| SRH Total Return Fund, Inc. |
Table of Contents |
| Performance
Overview |
2 |
| Statement
of Investments |
7 |
| Statement
of Assets and Liabilities |
11 |
| Statement
of Operations |
12 |
| Statements
of Changes in Net Assets |
13 |
| Statement
of Cash Flows |
14 |
| Financial
Highlights |
16 |
| Notes
to Financial Statements |
19 |
| Report
of Independent Registered Public Accounting Firm |
29 |
| Additional
Information |
30 |
| Summary
of Dividend Reinvestment Plan |
33 |
| Summary
of Updated Information Regarding the Fund |
34 |
| Directors
& Officers |
42 |
| Board
Approvals of Investment Advisory and Sub-Advisory Agreements |
45 |
| Annual Report | November 30, 2022 |
1 |
| SRH
Total Return Fund, Inc. |
Performance
Overview |
November
30, 2022 (Unaudited)
Annual
Update:
The
SRH Total Return Fund, Inc. (the “Fund”) generated a return of 4.96% on net assets in the one- year period ended November
30, 2022 (the “period”). Within the same period, the S&P 500 Index returned -9.21%, the Dow Jones Industrial Average
(“DJIA”) returned 2.48%, and the Morningstar US Large Value Index returned 11.09%.
The
Fund has outperformed the S&P 500 Index and Morningstar US Large Value Index on an annualized net assets basis since affiliates of
Rocky Mountain Advisers, LLC (“RMA”) became investment advisers to the Fund in January of 2002. However, the Fund has underperformed
the DJIA on an annualized net assets basis during this same timeframe.
On
a market price basis, the Fund gained 6.01% for the period, outperforming the Fund’s return performance on a NAV basis of 4.96%.
At the beginning of the period the discount was -17.0% and at the end of the period the discount was -16.2%.
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** |
| STEW
(NAV) |
11.66% |
0.59% |
4.96% |
9.28% |
8.23% |
10.99% |
8.66% |
| STEW
(Market) |
10.52% |
0.86% |
6.01% |
9.14% |
8.13% |
12.01% |
7.57% |
| S&P
500 Index† |
3.63% |
-0.40% |
-9.21% |
10.91% |
10.98% |
13.34% |
8.47% |
| DJIA†† |
10.36% |
6.05% |
2.48% |
9.50% |
9.71% |
12.86% |
8.79% |
Morningstar
US Large Value
Index††† |
10.08% |
3.69% |
11.09% |
8.67% |
8.60% |
11.11% |
7.37% |
| ** | Annualized
since January 2002, when affiliates of RMA became investment advisers to the Fund. Does not
include the effect of dilution on non-participating stockholders from the December 2002 rights
offering. |
| † | The S&P
500 Index is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 9.9
trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 3.4 trillion of this
total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. |
| †† | 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 U.S. large-cap stocks with relatively low prices given anticipated per-share
earnings, book value, cash flow, sales and dividends. This Index does not incorporate
Environment, Social, or Governance (ESG) criteria. |
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 return and 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.
As
we reflect on the Period, equity markets had a volatile year. From our perspective, some sources of the volatility likely include the
war that began early in the year between Russia and Ukraine, the Federal Reserve raising the policy rate aggressively, and the growing
probability of a U.S. recession in the near future. The Federal Reserve broadcast its commitment to combating inflation throughout the
year, yet the market seemed surprised each time the Federal Reserve reaffirmed that commitment. On a relative basis, the Fund seemed
to benefit from the higher interest rate environment. In our opinion, the higher rates allowed for value investments to outperform growth. During the Period, the Fund was more heavily weighted
in value than in growth and thus performed well on a relative basis. Higher rates typically benefit the valuation of companies with high
current cash flow while being a detriment to companies with estimated high future cash flow. The reason being that the present value
of those future cash flows decreases as interest rates rise.
| www.srhtotalreturnfund.com |
2 |
| SRH
Total Return Fund, Inc. |
Performance
Overview |
November
30, 2022 (Unaudited)
Over
the next year, we believe sources of volatility look to be the same. The war is still ongoing, the probability of recession is still
high, and inflation continues to be well above the Federal Reserve target prompting action. We will attempt to continue managing the
Fund in the way it has been for over 20 years, with a long-term outlook and a buy and hold strategy.
The
Fund follows a managed distribution program that seeks to deliver the Fund’s long-term total return potential 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 by returning capital, or any combination thereof. During the period, the Fund made quarterly distributions to shareholders
in aggregate totaling $0.48 per share, estimated to be comprised of net investment income of $0.01 per share and net realized capital
gains of $0.47 per share. A majority of the distributions are comprised of long-term capital gains, because it is rare for the Fund to
hold a position less than one year. The managed distribution program did not have a material effect on the Fund’s investment strategy
over the Period.
In
our opinion, the Fund’s managed distribution program continues to fit the low turnover buy-and- hold
investment strategy both in its rate of growth and overall yield. RMA supports a distribution rate that is moderate, not excessive,
so that the per share NAV of the Fund can continue to increase over the long term. For the second consecutive year, the Fund’s
Board of Directors (“Board”) announced an increase in the quarterly distribution under
the managed distribution program to $0.125 per share beginning with the January 2023 distribution. However, the Board may end,
suspend or terminate the managed distribution program at any time if it deems such action to be in the best interest of the Fund or its
stockholders.
The
largest contributors to performance during the period were Berkshire Hathaway, Inc. (BRK/A and BRK/B) contributing 4.80% and Enterprise
Products Partners L.P. (EPD) contributing 1.09% to the total return on net assets. The largest detractors to performance during the period
were Intel Corporation (INTC) detracting -1.08%, and JPMorgan Chase & Co. (JPM) detracting -0.96% to the total return on net assets.
