The Fund's investment objective is total return.
Principal Investment Strategies.
The Fund seeks to produce both income and long-term capital appreciation by investing in a portfolio of equity and debt securities. Under normal market conditions, the Fund invests at least 80% of its total assets in common stocks, primarily domestic common stocks and secondarily in foreign common stocks denominated in foreign currencies; investments in common stocks may include, but are not limited to, investment companies whose objective is income, real estate investment trusts ("REITs"), and other dividend-paying common stocks. The portion of the Fund's assets that is not invested in common stocks may be invested in fixed income securities, cash equivalents and other income-producing securities. The Fund has no limitation on the amount of its assets that may be invested in securities which are not readily marketable or are subject to restrictions on resale. The Fund may not, as a matter of fundamental policy, invest in the securities of companies conducting their principal business activity in the same industry if, immediately after such investment, the value of its investments in such industry would exceed 25% of the value of its total assets.
The Fund is a "non-diversified" investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), which means that it is permitted to invest its assets in a more limited number of issuers than "diversified" investment companies. A diversified company may not, with respect to 75% of its total assets, invest more than 5% of its total assets in the securities of any one issuer and may not own more than 10% of the outstanding voting securities of any one issuer. However, under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), (A) not more than 25% of the Fund's total assets may be invested in securities of any one issuer (other than
Limitations on investments expressed in percentages are measured and are applicable only at the time of investment. They are not measured or applied on an ongoing basis. There is no requirement for the Fund to sell or change its portfolio investments resulting from changes in the valuations of such investments.
Leverage
Under normal market conditions, the Fund may utilize leverage through Borrowings (defined below) and the issuance of preferred shares (if any) in an amount that represents approximately 33 1/3% or less of the Fund's total assets, including proceeds from such Borrowings and issuances (or approximately 50% of the Fund's net assets). "Borrowings" are defined as: amounts received by the
| www.srhtotalreturnfund.com | 34 |
|
|
Summary of Updated Information Regarding the Fund |
Fund pursuant to loans from banks or other financial institutions; amounts borrowed from banks or other parties using reverse repurchase agreements; or amounts received by the Fund from the Fund's issuance of any senior notes or similar debt securities. Other than with respect to reverse repurchase agreements, Borrowings do not include trading practices or instruments that, according to the
The Adviser is responsible for making recommendations to the Board regarding the Fund's use of Borrowings. On
Effects of Leverage
The following table is furnished in response to requirements of the
| Assumed Portfolio Return | -10.00% | -5.00% | 0.00% | 5.00% | 10.00% |
| Fund Share Total Return | -11.76% | -6.07% | -0.37% | 5.32% | 11.01% |
Corresponding Fund share total retuis composed of two elements: Fund dividends paid by the Fund (the amount of which is largely determined by the Fund's net distributable income after paying interest or dividends on the Fund's leverage) and gains or losses on the value of the securities the Fund owns. As required by
Risk Factors
Investment in the Fund may not be appropriate for all investors. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objectives. Investors should consider their long-term investment goals and financial needs when making an investment decision with respect to the Fund. An investment in the Fund is intended to be a long-term investment, and you should not view the Fund as a trading vehicle. Your shares at any point in time may be worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions, if applicable.
Investments in Common Stocks. The Fund intends to invest, under normal market conditions, at least 80% of its total assets in publicly traded common stocks. Common stocks generally have greater risk exposure and reward potential over time than bonds. The volatility of common stock prices has
|
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|
|
Summary of Updated Information Regarding the Fund |
historically been greater than bonds, and as the Fund invests primarily in common stocks, the Fund's NAV may also be volatile. Further, because the time horizon for the Fund's investments in common stock is longer, the time necessary for the Fund to achieve its objective of total retuwill likely be longer than for a fund that invests solely for income.
