STEW SRH Total Return Fund Inc

false N-2 0000102426 0000102426 2022-12-01 2023-11-30 0000102426 stew:CommonSharesMember 2022-11-30 2022-11-30 0000102426 stew:CommonSharesMember 2023-11-30 2023-11-30 0000102426 stew:CommonSharesMember 2023-11-30 0000102426 stew:CommonSharesMember 2022-11-30 0000102426 stew:CommonSharesMember 2021-11-30 0000102426 stew:CommonSharesMember 2020-11-30 0000102426 stew:CommonSharesMember 2019-11-30 0000102426 stew:CommonSharesMember 2018-11-30 0000102426 stew:CommonSharesMember 2021-11-30 2021-11-30 0000102426 stew:CommonSharesMember 2020-11-30 2020-11-30 0000102426 stew:CommonSharesMember 2019-11-30 2019-11-30 0000102426 2023-11-30 0000102426 2022-11-30 0000102426 2021-11-30 0000102426 2020-11-30 0000102426 stew:InvestmentsInCommonStocksMember 2022-12-01 2023-11-30 0000102426 stew:SeniorUnsecuredNotesMember 2023-11-30 2023-11-30 0000102426 stew:SeniorNotesSeriesAMember 2023-11-30 2023-11-30 0000102426 stew:SeniorNotesSeriesBMember 2023-11-30 2023-11-30 0000102426 stew:SeniorNotesSeriesCMember 2023-11-30 2023-11-30 0000102426 stew:SeniorUnsecuredNotesMember 2022-12-01 2023-11-30 0000102426 stew:SeniorNotesSeriesAMember 2022-12-01 2023-11-30 0000102426 stew:SeniorNotesSeriesBMember 2022-12-01 2023-11-30 0000102426 stew:SeniorNotesSeriesCMember 2022-12-01 2023-11-30 0000102426 stew:FixedIncomeSecuritiesRiskMember 2022-12-01 2023-11-30 0000102426 stew:NonDiversifiedStatusRiskMember 2022-12-01 2023-11-30 0000102426 stew:IssuerFocusRiskMember 2022-12-01 2023-11-30 0000102426 stew:InvestmentsInMidAndSmallcapSecuritiesMember 2022-12-01 2023-11-30 0000102426 stew:LeveragingRiskMember 2022-12-01 2023-11-30 0000102426 stew:DiscountFromNAVMember 2022-12-01 2023-11-30 0000102426 stew:RepurchaseOfFundSharesMember 2022-12-01 2023-11-30 0000102426 stew:IssuerRiskMember 2022-12-01 2023-11-30 0000102426 stew:InflationRiskMember 2022-12-01 2023-11-30 0000102426 stew:ForeignSecuritiesRiskMember 2022-12-01 2023-11-30 0000102426 stew:CurrencyRiskMember 2022-12-01 2023-11-30 0000102426 stew:InvestmentsInRegisteredInvestmentCompaniesMember 2022-12-01 2023-11-30 0000102426 stew:LiquidityRiskMember 2022-12-01 2023-11-30 0000102426 stew:DerivativesRiskMember 2022-12-01 2023-11-30 0000102426 stew:AntiTakeoverRiskMember 2022-12-01 2023-11-30 0000102426 stew:MarketDisruptionAndGeopoliticalRiskMember 2022-12-01 2023-11-30 0000102426 stew:CybersecurityRiskMember 2022-12-01 2023-11-30 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act File Number:

811-02328

 

SRH Total Return Fund, Inc.

(Exact Name of Registrant as Specified in Charter)

 

1700 Broadway, Suite 1850 

Denver, CO 80290

(Address of Principal Executive Offices)(Zip Code)

 

Chris Moore

SRH Total Return Fund, Inc.