During
the period, positions were reduced in American Express (AXP) and Cisco Systems (CSCO). The full positions in B&G Foods Inc (BGS),
Heineken HLDG (HEIO NA), Store Capital (STOR), Reaves Utility Income Fund (UTG), Ventas Inc (VTR) and Wells Fargo & Co (WFC) were
sold. During the period, the Fund purchased additional shares of Broadstone Net Lease (BNL), eBay Inc (EBAY), Evercore Inc (EVR), Intel
Corp (INTC), Stag Industrial (STAG) and Cohen & Steers Infrastructure Fund (UTF). A new position was started in Microsoft Corp (MSFT).
The
Fund repurchased and retired 469,255 shares of its Common Stock during the period. The shares were repurchased at an average price of
$13.34. Since the Board of Directors reinstated the share repurchase program in August 2017, the Fund has repurchased and retired 8,763,699
shares at an average price of $10.25 per share.
The
following table shows the top ten holdings in the Fund as of November
30, 2022:
| Annual Report | November 30, 2022 |
3 |
| SRH
Total Return Fund, Inc. |
Performance
Overview |
November
30, 2022 (Unaudited)
| Holding |
Symbol(s) |
Percentage
of Total
Managed
Assets |
| Berkshire
Hathaway, Inc. |
BRK/A
and BRK/B |
36.6% |
| JPMorgan
Chase & Co. |
JPM |
8.0% |
| Yum!
Brands, Inc. |
YUM |
6.2% |
| Cash
and Short-Term Investments |
SALXX,
SAMXX, and Treasuries |
6.0% |
| Enterprise
Products Partners LP |
EPD |
5.1% |
| Pfizer,
Inc. |
PFE |
3.9% |
| Cohen
& Steers Infrastructure Fund, Inc. |
UTF |
3.9% |
| NRG
Energy, Inc. |
NRG |
3.7% |
| Cisco
Systems, Inc. |
CSCO |
3.5% |
| Walmart,
Inc. |
WMT |
2.9% |
As
always, we appreciate your continued support of the Fund.
Sincerely,
 |
 |
| |
|
Joel
Looney
Portfolio Manager |
Jacob
Hemmer
Associate
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 Berkshire Hathaway, Inc., which, in addition to other business
risks, is largely dependent on Warren Buffett for major investment and capital allocation decisions. When Mr. Buffett is no longer able
to fulfill his responsibilities with Berkshire Hathaway, Inc., the value of the Fund’s position in Berkshire Hathaway, Inc. could
be materially impacted.
| www.srhtotalreturnfund.com |
4 |
| SRH
Total Return Fund, Inc. |
Performance
Overview |
November
30, 2022 (Unaudited)
Growth
of $10,000 (as of November 30, 2022)
Comparison
of change in value of a hypothetical $10,000 investment in the Fund and the Underlying Indexes
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 shareholders
would pay on Fund distributions or the sale of Fund shares. An investment in the Fund involves risk, including loss of principal.
| Annual Report | November 30, 2022 |
5 |
| SRH
Total Return Fund, Inc. |
Performance
Overview |
November
30, 2022 (Unaudited)
The
table below is a summary of the distributions paid for the year
ended November 30, 2022.
| |
|
Per Share of Common Stock |
| | |
Net Asset Value | |
Market Price | |
Distribution Paid* |
| 1/31/2022 | |
$ | 16.60 | | |
$ | 14.08 | | |
$ | 0.12 | |
| 4/29/2022 | |
| 15.90 | | |
| 13.42 | | |
| 0.12 | |
| 7/29/2022 | |
| 15.13 | | |
| 12.73 | | |
| 0.12 | |
| 10/31/2022 | |
| 14.83 | | |
| 12.34 | | |
| 0.12 | |
| * | Please refer to page 32 for classifications of distributions. |
INVESTMENTS
AS A % OF NET ASSETS
APPLICABLE TO COMMON STOCKHOLDERS
Holdings
are subject to change
| www.srhtotalreturnfund.com |
6 |
| SRH
Total Return Fund, Inc. |
Notes to Financial Statements |
November
30, 2022
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 return capital, in addition
to current net investment income. Any distribution that is treated as a return of 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:
Like many other companies, 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
November 30, 2022, the Fund did not have a liability for any unrecognized
tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expenses,
in the Statement of Operations. The Fund files U.S. federal, state, and local tax returns as required. The Fund’s tax returns are
subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally
three years after the filing of the tax return for federal purposes and four years for most state
returns. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.
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 and efficiently than if it were to make direct purchases or sales of securities
capable of affecting a similar response to market factors.
| www.srhtotalreturnfund.com |
22 |
| SRH
Total Return Fund, Inc. |
Notes to Financial Statements |
November
30, 2022
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
Commodity Futures Trading Commission, foreign exchanges. A call option on an asset written by the Fund obligates the Fund to sell the
specified asset to the holder (purchaser) at a stated price (the exercise price) if the option is exercised before a specified date (the
expiration date). A put option on an asset written by the Fund obligates the Fund to buy the specified asset from the purchaser at the
exercise price if the option is exercised before the expiration date. Premiums received when writing options are recorded as liabilities
and are subsequently adjusted to the current value of the options written. Premiums received from writing options that expire are treated
as realized gains. Premiums received from writing options, which are either exercised or closed, are offset against the proceeds received
or amount paid on the transaction to determine realized gains or losses.
| Annual Report | November 30, 2022 |
23 |
| SRH
Total Return Fund, Inc. |
Notes to Financial Statements |
November
30, 2022
For
the year ended November
30, 2022, the effects of derivative instruments on the Statement of Assets and Liabilities were as follows:
Risk
Exposure | |
Asset Derivatives Statement of Assets and Liabilities Location | |
Fair
Value | |
Liability Derivatives Statement of Assets and Liabilities Location | |
Fair
Value | |
| Equity Contracts (Written Options) | |
N/A | |
N/A | |
Written options, at value | |
$ | 126,000 | |
| Total | |
| |
N/A | |
| |
$ | 126,000 | |
For
the year ended November
30, 2022, the effects of derivative instruments on the Statement of Operations were as follows:
Risk
Exposure | |
Statement
of Operations Location | |
Realized
Gain/ (Loss) on Derivatives | | |
Change in Unrealized Appreciation/ (Depreciation) on Derivatives | |
| Equity Contracts (Written Options) | |
Net realized gain on written options/ Net change in unrealized appreciation on written options | |
$ | 1,218,500 | | |
$ | 1,098,888 | |
| Total | |
| |
$ | 1,218,500 | | |
$ | 1,098,888 | |
The
average monthly notional value of written option contracts for the Fund was $17,030,033 during the year
ended November 30, 2022.