Non-Diversified Status Risk. The Fund is classified as "non-diversified" under the 1940 Act. As a result, it can invest a greater portion of its assets in securities of a single issuer than a "diversified" fund. The Fund will therefore be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory occurrence. The Fund intends to diversify its investments to the extent necessary to qualify, and maintain its status, as a regulated investment company under
Issuer Focus Risk. The Fund may hold significant positions in a few issuers. Taking larger positions is likely to increase the volatility of the Fund's NAV, reflecting fluctuation in the value of large Fund holdings. In addition, both the Code and 1940 Act allow positions in single issuers to exceed statutory diversification thresholds if the excess occurs as a result of market variations. In such cases, the Fund may continue to hold such excess positions for the sake of tax efficiency. Thus, in such circumstances, the Fund may be even more susceptible to being adversely affected by any corporate, economic, political or regulatory occurrence affecting issuer positions which exceed such thresholds. Note that the risk described here is distinct from the risk of concentration as the term is generally understood under the 1940 Act, which refers whether a particular fund invests in excess of 25% of its total assets in issuers within the same industry or group of industries. As a matter of fundamental policy, the Fund may not invest in the securities of companies conducting their principal business activity in the same industry if, immediately after such investment, the value of its investments in such industry would exceed 25% of the value of its total assets.
Investments in
Leveraging Risk. The Fund currently uses leverage. Use of leverage may have a number of adverse effects on the Fund and its stockholders including without limitation: (i) leverage may magnify market fluctuations in the Fund's underlying holdings thus causing a disproportionate change in the
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Summary of Updated Information Regarding the Fund |
Fund's NAV; and (ii) the Fund's cost of leverage may exceed the retuon the underlying securities acquired with the proceeds of the leverage, thereby diminishing rather than enhancing the retuto stockholders and generally making the Fund's total retuto stockholders more volatile.
Discount From NAV. The common stock of closed-end funds frequently trades at market prices less than the value of the net assets attributable to those shares (a "discount"). The possibility that the Fund's shares will trade at a discount from NAV is a risk separate and distinct from the risk that the Fund's NAV will decrease. The risk of purchasing shares of a closed-end fund that might trade at a discount is more pronounced for investors who wish to sell their shares in a relatively short period of time because, for those investors, realization of a gain or loss on their investments is likely to be more dependent upon the existence of a premium or discount than upon portfolio performance.
Repurchase of Fund Shares. The Fund is authorized to repurchase shares on the open market when the shares are trading at a discount from NAV per share as determined by the Board from time to time. Any acquisition of shares by the Fund will decrease the total assets of the Fund and, therefore, have the effect of increasing the Fund's expense ratio and may adversely affect the ability of the Fund to achieve its investment objective.
Issuer Risk. The value of the Fund's portfolio may decline for a number of reasons directly related to the issuers of the securities in the portfolio, such as management performance, financial leverage and reduced demand for an issuer's goods and services.
Inflation Risk. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund's portfolio can decline.
Foreign Securities Risk. The Fund is permitted to invest in foreign securities without limitation. Investment in non-
Currency Risk. The Fund can hold investments in foreign securities and thus a portion of the Fund's assets may be quoted or denominated in non-
Investments in Registered Investment Companies. The Fund may invest in securities issued by other registered investment companies subject to such limitations, restrictions and conditions as imposed by Federal law. Accordingly, the Fund will be subject to the particular risks associated with investing in other funds that are separate from risks associated with the underlying investments held by such registered investment companies. Both the Fund and any registered investment companies in which it invests pay management fees. In addition, the registered investment companies in which the Fund invests will typically incur other operating expenses that are borne by their investors, including the Fund. As a result, Fund stockholders will bear not only the Fund's management fees and operating expenses, but also the fees and expenses of the registered investment companies in which the Fund invests. Investors would bear less expense if they invested directly in the underlying registered investment companies in which the Fund invests. The Fund may also invest in registered investment
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Summary of Updated Information Regarding the Fund |
companies that are not limited in their portfolio trading activity and thus may experience high portfolio turnover rates. Higher turnover rates generally result in correspondingly greater brokerage commissions and other transactional expenses which may be borne by the Fund, directly or through its investment in registered investment companies.