1700 Broadway, Suite 1850

Denver, CO 80290

(Name and Address of Agent for Service)

 

Registrant’s Telephone Number, including Area Code:

(866) 228-4853

 

Date of Fiscal Year End: November 30

 

Date of Reporting Period: December 1, 2022 – November 30, 2023

 

 

 

Item 1. Reports to Stockholders.

 

(a)

The Report to Stockholders is attached herewith.

 

 

 

 

 

 

 

Distribution Policy

November 30, 2023 (Unaudited)

 

SRH Total Return Fund, Inc. (the “Fund”), acting pursuant to a Securities and Exchange Commission exemptive order and with the approval of the Fund’s Board of Directors (the “Board”), has adopted a plan, consistent with its investment objectives and policies to support a level distribution of income, capital gains and/or return of capital (the “Plan”). In accordance with the Plan, the Fund distributed $0.125 per share on a quarterly basis during the year ended November 30, 2023. Beginning in January 2024, the quarterly distribution increased to $0.1375 per share. The fixed amount distributed per share is subject to change at the discretion of the Fund’s Board. Under the Plan, the Fund will typically distribute most or all of its available investment income to its stockholders, consistent with its primary investment objectives and as required by the Internal Revenue Code of 1986, as amended (the “Code”). The Fund may also distribute long-term capital gains and short-term capital gains and return of capital to stockholders in order to maintain a level distribution. Each quarterly distribution to stockholders is expected to be at the fixed amount established by the Board, except for extraordinary distributions and potential distribution rate increases or decreases to enable the Fund to comply with the distribution requirements imposed by the Code. Stockholders should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the Plan. The Fund’s total return performance on net asset value is presented in its financial highlights table. The Board may amend, suspend or terminate the Fund’s Plan without prior notice if it deems such action to be in the best interest of the Fund or its stockholders. The suspension or termination of the Plan could have the effect of creating a trading discount (if the Fund’s stock is trading at or above net asset value) or widening an existing trading discount. The Fund is subject to risks that could have an adverse impact on its ability to maintain level distributions. Examples of potential risks include, but are not limited to, economic downturns impacting the markets, investments in foreign securities, foreign currency fluctuations and changes in the Code. Please refer to the Fund’s annual report for a more complete description of its risks.

 

SRH Total Return Fund, Inc.

Table of Contents

 

Performance Overview	2
Statement of Investments	7
Statement of Assets and Liabilities	10
Statement of Operations	11
Statements of Changes in Net Assets	12
Statement of Cash Flows	13
Financial Highlights	14
Notes to Financial Statements	17
Report of Independent Registered Public Accounting Firm	27
Additional Information	28
Summary of Dividend Reinvestment Plan	31
Summary of Updated Information Regarding the Fund	32
Directors & Officers	39
Board Approvals of Investment Advisory and Sub-Advisory Agreements	42

  

Annual Report | November 30, 2023

1

 

SRH Total Return Fund, Inc.

Performance Overview

November 30, 2023 (Unaudited)

 

Annual Update:

 

The SRH Total Return Fund, Inc. (the “Fund”) generated a return of 10.06% on net asset value (“NAV”) in the one-year period ended November 30, 2023 (the “Period”). Within the same period, the S&P 500 Index returned 13.84%, the Dow Jones Industrial Average (“DJIA”) returned 6.19%, and the Morningstar US Large Value Index returned 3.17%.

 

The Fund has performed in line with the S&P 500 Index and DJIA on an annualized NAV basis since affiliates of Rocky Mountain Advisers, LLC (“RMA”) became investment advisers to the Fund in January of 2002. However, the Fund outperformed the Morningstar US Large Value Index on an annualized NAV basis during this same timeframe.

 

On a market price basis, the Fund gained 4.71% for the Period, underperforming the Fund’s return performance on a NAV basis of 10.06%. At the beginning of the Period, the Fund’s market price discount to its NAV was -16.2% and at the end of the Period, the Fund’s discount was -20.3%.