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 $2 billion of the Fund’s average Managed Assets, plus 0.80% of the Fund’s average
Managed Assets over $2 billion. "Managed Assets" means the total assets of the Fund, including assets attributable to
leverage, minus liabilities (other than debt representing leverage and any preferred stock that may be outstanding).
Rocky
Mountain Advisers, LLC (“RMA”) provides sub-advisory services to the Fund pursuant to a sub-advisory agreement between RMA
and Paralel. Paralel, not the Fund, pays RMA an annual sub- advisory fee, calculated and paid monthly based on average Managed Assets
of the Fund.
Paralel
Technologies LLC (“PRT”), an affiliate of Paralel, serves as the Fund’s administrator and provides all administrative
and fund accounting services to the Fund. As compensation for its services, PRT receives certain out-of-pocket expenses and asset-based
fees based on the Fund’s average Managed Assets, which are accrued daily and paid monthly.
Paralel
is a wholly owned subsidiary of PRT. RMA may be deemed an affiliate of PRT and Paralel under the 1940 Act due to an indirect, non-controlling
investment in PRT by SCLT Holdings, LLC, a fully owned subsidiary of the Susan L. Ciciora Trust, which is also the sole member of RMA.
The Susan L. Ciciora Trust may be deemed an affiliate of the Fund.
| www.srhtotalreturnfund.com |
24 |
| SRH
Total Return Fund, Inc. |
Notes to Financial Statements |
November
30, 2022
No
persons (other than the Independent Directors) receive compensation from the Fund for acting as a
director or officer; however, certain Directors and officers of the Fund are officers or employees of Paralel,
RMA or PRT and may receive compensation in such capacities. The Fund pays each member of the Board who is not a director, officer, employee,
or affiliate of Paralel, RMA or PRT or any of their affiliates (each an “Independent Director”) a fee of $40,000 per annum,
plus $5,000 for each regular quarterly meeting, $3,000 for each audit committee meeting, $1,000 for each nominating committee meeting
and $1,000 for each telephonic meeting of the Board. The Lead Independent Director of the Board receives an additional $3,125 for attending
each regular quarterly meeting of the Board. The chairman of the Audit Committee receives an additional $3,000 for attending each regular
meeting of the audit committee. The Fund will reimburse all Directors for travel and out-of- pocket expenses incurred in connection with
such meetings.
State
Street Bank & Trust Company (“State Street”) serves as the Fund’s custodian. Computershare Shareowner Services
(“Computershare”) serves as the Fund’s common stock servicing agent, dividend-paying agent and registrar. As compensation
for State Street’s and Computershare’s services, the Fund pays each a monthly fee plus certain out-of-pocket expenses.
NOTE
5. SECURITIES TRANSACTIONS
Purchases
and sales of securities, excluding short term securities, during the year
ended November 30, 2022 were $157,366,438 and
$171,678,118 respectively.
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, U.S. Government securities, notes, bills, debentures, preferred stocks, convertible securities, bank debt obligations,
repurchase agreements and short-term money market obligations.
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 November 30, 2022, the
Fund held more than 25% of its assets in Berkshire Hathaway, Inc. In addition to market appreciation
of the issuer since the time of purchase, the Fund acquired additional interest in Berkshire Hathaway, Inc. in the March 20, 2015
reorganization. After the reorganization was completed, shares held of the issuer were liquidated to bring the concentration to 25%.
Concentration of the Berkshire Hathaway, Inc. position was a direct result of market appreciation and decreased leverage since the time
the Fund and the funds acquired in the reorganization purchased the security.
Foreign
Issuer Risk: Investment in non-U.S. issuers may involve unique risks compared to investing in securities of U.S. issuers. These risks
may include, but are not limited to: (i) less information about non-U.S. issuers or markets may be available due to less rigorous disclosure,
accounting standards or regulatory practices; (ii) many non-U.S. markets are smaller, less liquid and more volatile thus, in a changing
market, the Fund’s adviser may not be able to sell the Fund’s portfolio securities at times,
in amounts and at prices they consider reasonable; (iii) currency exchange rates or controls may adversely affect the value of the Fund’s
investments; (iv) the economies of non-U.S. countries may grow at slower rates than expected or may experience downturns or recessions;
and, (v) withholdings and other non-U.S. taxes may decrease the Fund’s return.
| Annual Report | November 30, 2022 |
25 |
| SRH
Total Return Fund, Inc. |
Notes to Financial Statements |
November
30, 2022
NOTE
7. SIGNIFICANT STOCKHOLDERS
On
November 30, 2022, trusts
and other entities and individuals affiliated with Stewart R. Horejsi and the Horejsi family owned 45,384,254 shares of Common Stock
of the Fund, representing approximately 46.63% of the total Common Stock outstanding. Effective April 1, 2022, Stewart R. Horejsi retired
from his role as the Chief Investment Officer of RMA and as a portfolio manager of the Fund.
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 November
30, 2022, the Fund repurchased 469,255 shares of Common Stock at a total purchase amount of $6,259,136 at
an average discount of 17.13% of net asset value. For the year ended November 30, 2021, the Fund
repurchased 468,607 shares of Common Stock at a total purchase amount of $5,285,690 at an average discount of 17.70% of net asset value.
NOTE
9. TAX BASIS DISTRIBUTIONS AND TAX BASIS INFORMATION
As
determined on November 30, 2022,
permanent differences resulting primarily from different book and
tax accounting for partnership investments, and certain other investments were reclassified at fiscal year-end. These reclassifications
had no effect on net increase in net assets resulting from operations, net assets applicable to common stockholders or net asset value
per common share outstanding. Permanent book and tax basis differences of $(1,594,924) and $1,594,924 were reclassified
at November 30, 2022 among
paid-in capital and total distributable earnings, respectively, for
the Fund.