Liquidity Risk. Although the Fund invests primarily in securities traded on national exchanges, it may invest in less liquid assets from time to time that are not readily marketable and may be subject to restrictions on resale. Illiquid securities may be more difficult to value or may impair the Fund's ability to realize the full value of its assets in the event of a voluntary or involuntary liquidation of such assets and thus may cause a decline in the Fund's NAV. The Fund is not limited in the amount of its assets that may be invested in securities which are not readily marketable or are subject to restrictions on resale, although it may not invest more than 30% of the value of its total assets in securities which have been acquired through private placement. In certain situations, the Fund could find it more difficult to sell such securities at times, in amounts and at prices they consider reasonable.
Derivatives Risk. The Fund's use of derivative instruments (such as options, futures and swaps) could produce disproportionate gains or losses, more than the principal amount invested. Investing in derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments (including, for example, risks associated with the creditworthiness of counterparties). The Fund may also be indirectly exposed to derivatives risk through an underlying fund's use of such instruments. Under certain market conditions, derivatives may become harder to value or sell at a fair price, and may thus entail liquidity risks.
Anti-Takeover Risk. The Fund's constituent documents, as amended, include provisions that could limit the ability of other entities or persons to acquire control of the Fund or to change the composition of its Board. Such provisions could limit the ability of stockholders to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. These provisions include, for example, mechanisms governing the consideration of certain matters at stockholder meetings and special voting requirements for the approval of certain transactions. The Fund's Board is also "classified," which means that membership of the Board is divided into separate classes, each class serving staggered terms. Finally, trusts and other entities and individuals affiliated with
Market Disruption and Geopolitical Risk. The value of your investment in the Fund is based on the values of the Fund's investments, which may change due to economic and other events that affect markets generally, as well as those that affect particular regions, countries, industries, companies or governments. These movements, sometimes called volatility, may be greater or less depending on the types of securities the Fund owns and the markets in which the securities trade. The increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Securities in the Fund's portfolio may underperform due to inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, pandemics, epidemics, terrorism, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world, natural disasters, social and political discord or debt crises and
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Summary of Updated Information Regarding the Fund |
downgrades, among others, may result in market volatility and may have long term effects on both the
Social, political, economic and other conditions and events, such as natural disasters, health emergencies (e.g., epidemics and pandemics), terrorism, conflicts and social unrest, may occur and could significantly impact issuers, industries, governments and other systems, including the financial markets. As global systems, economies and financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets. These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat. These types of events quickly and significantly impact markets in the
Cybersecurity Risk. In connection with the increased use of technologies such as the Internet and the dependence on computer systems to perform necessary business functions, the Fund is susceptible to operational, information security, and related risks due to the possibility of cyber- attacks or other incidents. Cyber incidents may result from deliberate attacks or unintentional events. Cyber-attacks include, but are not limited to, infection by computer viruses or other malicious software code, gaining unauthorized access to systems, networks, or devices that are used to service the Fund's operations through hacking or other means for the purpose of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks (which can make a website unavailable) on the Fund's website. In addition, authorized persons could inadvertently or intentionally release confidential or proprietary information stored on a Fund's systems.
Cyber security failures or breaches by the Fund's service providers (including, but not limited to, the adviser, distributor, custodian, transfer agent, financial intermediaries, and sub-adviser) may cause disruptions and impact the service providers' and the Fund's business operations, potentially resulting in financial losses, the inability of Fund shareholders to transact business and the Fund to process transactions, inability to calculate the Fund's net asset value, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. The Fund and its shareholders could be negatively impacted as a result of successful cyber-attacks against, or security breakdowns of, the Fund or its third party service providers.
The Fund may incur substantial costs to prevent or address cyber incidents in the future. In addition, there is a possibility that certain risks have not been adequately identified or prepared for. Furthermore, the Fund cannot directly control any cyber security plans and systems put in place by third party service providers. Cyber security risks are also present for issuers of securities in which
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Summary of Updated Information Regarding the Fund |
the Fund invests, which could result in material adverse consequences for such issuers, and may cause the Fund's investment in such securities to lose value.