 

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)	1.80%	12.05%	10.06%	12.07%	8.69%	9.63%	8.72%
STEW (Market)	0.20%	10.07%	4.71%	10.99%	7.75%	9.83%	7.44%
S&P 500 Index†	1.74%	10.17%	13.84%	9.76%	12.51%	11.82%	8.71%
DJIA††	4.10%	10.45%	6.19%	8.85%	9.41%	10.89%	8.67%
Morningstar US Large Value Index†††	0.28%	7.74%	3.17%	10.46%	8.16%	8.77%	7.17%

 

*	Annualized.

**	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.

 

This year was marked by a wide divergence in performance across equity-based asset classes. The Morningstar US Large Value Index and the DJIA both significantly underperformed the S&P 500 Index. The Fund’s performance was in the middle of these indices. The primary driver of the S&P 500 Index’s performance was the strong performance of seven large companies in the index. Of those seven, the Fund has exposure to Microsoft (MSFT) directly and Apple (AAPL) indirectly through its large Berkshire Hathaway position. RMA continues to believe this is the appropriate level of exposure. In our opinion, some of the outperformance of these companies was likely a rebound from poor performance in the year prior. We also believe some of the outperformance will lead to a mean reversion in the future where these seven stocks underperform the broad indices.

 

www.srhtotalreturnfund.com

2

 

SRH Total Return Fund, Inc.

Performance Overview

November 30, 2023 (Unaudited)

 

As we look forward to 2024, there remain many questions and much uncertainty. The market is trying to predict if the Fed Reserve Board will raise, cut, or continue to maintain its policy rate. Inflation abating or reaccelerating will have a large impact on the policy decision and the markets. Global conflict seems to be on the rise and, of course, there is a Presidential election in 2024. As we see it, there will be plenty of reasons for volatility to the upside and the downside. Which side wins, we do not know.

 

RMA remains committed to its process of bottom-up research. We believe finding the best companies helps mitigate these external factors and reduces volatility. While there will be plenty of fear, exuberance, and everything in-between in the coming year, RMA will remain focused on our process and investment philosophy.

 

The Fund follows a managed distribution program that seeks to deliver part of 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 return of capital, or any combination thereof. During the period, the Fund made quarterly distributions to shareholders in aggregate totaling $0.50 per share, estimated to be comprised of net investment income of $0.05 per share and net realized capital gains of $0.45 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.

 

For the third consecutive year, the Fund’s Board of Directors (“Board”) announced an increase in the quarterly distribution beginning in January 2024. In our opinion, the Fund’s managed distribution program fits the low turnover buy-and-hold investment strategy both in its rate of growth and overall yield. In general, the distributions tend to be long-term capital gains because it is rare for the Fund to hold a position less than one year. 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.

 

The largest contributors to performance during the Period were Berkshire Hathaway, Inc. (BRK/A and BRK/B) contributing 4.74% and Microsoft Corp. (MSFT) contributing 1.71% to the total return on net assets. The largest detractors to performance during the Period were Pfizer, Inc. (PFE) detracting -1.92%, and Johnson & Johnson (JNJ) detracting -0.25% from the total return on net assets.

 

During the Period, positions were reduced in Berkshire Hathaway (BRK/B) and Walmart, Inc. (WMT). The full positions in Pfizer, Inc. (PFE), STAG Industrial (STAG), Broadstone Net Lease (BNL), and J.M. Smucker (SJM) were sold. New positions were started in PayPal (PYPL), Charles Schwab (SCHW), and Stanley Black & Decker (SWK).

 

The Fund repurchased and retired 264,644 shares of its common stock during the Period. The shares were repurchased at an average price of $13.36. Since the Board reinstated the share repurchase program in August 2017, the Fund has repurchased and retired 9,028,343 shares at an average price of $10.34 per share.

 

Annual Report | November 30, 2023

3

 

SRH Total Return Fund, Inc.