The
character of distributions paid on a tax basis during the year ended November
30, 2022 was as follows:
| Distributions Paid From: | |
| |
| Ordinary Income | |
$ | 1,927,320 | |
| Long-Term Capital Gain | |
| 44,826,792 | |
| | |
$ | 46,754,112 | |
The
character of distributions paid on a tax basis during the year ended November
30, 2021 was as follows:
| Distributions Paid From: | |
| |
| Ordinary Income | |
$ | 1,015,490 | |
| Long-Term Capital Gain | |
| 38,918,527 | |
| | |
$ | 39,934,017 | |
| www.srhtotalreturnfund.com |
26 |
| SRH
Total Return Fund, Inc. |
Notes to Financial Statements |
November
30, 2022
The
amount of net unrealized appreciation/(depreciation) and the cost of investment securities for tax purposes at November
30, 2022 were as follows:
| Cost of investments for income tax purposes | |
$ | 754,148,046 | |
| Gross appreciation on investments (excess of value over tax cost) | |
| 1,047,171,680 | |
| Gross depreciation on investments (excess of tax cost over value) | |
| (31,082,093 | ) |
| Net unrealized appreciation on investments | |
$ | 1,016,089,587 | |
As
of November 30, 2022, the
components of distributable earnings on a tax basis were as follows:
| Accumulated Capital Gains | |
$ | 1,551,597 | |
| Unrealized Appreciation | |
| 1,016,089,587 | |
| Total | |
$ | 1,017,641,184 | |
The
difference between book and tax basis distributable earnings is attributable primarily to temporary differences related to wash sales
and partnership book and tax differences.
NOTE
10. SENIOR NOTES
On
November 5, 2020, the Fund issued senior unsecured notes (“Notes”) in an aggregate amount of $225,000,000 in three fixed-rate
series. The Notes were issued in private placement offerings to institutional investors and are not listed on any exchange or automated
quotation system. The note purchase agreement (the “Agreement”) contains various covenants related to other indebtedness
and limits on the Fund’s overall leverage. Under the 1940 Act and the terms of the Notes, the Fund may not declare dividends or
make other distributions on shares of its common stock or make purchases of such shares if, at any time of the declaration, distribution
or purchase, asset coverage with respect to senior securities representing indebtedness (including the Notes) would be less than 300%.
The
table below sets forth a summary of the key terms of each series of Notes outstanding at November 30, 2022.
Series | |
Principal Outstanding
November
30, 2022 | | |
Payment
Frequency | |
Unamortized
Offering Costs | | |
Estimated Fair
Value November 30,
2022 | | |
Fixed Interest Rate | | |
Maturity
Date |
| A | |
$ | 85,000,000 | | |
Semi-Annual | |
$ | 666,623 | | |
$ | 65,706,271 | | |
| 2.62 | % | |
November 5, 2030 |
| B | |
$ | 85,000,000 | | |
Semi-Annual | |
$ | 695,719 | | |
$ | 63,621,631 | | |
| 2.72 | % | |
November 5, 2032 |
| C | |
$ | 55,000,000 | | |
Semi-Annual | |
$ | 468,956 | | |
$ | 39,545,453 | | |
| 2.87 | % | |
November 5, 2035 |
The
Fund incurred costs in connection with the issuance of the Notes. These costs, totaling $2,226,190,
were recorded as a deferred charge and are being amortized over the respective life of each series of notes. Amortization of $190,348
is included as Offering Costs on the Statement of Operations and the carrying amount on the Statement of Assets and Liabilities is
equal to the principal amount of the Notes less unamortized offering costs. The estimated fair value of the Notes was calculated,
for disclosure purposes, based on estimated market yields for comparable debt instruments with similar maturity and terms. The Fund
categorizes the Notes as Level 2 securities within the fair value hierarchy.
| Annual Report | November 30, 2022 |
27 |
| SRH
Total Return Fund, Inc. |
Notes to Financial Statements |
November
30, 2022
The
Fund shall at all times maintain a current rating given by a NRSRO (Nationally Recognized Statistical Rating Organization) of at least
Investment Grade with respect to the Notes and shall 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
November 30, 2022, the
Fund was in compliance with all covenants under the Agreement.
| www.srhtotalreturnfund.com |
28 |
| SRH
Total Return Fund, Inc. |
Report of Independent Registered
Public Accounting Firm |
To
the Shareholders and Board of Directors of
SRH
Total Return Fund, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying statement of assets and liabilities, including the statement of investments, of SRH Total Return Fund,
Inc. (formerly known as Boulder Growth & Income Fund, Inc.) (the “Fund”) as of November 30, 2022, the related statements
of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period
then ended, the related notes, and the financial highlights for each of the five years in the period then ended (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Fund as of November 30, 2022, the results of its operations and its cash flows for the year then ended, the
changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally accepted in the United States of America.
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 Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
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 November 30,
2022, by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
We
have served as the Fund’s auditor since 2018.
COHEN
& COMPANY, LTD.
Cleveland,
Ohio
January 25, 2023
| Annual Report | November 30, 2022 |
29 |
| SRH
Total Return Fund, Inc. |
Additional Information |
November
30, 2022 (Unaudited)
PORTFOLIO
INFORMATION
The
Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit
to its report on Form N-PORT. The Fund’s N-PORT reports are available (i) on the Fund’s website at www.srhtotalreturnfund.com;
or (ii) on the SEC’s website at www.sec.gov.
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 SEC’s website at www.sec.gov,
or (iii) by calling toll-free (877) 561-7914. Information regarding how the Fund voted proxies relating
to portfolio securities during the most recent twelve-month period ended June 30 is available at www.sec.gov.
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 SEC as an exhibit to its annual report
on Form N-CSR. The Fund’s Senior Officer Code of Ethics is available on the Fund’s website located at www.srhtotalreturnfund.com.