Fundamental Investment Restrictions
The following investment restrictions of the Fund are designated as fundamental policies and as such cannot be changed without the approval of the holders of a majority of the Fund's outstanding voting securities, which as used in this annual report means the lesser of (a) 67% of the shares of the Fund present or represented by proxy at a meeting if the holders of more than 50% of the outstanding shares are present or represented at the meeting or (b) more than 50% of outstanding shares of the Fund. As a matter of fundamental policy the Fund may not:
| (1) | Issue any senior securities except as permitted under the 1940 Act. |
| (2) | Invest in the securities of companies conducting their principal business activity in the same industry if, immediately after such investment, the value of its investments in such industry would exceed 25% of the value of its total assets. |
| (3) | Participate on a joint or a joint and several basis in any trading account in securities, except that the Fund may, to the extent permitted by rules, regulations or orders of the |
| (4) | Purchase or sell interests in oil, gas or other mineral exploration or development programs. |
| (5) | Purchase or sell real estate, except that the Fund may purchase or sell interests in REITs and securities secured by real estate or interests therein issued by companies owning real estate or interest therein. |
| (6) | Purchase or sell commodities or commodity contracts. |
| (7) | Make loans other than through the purchase of debt securities in private placements and the loaning of portfolio securities. |
| (8) | Borrow money in an amount exceeding the maximum permitted under the 1940 Act. |
| (9) | Underwrite securities of other issuers, except insofar as it may be deemed to be an underwriter in selling a portfolio security which may require registration under the Securities Act of 1933, as amended (the "Securities Act"). |
| (10) | Invest more than 30% of the value of its total assets in securities which have been acquired through private placements. |
| (11) | Purchase or retain the securities of any issuer, if, to the Fund's knowledge, those officers and directors of the Fund or its investment advisers who individually own beneficially more than 1/2 of 1% of the outstanding securities of such issuer, together own beneficially more than 5% of such outstanding securities. |
| (12) | Pledge, mortgage or hypothecate its assets except in connection with permitted borrowing and to the extent related to transactions in which the Fund is authorized to engage. |
Portfolio Manager Information
Since the prior disclosure date, there have been no changes in the Fund's portfolio managers or background.
Fund Organizational Structure
Since the prior disclosure date, there have been no changes in the Fund's charter or by-laws that would delay or prevent a change of control of the Fund that have not been approved by stockholders.
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| Directors & Officers |
INDEPENDENT DIRECTORS*
Age and Address(1) |
Position(s) Held with Fund |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Director(2) |
Other Directorships Held by Director |
Birth Year: 1965 |
Class I Director | Term expires 2025. Director since 2023 | Chief Financial Officer, Vertex (2023-2024); Senior Partner, CPA at |
1 | None |
Birth Year: 1994 |
Class III Director | Term expires 2027; Director since 2024 | Senior Financial Analyst, |
1 | None |
| Steven K. Norgaard Birth Year: 1964 | Class III Director (Lead Independent Director) | Term expires 2027; Director since 2011. | Attorney (since 1990), |
3 | Frontier Funds (2 Funds) (since 2013); |
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41 |
| Directors & Officers |
INTERESTED DIRECTORS*
Age and Address(1) |
Position(s) Held with Fund |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Director(2) |
Other Directorships Held by Director |
Birth Year: 1961(3) |
Chairman and Class II Director; President of the Fund | Term expires 2026; Director since 2002; Chairman since 2003; President since 2018. | Chief Investment Officer (since |
1 | None |
Birth Year: 1977(3) |
Class I Director | Term expires 2025; Director since 2021. | Chief Compliance Officer (since 2016), SRH; Founder and Managing Director (since 2018), |
1 | None |
*Directors and Director Nominees who are not "interested persons" of the Fund (as that term is defined in the Investment Company Act of 1940, as amended (the "1940 Act")) are referred to as "Independent Directors." Directors and Director Nominees who are "interested persons" of the Fund under the 1940 Act are referred to as "Interested Directors."
| (1) | Unless otherwise specified, the Directors' and Director Nominees' respective addresses are |
| (2) | The term " |
| (3) |
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| Directors & Officers |
OFFICERS
Address(1) |
Officer Position(s) Held with Fund |
Term of Office and Length of Time Served(2) |
Principal Occupation(s) During Past 5 Years |
Birth Year: 1961 |
President | Since 2018 | See information provided previously under the section titled "Interested Directors." |
Birth Year: 1984 |
Vice President; Secretary | Since 2021 | |
Birth Year: 1986 |
Chief Compliance Officer | Since 2024 | |
Birth Year: 1975 |
Vice President; Treasurer | Since 2021 |
| (1) | Unless otherwise specified, the Officers' respective addresses are |
| (2) | Officers are elected annually and each officer will hold such office until a successor has been elected by the Board. |
Additional information about the Fund's directors is available in the proxy statement for the Fund's most recent annual shareholder meeting and/or the Fund's most recent statement of additional information. These documents can be obtained without charge on the Fund's website, www.srhtotalreturnfund.com, or upon request, by calling the Fund at (877) 561-7914.
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43 |
| Board Approvals of Investment Advisory and Sub-Advisory Agreements |
Summary of Board Meetings and Considerations
The Board of Directors (the "Board"), including the Directors who are not "interested persons" of the Fund within the meaning of the Investment Company Act of 1940, as amended (the "Independent Directors"), met on
In approving the continuation of the Agreements, the Board considered such information as the Board deemed reasonably necessary to evaluate the terms of the Agreements. In its deliberations, the Board did not identify any single factor as being determinative. Rather, the Board's approvals were based on each Director's business judgment after consideration of the information provided as a whole. Individual Directors may have weighed certain factors differently and assigned varying degrees of materiality to information considered by the Board.
Based upon its review of the Agreements and the information provided to it, the Board concluded that each Agreement was reasonable in light of the services performed, fees charged and such other matters as the Directors considered relevant in the exercise of their business judgment. The principal factors and conclusions that formed the basis for the Directors' determinations to approve the continuation of the Agreements are discussed below.
Approval of Advisory Agreement and Sub-Advisory Agreement
In approving the Advisory Agreement and the Sub-Advisory Agreement, the Directors, including the Independent Directors, considered the following factors:
Nature, Extent, and Quality of Services. In examining the nature, extent, and quality of the investment advisory services provided by Paralel, the Directors considered the qualifications, experience and capability of Paralel's management and other personnel. The Directors reviewed, among other matters, the extent to which Paralel fulfills its oversight of the Fund, as well as the due diligence completed regarding product structure, resources, personnel, technology, performance, compliance and oversight of the Sub-Adviser, and other service providers. The Directors highlighted the fact that Paralel has continued to grow while continuing its high level of service. The Board acknowledged that the firm's continued focus on its compliance program throughout its growth. The Directors also evaluated the qualifications and experience of Paralel's senior personnel, noting the firm had no turnover across personnel working with the Fund. The Directors noted that Paralel provides the Fund with its treasurer, secretary, and chief compliance officer as part of its advisory services to the Fund. The Board emphasized the valuable expertise and extensive experience of these and other Paralel employees, many of whom have long tenures serving the Fund.
With respect to the nature, extent, and quality of the services provided by SRH, the Directors considered the firm's level of care and conscientiousness in performing its duties, along with the intricate nature of executing SRH's investment process employed for the Fund. The Board evaluated
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| Board Approvals of Investment Advisory and Sub-Advisory Agreements |
the expertise and capabilities of the Sub-Adviser's management team and other personnel responsible for managing the Fund's portfolio and ensuring compliance with its investment policies and restrictions. The Directors acknowledged the experience of the firm's portfolio managers and the additional support engaged by SRH to ensure those individuals fulfilled their roles. The Directors agreed that SRH continued to successfully execute the Fund's investment thesis over the long term. Further, the Directors highlighted the strong collaboration between senior personnel at Paralel and the Sub-Adviser, underlining the synergies benefiting the Fund from this partnership. The Board agreed that Sub-Adviser's level of service indicated its continued commitment to the Fund.
Based on the totality of the information considered, the Directors concluded that the Fund has and will likely continue to benefit from the nature, extent and quality of Paralel's and SRH's services.