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 U.S. mail regarding the availability of such services. The Fund may also contact stockholders by email, telephone
or U.S. mail in connection with these services, such as to confirm enrollment in electronic stockholder communications or to update your
Personal Information. In no event will the Fund transmit your Personal Information via email without your consent.
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 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.
| www.srhtotalreturnfund.com |
30 |
| SRH
Total Return Fund, Inc. |
Additional Information |
November
30, 2022 (Unaudited)
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 December 31, 2021:
| Qualified Dividend Income: |
100.00% |
| Dividend Received Deduction: |
100.00% |
In
early 2022, if applicable, stockholders of record received this information for the distributions paid to them by the Funds during the
calendar year 2021 via Form 1099. The Funds will notify shareholders in early 2023 of amounts paid to them by the Funds, if any, during
the calendar year ended 2021.
Pursuant
to Section 852(b)(3) of the Internal Revenue Code, the Fund designated $44,826,792 as long-term capital gain dividends for the fiscal
year ended November 30, 2022.
STOCKHOLDER
MEETING RESULTS
On
November 17, 2022, the Fund held its Annual Meeting of Stockholders to consider the proposals set forth below. The following votes were
recorded:
Proposal
1: To elect two Class I Directors to the Board of Directors to serve until the 2025 Annual Meeting of Stockholders.
Election
of Dr. Dean Jacobson
| |
#
of Votes Cast |
%
of Votes Cast |
| For |
77,977,731 |
91.54% |
| Against/Withhold |
7,208,961 |
8.46% |
| TOTAL |
85,186,692 |
100.00% |
Election
of Mrs. Nicole Murphey
| |
#
of Votes Cast |
%
of Votes Cast |
| For |
79,990,386 |
93.90% |
| Against/Withhold |
5,196,306 |
6.10% |
| TOTAL |
85,186,692 |
100.00% |
| Annual Report | November 30, 2022 |
31 |
| SRH
Total Return Fund, Inc. |
Additional Information |
November
30, 2022 (Unaudited)
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 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) return of 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.
| Total Cumulative Distributions for the year ended November 30, 2022 | |
% Breakdown of the Total Cumulative Distributions for the year ended November 30, 2022 | |
| Net Investment | |
Net Realized Capital Gains | | |
Return of Capital | | |
Total Per Common Share | | |
Net Investment Income | | |
Net Realized Capital Gains | | |
Return of Capital | | |
Total Per Common Share | |
| $0.10216 | |
$ | 0.25999 | | |
$ | 0.11785 | | |
$ | 0.48000 | | |
| 21.28 | % | |
| 54.17 | % | |
| 24.55 | % | |
| 100.00 | % |
DISCLAIMER
The
Fund is not sponsored, endorsed, sold or promoted by Morningstar, Inc. or any of its affiliates (all such
entities, collectively, “Morningstar Entities”). The Morningstar Entities make no representation or warranty, express or
implied, to the owners of the Fund or any member of the public regarding the advisability of investing in mutual funds generally or in
the Fund in particular or the ability of the Morningstar Index Data to track general mutual fund market performance. THE MORNINGSTAR
ENTITIES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE MORNINGSTAR INDEX DATA OR ANY DATA INCLUDED THEREIN AND MORNINGSTAR
ENTITIES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN.
| www.srhtotalreturnfund.com |
32 |
| SRH
Total Return Fund, Inc. |
Summary of Dividend
Reinvestment Plan |
November
30, 2022 (Unaudited)
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 U.S. dollars mailed directly to the stockholders
of record (or if the shares are held in street name or other nominee name, then the nominee) by the custodian, as dividend disbursing
agent.
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, Providence RI
02940-3078. To receive a full copy of the Fund’s Dividend Reinvestment Plan, please contact the Agent at 1-866-228-4853.
| Annual Report | November 30, 2022 |
33 |
| SRH
Total Return Fund, Inc. |
Summary of Updated Information
Regarding the Fund |
November
30, 2022 (Unaudited)
The
following information in this annual report is a summary of certain information about the Fund and changes since the last annual report
dated November 30, 2021 (the “prior disclosure date”). This information may not reflect all of the changes that have occurred
since you purchased shares of the Fund.
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 U.S. government securities and RICs)
or of any two or more issuers controlled by the Fund which may be deemed to be engaged in the same, similar or related trades or
businesses; and (B) with respect to 50% of the total value of the Fund's portfolio, (i) the Fund must limit to 5% the portion of its
assets invested in the securities of a single issuer (other than U.S. government securities and RICs), and (ii) the Fund may not own
more than 10% of the outstanding voting securities of any one issuer (other than U.S. government securities and RICs). The Fund
intends to concentrate its common stock investments in a few issuers and to take large positions in those issuers, consistent with
being a "non-diversified" fund. As a result, the Fund may be subject to a greater risk of loss than a diversified fund or
a fund that has diversified its investments more broadly. Taking larger positions is also likely to increase the volatility of the
Fund's NAV, reflecting fluctuation in the value of large Fund holdings.
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 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 SEC or its staff, may cause
senior securities concerns.
| www.srhtotalreturnfund.com |
34 |
| SRH
Total Return Fund, Inc. |
Summary of Updated Information
Regarding the Fund |
November
30, 2022 (Unaudited)
The
Adviser is responsible for making recommendations to the Board regarding the Fund's use of Borrowings. On November 5, 2020 the Fund issued
senior unsecured notes (“Notes”) in an aggregate amount of $225,000,000 in three fixed-rate series. The 10-, 12-, and 15-year
series will pay interest semi-annually at the rate of 2.62%, 2.72%, and 2.87%, respectively. The Fund must experience a 2.72% rate of
return in order to cover annual interest payments on the Notes. The Notes were issued in private placement offerings to institutional
investors and are not listed on any exchange or automated quotation system. There can be no assurance that the use of leverage will be
successful in enhancing the level of the Fund's total return.