Investment Performance of the Fund. The Board reviewed the Fund's investment performance over time. In completing this review, the Board utilized a report from
Fees and Expenses. In evaluating the costs of the services provided, the Board reviewed statistical and other data provided in the FUSE report detailing the Fund's total expense ratio and its components, including advisory fees and investment-related expenses. The Board noted the fee arrangement in place for the Fund, whereby Paralel receives an annual fee, payable monthly, in an amount equal to 0.90% of the first
The Board further reviewed information on Paralel's profitability as investment adviser to the Fund, as well as the the combined profitability for Paralel (and its affiliates) from serving as the Fund's administrator and investment adviser to aid in evaluating the overall benefits Paralel derives from its relationship with the Fund. Specifically, the Board assessed Paralel's financial condition, noting that it had reported a modest profit from its work with the Fund. Based on its analysis of each piece of information discussed, the Board determined that the advisory fee was not unreasonable based on the profitability of the firm, a review of fees of similar peer funds, and the quality of the services to be provided by Paralel.
The Directors considered that the fees paid to SRH were paid out of the fees paid to Paralel and that no separate fee for sub-advisory services was charged to the Fund. The Directors considered Paralel's statement that it believed that compensation payable to the Sub-Adviser was reasonable,
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| Board Approvals of Investment Advisory and Sub-Advisory Agreements |
appropriate and fair in light of the nature and quality of the services provided to Paralel and to the Fund. The Board also noted a recent transaction in which an affiliate of SRH increased its non-controlling investment in Paralel's parent company. The Directors considered its determination that overall contractual fee rate under the arrangement was not unreasonable. To assist the Board in evaluating the overall benefits the Sub-Adviser received from its relationship to the Fund, the Board reviewed details regarding the overall profitability of the Sub-Adviser. The Directors also considered information about the combined profitability of SRH and Paralel in relation to all services provided to the Fund. After analyzing this information, the Board concluded that the level of profits earned by SRH from providing the sub-advisory services was not unreasonable with respect to the services rendered and the fact that the Adviser, not the Fund, is responsible for payment of the Sub-Adviser. Further, the Board agreed at the fee split was not unreasonable in consideration of the services provided by each firm and representations of Paralel on the same.
Profitability and Economies of Scale. The Directors reviewed the profitability information provided by Paralel and the Sub-Adviser and considered whether the firms would be expected to realize economies of scale related to their work with the Fund, and whether such economies would be appropriately shared with stockholders in light of the fee breakpoints under the Advisory Agreement. In consideration of the fact that there were already breakpoints implemented the advisory fee and the limited extent to which the Fund's assets were expected to increase, the Board agreed that the fee breakpoints under the Advisory Agreement and the Sub-Advisory Agreement continued to be appropriate.
Indirect Benefits. The Board considered any ancillary or indirect benefits that could accrue to Paralel or the Sub-Adviser as a result of their relationships with the Fund. The Directors considered information regarding the services provided by an affiliate of Paralel to the Fund on its role as the Fund's administrator. The Board also considered that SRH did not expect to receive any such ancillary benefits directly beyond reputational benefits related to its role with the Fund (noting the indirect benefit of a non-controlling investment by an affiliate of SRH in Paralel's parent company). The Board determined that the benefits received by Paralel and SRH due to their relationships with the Fund appeared to be reasonable.
After evaluation of the performance, fee and expense information and the profitability, ancillary benefits and other considerations as described above, and in light of the nature, extent and quality of services provided by Paralel and the Sub-Adviser, the Board concluded that the level of fees to be paid to each of Paralel and the Sub-Adviser was reasonable.
Other Considerations. In determining whether to approve the Advisory Agreement and Sub-Advisory Agreement for the Fund, and whether to recommend approval to Stockholders, the Board received information and made inquiries into all matters as it deemed appropriate. The Board reviewed and analyzed various factors it deemed relevant, including the following factors, among others, none of which by itself was considered dispositive: Paralel's and the Sub-Adviser's continued solid financial condition, Paralel's continued growth, and synergies received by the Fund from Paralel's and SRH's continued partnership.
Conclusion. Having requested and received such information from each of Paralel and SRH as the Board believed to be reasonably necessary to evaluate the terms of the Advisory Agreement and Sub-Advisory Agreement, and as assisted by the advice of independent counsel, the Board, including the Independent Directors, concluded that the structures were reasonable and that renewal of the Advisory Agreement and Sub-Advisory Agreement were in the best interests of the Fund and its stockholders.
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| Board Approvals of Investment Advisory and Sub-Advisory Agreements |
As a result of its review of the Advisory Agreement and Sub-Advisory Agreement, and its consideration of the foregoing factors, the Board, including all of the Independent Directors, unanimously approved the renewal of the Advisory Agreement and Sub-Advisory Agreement for the Fund.
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47 |
| DIRECTORS | Steven K. Norgaard |
|
INVESTMENT ADVISER |
|
|
SUB-INVESTMENT ADVISER |
|
| ADMINISTRATOR |
|
| CUSTODIAN | |
|
STOCK TRANSFER AGENT |
|
| INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
|
| LEGAL COUNSEL |
515 South Flower Street Twenty-Fifth Floor |
The views expressed in this report and the information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter.
Statistics and projections in this report are derived from sources deemed to be reliable but cannot be regarded as a representation of future results of the Fund. This report is prepared for the general information of stockholders and is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in this report.
c/o
P.O. Box 43078
| (b) | Not applicable. |
| Item 2. | Code of Ethics. |
| (a) | As of the end of the period covered by this report, |
| (b) | For purposes of this item, "code of ethics" means written standards that are reasonably designed to deter wrongdoing and to promote: |
| 1. | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| 2. | Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Commission and in other public communications made by the registrant; |
| 3. | Compliance with applicable governmental laws, rules, and regulations; |
| 4. | The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and |
| 5. | Accountability for adherence to the code. |
| (c) | During the period covered by this report, no material amendments were made to the provisions of the code of ethics adopted in 2(a) above. |
| (d) | During the period covered by this report, no implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a) above were granted. |
| (e) | Not applicable. |
| (f) | The Registrant's code of ethics referred to in Item 2(a) above is attached as an Ex99.19(a)(1) Code of Ethics, hereto. |
| Item 3. | Audit Committee Financial Expert. |
As of the end of the period covered by the report, the Registrant's Board of Directors has determined that Steven K. Norgaard is qualified to serve as an audit committee financial expert serving on its audit committee and that he is "independent," as defined in paragraph (a)(2) of Item 3.
| Item 4. | Principal Accountant Fees and Services. |
| (a) | Audit Fees: The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the Registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were |
| (b) | Audit-Related Fees: The aggregate fees billed for the fiscal years ended |
| (c) | Tax Fees: The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for the review of the Registrant's income tax returns, excise tax returns and dividend calculations were |
| (d) | All Other Fees: The aggregate fees billed for the last two fiscal years for products and services provided by the principal accountant, other than the services reported in (a) through (c) of this Item were |
| (e) | (1) The Registrant's audit committee pre-approves all audit and non-audit services to be performed by the Registrant's accountant before the accountant is engaged by the Registrant to perform such services. Under the audit committee's charter, pre-approval of permitted non-audit services by the Registrant's accountant is not required if: (i) the aggregate amount of all permitted non-audit services is not more than 5% of the total revenues paid by the Registrant to the accountant in the fiscal year in which the non-audit services are provided; (ii) such services were not recognized by the Registrant at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the audit committee and approved by the audit committee or a designated audit committee member prior to the completion of the audit of the Registrant's annual financial statements. |
(2) There were no services described in (b) through (d) above (including services required to be approved by the audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X) that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
| (f) | None of the hours expended on the principal accountant's engagement to audit the Registrant's financial statements for the fiscal year ended |
| (g) | The aggregate non-audit fees billed by the Registrant's accountant for services rendered to the Registrant, and rendered to the Registrant's investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant for each of the last two fiscal years of the Registrant were |
| (h) | The Registrant's Audit Committee has considered whether the provision of non-audit services by registrant's independent registered public accounting firm to the Registrant's investment advisor, and any entity controlling, controlled, or under common control with the investment advisor that provided ongoing services to the Registrant that were not pre-approved by the Committee was compatible with maintaining the independence of the independent registered public accounting firm. |
| (i) | Not applicable. |
| (j) | Not applicable. |
| Item 5. |
The Registrant has an audit committee which was established by the Board of Directors of the Fund in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The members of the Registrant's audit committee are Steven K. Norgaard,
| Item 6. | Investments. |
| (a) | The Registrant's full schedule of investments is included as part of the report to stockholders filed under Item 1 of this Form. |
| (b) | Not applicable. |
| Item 7. | Financial Statements and Financial Highlights for Open-End Management Investment Companies |
Not applicable to closed-end investment companies.