Effects
of Leverage
The
following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Fund share
total return, assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Fund's
portfolio) of minus 10% to plus 10%. These assumed investment portfolio total returns are hypothetical figures and are not necessarily
indicative of the investment portfolio total returns experienced or expected to be experienced by the Fund. Further, the assumed investment
portfolio total returns are after (net of) all of the Fund's expenses other than expenses associated with leverage); but such leverage
expenses are deducted when determining the Fund share total return. See "Risk Factors." The table further reflects the use
of leverage representing 12.60% of the Fund's total assets and estimated leverage costs of 2.72%.
| Assumed
Portfolio Return |
-10.00% |
-5.00% |
0.00% |
5.00% |
10.00% |
| Fund
Share Total Return |
-11.78% |
-6.09% |
-0.40% |
5.29% |
10.98% |
Corresponding
Fund Share total return is 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 SEC rules, the table above assumes that the Fund is more likely to suffer capital losses than to enjoy
capital appreciation. For example, to assume a total return of 0% would assume that the distributions the Fund receives on its investments
are entirely offset by losses in the value of those securities.
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 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 return will likely be longer than for a fund that invests solely for income.
| Annual Report | November 30, 2022 |
35 |
| SRH
Total Return Fund, Inc. |
Summary of Updated Information
Regarding the Fund |
November
30, 2022 (Unaudited)
Fixed
Income Securities. The Fund may invest in fixed income securities from time to time. Fixed income securities are affected by changes
in interest rates and credit quality. A rise in interest rates typically causes bond prices to fall. The longer the average maturity
of the bonds held by a Fund, the more sensitive the Fund is likely to be to interest-rate changes. There is the possibility that the
issuer of the security will not repay all or a portion of the principal borrowed and will not make all interest payments.
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 U.S.
federal income tax laws.
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 Mid- and Small-cap Securities. The Fund may invest in small- and mid-cap companies from time to time. Generally, small-cap stocks
are those securities issued by companies with a total market capitalization of between $250 million to $2 billion, and mid-cap stocks
are those securities issued by companies with a total market capitalization of between $2 billion
to $10 billion. Small- and mid-cap stocks in which the Fund may invest may present greater opportunities for capital growth than
larger companies, but also may be more volatile and subject to greater risk. The small- and mid-cap stocks in which the Fund may invest
may present greater opportunities for capital growth than larger companies, but also may be more volatile and subject to greater risk.
This is because smaller companies generally may have limited financial resources, product lines and markets, and their securities may
trade less frequently and in more limited volumes than the securities of larger companies, which could lead to higher transaction costs
and reduced returns to holders of these securities, including potentially the Fund. In addition, there may be less publicly available
information about smaller companies which can also lead to higher risk in terms of arriving at an accurate valuation for these smaller
companies.
| www.srhtotalreturnfund.com |
36 |
| SRH
Total Return Fund, Inc. |
Summary of Updated Information
Regarding the Fund |
November
30, 2022 (Unaudited)
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 Fund’s
NAV; and (ii) the Fund’s cost of leverage may exceed the return on the underlying securities acquired with the proceeds of the
leverage, thereby diminishing rather than enhancing the return to stockholders and generally making the Fund’s total return to
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 the 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-U.S. issuers may involve
unique risks compared to investing in securities of U.S. issuers. These risks are more pronounced to the extent that the Fund invests
a significant portion of its non-U.S. investments in one region or in the securities of emerging market issuers.
Currency
Risk. The Fund holds investments in foreign securities and thus a portion of the Fund’s assets may be quoted or
denominated in non-U.S. currencies. These securities may be adversely affected by fluctuations in relative currency exchange rates
and by exchange control regulations. The Fund’s investment performance may be negatively affected by a devaluation of a
currency in which the Fund’s investments are quoted or denominated. Further, the Fund’s investment performance may be
significantly affected, either positively or negatively, by currency exchange rates because the U.S. dollar value of
securities quoted or denominated in another currency will increase or decrease in response to changes in the value of such currency
in relation to the U.S. dollar.
Sovereign
Debt Risk. An investment in debt obligations of non-U.S. governments and their political subdivisions (“sovereign debt”)
involves special risks that are not present in corporate debt obligations. The non-U.S. issuer of the sovereign debt or the non-U.S.
governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due, and
the Fund may have limited recourse in the event of a default. During periods of economic uncertainty, the market prices of sovereign
debt may be more volatile than prices of debt obligations of U.S. issuers.
| Annual Report | November 30, 2022 |
37 |
| SRH
Total Return Fund, Inc. |
Summary of Updated Information
Regarding the Fund |
November
30, 2022 (Unaudited)
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
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, the Horejsi Affiliates (as defined below)
will continue to own a substantial portion of the Fund’s common shares and thus may discourage a third party from seeking to obtain
control of the Fund. Such structures and share ownership may have the overall effect of making any hostile attempt to take control of
the Fund through a proxy contest more difficult.
| www.srhtotalreturnfund.com |
38 |
| SRH
Total Return Fund, Inc. |
Summary of Updated Information
Regarding the Fund |
November
30, 2022 (Unaudited)
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 downgrades, among others, may result in market volatility and may have long term effects on both the U.S. and global financial markets.
The occurrence of such events may be sudden and unexpected, and it is difficult to predict when similar events affecting the U.S. or
global financial markets may occur, the effects that such events may have and the duration of those effects. Any such event(s) could
have a significant adverse impact on the value, liquidity and risk profile of the Fund’s portfolio, as well as its ability to sell
securities to meet redemptions. There is a risk that you may lose money by investing in the Fund.
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 U.S. and across the globe leading to extreme market volatility and disruption. The extent and
nature of the impact on supply chains or economies and markets from these events is unknown, particularly if a health emergency or other
similar event, such as the COVID-19 (the “Coronavirus”) outbreak, persists for an extended period of time. Social, political,
economic and other conditions and events, such as natural disasters, health emergencies (e.g., epidemics and pandemics), terrorism, conflicts
and social unrest, could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and
generally have a significant impact on the economies and financial markets and the adviser’s and sub-adviser’s investment
advisory activities and services of other service providers, which in turn could adversely affect the Fund’s investments and other
operations. The value of the Fund’s investment may decrease as a result of such events, particularly if these events adversely
impact the operations and effectiveness of the adviser, sub-adviser or other key service providers or if these events disrupt systems
and processes necessary or beneficial to the investment advisory activities utilized to the benefit of the Fund.
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.
| Annual Report | November 30, 2022 |
39 |
| SRH
Total Return Fund, Inc. |
Summary of Updated Information
Regarding the Fund |
November
30, 2022 (Unaudited)
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 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:
| www.srhtotalreturnfund.com |
40 |
| SRH
Total Return Fund, Inc. |
Summary of Updated Information
Regarding the Fund |
November
30, 2022 (Unaudited)
| (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 Securities and Exchange Commission (the “SEC”), combine orders with others for the purchases
and sales of securities in order to achieve the best overall execution. |
| (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 except that, on April 1, 2022,
Stewart Horejsi retired from his role as a primary portfolio manager of the Fund. Messrs. Joel Looney and Jacob Hemmer continued in their
respective portfolio manager roles, collectively responsible for the day-to-day management of the Fund’s assets.
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.
| Annual Report | November 30, 2022 |
41 |
| SRH
Total Return Fund, Inc. |
Directors & Officers |
November
30, 2022 (Unaudited)
OFFICERS
Name,
Age and
Address(1) |
Officer
Position(s)
Held with
Fund |
Term
of Office
and Length of
Time Served(2) |
Principal
Occupation(s) During Past 5 Years |
Joel
Looney Birth Year: 1961
|
President |
Since
2018 |
See
information provided previously under the section titled “Interested Directors.” |
| Christopher
Moore Birth Year: 1984 |
Vice President;
Chief Compliance
Officer and Secretary |
Secretary
Since
2021
|
Mr.
Moore is General Counsel of Paralel Technologies LLC and Paralel Advisors LLC since 2021. Mr. Moore served as Deputy General Counsel
and Legal Operations Manager of RiverNorth Capital Management, LLC from 2020-2021; VP and Senior Counsel of ALPS Fund Services, Inc.
from 2016- 2020. |
| Jill
Kerschen Birth Year: 1975 |
Vice
President; Treasurer |
Since
2021 |
Ms.
Kerschen joined Paralel in 2021 and is currently Director of Fund Administration. Prior to joining Paralel she was Vice President at
ALPS Advisors, Inc. from 2019 to 2021 and from 2013 to 2019 she served as Vice President and Fund Controller at ALPS Fund Services, Inc. |
| (1) |
Unless
otherwise specified, the Officers’ respective addresses are 1700 Broadway, Suite 1850 Denver, CO 80290. |
| (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.
| www.srhtotalreturnfund.com |
44 |
| SRH
Total Return Fund, Inc. |
Board Approvals of
Investment Advisory and
Sub-Advisory Agreements |
November
30, 2022 (Unaudited)
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 November 3, 2022 to evaluate,
among other things, to determine whether renewal of the investment advisory agreement with Paralel Advisors LLC (“Paralel”)
(the “Advisory Agreement”) and an investment sub-advisory agreement between and Rocky Mountain Advisers, LLC ("RMA"
or the “Sub-Advisor”) and Paralel (the “Sub-Advisory Agreement” and collectively, the “Agreements”))
was in the best interests of the Fund's stockholders. In addition to the meeting on November 3, 2022, the Board met on October 24, 2022
to review various materials associated with the renewal of the Advisory Agreement and the Sub-Advisory Agreement. At the Board meetings
and throughout the process of considering the new agreements, the Board, including a majority of the Independent Directors, was advised
by its independent legal counsel.
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 New Advisory Agreement and New 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 process by which Paralel provides oversight of the Fund, and due diligence
completed regarding product structure, resources, personnel, technology, performance, compliance and oversight of the Sub-Adviser. The
Directors noted the fact that, since the initial approval, Paralel had grown and supported its operations generally in-line with the
expectations originally set forth, noting that the service provided by the firm had met or exceed expectations. Furthermore, the Directors
considered the qualifications and experience of Paralel’s senior personnel, noting that the firm had continued to engage and employ
qualified individuals as it had grown. The Directors acknowledged the deep experience of Paralel’s senior management team with
both the Fund and the investment industry generally.
| Annual Report | November 30, 2022 |
45 |
| SRH
Total Return Fund, Inc. |
Board Approvals of Investment Advisory and
Sub-Advisory Agreements |
November
30, 2022 (Unaudited)
With
respect to the nature, extent and quality of the services provided by the Sub-Adviser, the Directors
considered the extent of care and conscientiousness with which the Sub-Adviser performed its duties, as well as the investment
management process it used in managing the assets of the Fund, including the experience and capability of the Sub-Adviser’s management
and other personnel responsible for the portfolio management of the Fund and compliance with the Fund’s investment policies
and restrictions. The Directors considered the fact that Stewart R. Horejsi, the Fund’s former long-term portfolio manager, had
retired during the year, but noted that Joel W. Looney and Jacob Hemmer continued in their roles as RMA’s portfolio managers. The
Board also considered that RMA continued to reinvest and had hired an additional analyst to support the portfolio managers in their roles.
The Directors agreed that RMA had continued to execute its long-term investment thesis. The Directors further noted the continued strong
partnership between senior personnel at Paralel and the Sub-Adviser and the synergies gained by the Fund through this partnership. The
Board also recognized the Sub-Adviser’s continued commitment to the Fund.