| Item 8. | Changes in and Disagreements with Accountants for Open-End Management Investment Companies. |
Not applicable to closed-end investment companies.
| Proxy Disclosures for Open-End Management Investment Companies. |
Not applicable to closed-end investment companies.
| Item 10. | Remuneration Paid to Directors, Officers, and Others of Open-End Management Investment Companies. |
Not applicable to closed-end investment companies.
| Item 11. | Statement Regarding Basis for Approval of Investment Advisory Contract. |
Included within the Annual Report to Stockholders filed under Item 1 of this Form N-CSR.
| Item 12. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
See attached Appendix A for a copy of the policies and procedures of the Registrant.
| Item 13. | Portfolio Managers of Closed-End Management Investment Companies. |
(a)(1) Portfolio Managers
Below are the Registrant's Portfolio Managers as of
(a)(2) As of
| Registered investment companies | Other pooled investment vehicles | Other accounts | |
| Total assets managed | - | ||
| Number of accounts | 2 | - | 382 |
| Registered investment companies | Other pooled investment vehicles | Other accounts | |
| Total assets managed | - | ||
| Number of accounts | 2 | - | 382 |
Included in the assets listed under "Other Accounts" are investments placed in the Fund of
(a)(3) Compensation of Portfolio Managers and Material Conflicts of Interest
Compensation and Conflicts of Interest
As a general matter, portfolio management staff are paid an annual base salary, have deferred compensation agreements which are tied to the net asset value of the Fund, and are offered participation in the firm's 401K, as well as other benefits that are offered to employees of SRH. In evaluating a portfolio manager's base salary and annual pay increases, the Fund's performance may be one of many factors considered by management. However, as a general matter, SRH does not tie portfolio manager base salary compensation to specific levels of performance relative to fixed benchmarks. Other factors that may also be significant in determining portfolio manager compensation include, without limitation, the effectiveness of the manager's leadership within SRH's investment team, contributions to the SRH's overall performance, discrete securities analysis, idea generation, and other considerations. Generally, a portfolio manager does not receive bonuses; however, in the case of
Conflicts of interest may arise in connection with the Portfolio Managers' management of the Fund's investments. This is because
(a)
(b) Not Applicable.
| Item 14. | Purchases of |
| Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
| 56,056 | 13.63 | 56,056 | N/A | |
| 30,709 | 14.03 | 30,709 | N/A | |
| 70,137 | 14.46 | 70,137 | N/A | |
| 57,642 | 14.78 | 57,642 | N/A | |
| 60,959 | 14.56 | 60,959 | N/A | |
| 51,623 | 14.53 | 51,623 | N/A | |
| 39,624 | 14.49 | 39,624 | N/A | |
| 54,806 | 15.07 | 54,806 | N/A | |
| 62,812 | 15.24 | 62,812 | N/A | |
| 65,741 | 15.67 | 65,741 | N/A | |
| 71,902 | 15.79 | 71,902 | N/A | |
| 4,963 | 15.39 | 4,963 | N/A |
On
Each of the purchases in the table above have been made pursuant to the share buyback program described above.
| Item 15. | Submission of Matters to a Vote of Security Holders. |
No material changes to the procedures by which the stockholders may recommend nominees to the Registrant's Board of Directors have been implemented after the Registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
| Item 16. | Controls and Procedures. |
| (a) | The Registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
| (b) | There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. |
| Item 17. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. |
None.
Item 18. Recovery of Erroneously Awarded Compensation.
(a) None.
(b) None.
Item 19. Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| By: | (Signature and Title) | /s/ |
||
| Date: | (Principal Executive Officer) | |||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | (Signature and Title) | /s/ |
||
| Date: | (Principal Executive Officer) | |||
| By: | (Signature and Title) | /s/ |
||
| Date: | (Principal Financial Officer) |
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