Based
on the totality of the information considered, the Directors concluded that the Fund would be likely to continue to benefit from the
nature, extent and The Board reviewed the Fund’s investment performance over time and compared that performance to that of other
funds in its peer group. In making its comparisons, the Board utilized a report from FUSE Research Network, LLC (“FUSE”),
an independent provider of investment company data. The Board considered the Fund’s net asset value total return relative to the
average and median returns for a group of investment companies determined to be most similar to the Fund by FUSE in consultation with
the Fund’s lead Independent Director. It was noted that while the Fund faced some underperformance in the mid-term 3- and 5- year
periods as compared to the peer group, the Board considered RMA’s statement that value investments had generally been outperformed
by growth stocks during the market bull run of these periods. It was further noted that the Fund had outperformed during the most recent
one- year period, as value investments had outperformed growth during this period. The Directors also considered the Fund’s long-term
performance since RMA’s affiliates had begun providing services to the Fund and limitations inherent in the FUSE data due to difficulties
of finding strong peers. The Board noted its satisfaction with the Fund’s performance and agreed that such performance supported
the renewal of the Advisory Agreement and the Sub-Advisory Agreement.
Fees
and Expenses. In evaluating the costs of the services provided, the Board received statistical and
other information regarding the Fund’s total expense ratio and its various 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 $2 billion of the Fund’s average Managed Assets, plus 0.80% of the Fund’s average Managed Assets
over $2 billion. The Board acknowledged the fact that this represented a fee reduction put in place when Paralel was approved as the
adviser in 2021. The Board reviewed the FUSE report and noted that the contractual advisory fee represented the median fee of the peer
group and was slightly lower than the average peer group fee.
The
Board obtained information regarding the anticipated profitability for Paralel from serving in the role of administrator and investment
adviser for the Fund. The combined profitability information was obtained to assist the Board in determining the overall benefits to
Paralel from its relationship to the Fund. In particular, the Board reviewed the analysis and noted that Paralel had reported a small
loss from its advisory work with the Fund and a modest profit from its administrative work with the Fund. Based on its analysis of this
information, the Board determined that the advisory fee of 0.90% of the first $2 billion of the Fund’s average Managed Assets,
plus 0.80% of the Fund’s average Managed Assets over $2 billion, does not appear to be unreasonable based on the profitability
of other investment management firms, a review of fees of similar peer funds, and the quality of the services to be provided by Paralel.
| www.srhtotalreturnfund.com |
46 |
| SRH
Total Return Fund, Inc. |
Board
Approvals of Investment Advisory and
Sub-Advisory Agreements |
November
30, 2022 (Unaudited)
In
considering whether implementing a fee waiver was appropriate, the Board examined the profitability of Paralel (including any indirect
benefits received from its affiliates) and agreed that a fee waiver was not necessary at this time.
The
Directors considered that the fee to be paid to the Sub-Adviser was paid out of the fees paid to Paralel and that no separate fee for
sub-advisory services would be charged to the Fund. The Directors considered Paralel’s statement that the compensation payable
to the Sub-Adviser was reasonable, appropriate and fair in light of the nature and quality of the services provided to the Fund. The
Directors considered the overall contractual fee rate under the arrangement and agreed such fee was not unreasonable. The Board also
obtained detailed information regarding the overall profitability of the Sub-Adviser and used this information to assist the Board in
considering the overall benefits to the Sub-Adviser from its relationship with Paralel and the Fund. Based on its analysis of this information,
the Board determined that the level of profits earned by the Sub- Adviser 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.
Profitability
and Economies of Scale. The Directors reviewed the profitability information provided by Paralel
and the Sub-Adviser and considered whether they would be expected to realize economies of scale related to their work with the Fund,
such that such economies were appropriately shared with Stockholders in light of the fee breakpoints under the Advisory Agreement and
the Sub- Advisory Agreement. In consideration of each of Paralel and the Sub-Adviser’s profitability levels and the extent to which
the Fund’s asset were expected to increase, the Board agreed that the fee breakpoints under the Advisory Agreement and the Sub-Advisory
Agreement continued to be appropriate and would provide the Stockholders with the benefit of economies of scale in the event that the
Fund’s average Managed Assets exceed $2 billion. The Directors also noted that the overall contractual fee rate was lower than
it had been prior to when Paralel was approved as the adviser in 2021.
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 details related to services that an affiliate of Paralel provides to the
Fund as the Fund’s administrator. The Board also considered that the Sub-Adviser did not expect to receive any such ancillary benefits
directly beyond reputational benefits related to its role with the Fund (other than the indirect benefit of a non-controlling investment
by a parent company of RMA in Paralel’s parent company). The Board concluded that the benefits accruing to Paralel and the Sub-Adviser
by virtue of their relationships to 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 to be 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 RMA’s continued partnership.
| Annual Report | November 30, 2022 |
47 |
| SRH
Total Return Fund, Inc. |
Board
Approvals of Investment Advisory and
Sub-Advisory Agreements |
November
30, 2022 (Unaudited)
Conclusion.
Having requested and received such information from each of Paralel and RMA 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.
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.
| www.srhtotalreturnfund.com |
48 |
| DIRECTORS |
|
|
Richard
I. Barr
Dr.
Dean L. Jacobson
Joel W. Looney
Nicole L. Murphey
Steven K. Norgaard
|
INVESTMENT
ADVISER
|
|
|
Paralel
Advisors LLC
1700
Broadway, Suite 1850
Denver,
CO 80290
|
SUB-INVESTMENT
ADVISER
|
|
|
Rocky
Mountain Advisers, LLC
2121 E. Crawford Place
Salina, KS 67401 |
| |
|
|
|
| ADMINISTRATOR |
|
|
Paralel
Technologies LLC
1700 Broadway, Suite 1850
Denver,
CO 80290
|
| CUSTODIAN |
|
|
State
Street Bank and Trust
One Lincoln Street
Boston,
MA 02111
|
STOCK
TRANSFER
AGENT
|
|
|
Computershare
Inc.
150 Royall St., Suite 101
Canton,
MA 02021
|
INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM |
|
|
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
OH 44115
|
| LEGAL
COUNSEL |
|
|
Paul
Hastings, LLP
515
South Flower Street
Twenty-Fifth Floor
Los
Angeles, CA 90071 |
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.
www.srhtotalreturnfund.com
SRH
TOTAL RETURN FUND, INC.
c/o
Computershare
P.O.
Box 43078
Providence,
RI 02940-3078
(b) Not applicable.