Performance Overview

November 30, 2023 (Unaudited)

 

The following table shows the top ten holdings in the Fund as of November 30, 2023:

 

Holding		Symbol(s)		Percentage of Total Managed Assets
Berkshire Hathaway, Inc.		BRK/A and BRK/B		36.9%
JPMorgan Chase & Co.		JPM		8.6%
Cash and Short-Term Investments		SALXX		7.6%
Yum! Brands, Inc.		YUM		5.8%
Enterprise Products Partners LP		EPD		5.3%
Microsoft Corp.		MSFT		4.1%
NRG Energy, Inc.		NRG		3.9%
Stanley Black & Decker, Inc.		SWK		3.3%
Cisco Systems, Inc.		CSCO		3.2%
Cohen & Steers Infrastructure Fund, Inc.		UTF		3.2%

 

As always, we appreciate your continued support of the Fund.

 

Sincerely,

 

Joel Looney	Jacob Hemmer

Portfolio Manager

Portfolio Manager

 

The views and opinions in the preceding commentary are as of the date of this letter and are subject to change at any time. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice and is not intended to predict or depict performance of any investment.

 

Portfolio weightings and other figures in the foregoing commentary are provided as of period-end, unless otherwise stated.

 

Note to Stockholders on the Fund’s Discount. As most stockholders are aware, the Fund’s shares presently trade at a significant discount to net asset value. The Board is aware of this, monitors the discount and periodically reviews the limited options available to mitigate the discount. In addition, there are several factors affecting the Fund’s discount over which the Board and management have little control. In the end, the market sets the Fund’s share price. For long-term stockholders of a closed-end fund, we believe the Fund’s discount should only be one of many factors taken into consideration at the time of your investment decision.

 

Note to Stockholders on Concentration of Investments. The Board feels it is important that stockholders be aware of the Fund’s high concentration in a small number of positions. Concentrating investments in fewer securities may involve a degree of risk that is greater than a fund having less concentrated investments spread over a greater number of securities. In particular, the Fund is highly concentrated in 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, 2023 (Unaudited)

 

Growth of $10,000 (as of November 30, 2023)

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, 2023

5

SRH Total Return Fund, Inc.

Performance Overview

November 30, 2023 (Unaudited)

 

The table below is a summary of the distributions paid for the year ended November 30, 2023.

  

				Per Share of Common Stock
				Net Asset Value				Market Price				Distribution Paid*
	1/31/2023			$	15.59			$	12.90			$	0.125
	4/28/2023				15.84				12.81				0.125
	7/31/2023				16.85				13.71				0.125
	10/31/2023				15.65				12.50				0.125

*	Please refer to page 30 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.

Statement of Investments

  November 30, 2023

 

Description		Shares/Principal Amount				Value (Note 2)
LONG TERM INVESTMENTS 105.06%
DOMESTIC COMMON STOCK 95.47%
Capital Goods 3.78%
Stanley Black & Decker, Inc.			680,000			$	61,812,000
Construction Machinery 1.54%
Caterpillar, Inc.			100,000				25,072,000
Diversified 41.95%
Berkshire Hathaway, Inc., Class A(a)(b)			1,028				561,185,200
Berkshire Hathaway, Inc., Class B(a)(b)			345,000				124,200,000
							685,385,200
Diversified Financial Services 16.45%
American Express Co.(c)			105,000				17,930,850
Charles Schwab Corp.(c)			750,000				45,990,000
Evercore, Inc., Class A			300,000				44,265,000
JPMorgan Chase & Co.			1,028,000				160,450,240
							268,636,090
Electric 4.47%
NRG Energy, Inc.			1,525,000				72,956,000
Healthcare Products & Services 1.70%
Johnson & Johnson			179,100				27,699,606
Insurance 2.43%
Travelers Cos., Inc.			220,000				39,736,400
Retail 9.80%
eBay, Inc.			650,000				26,656,500
Walmart, Inc.			165,000				25,688,850
Yum! Brands, Inc.			858,000				107,721,900
							160,067,250
Semiconductors 3.28%
Intel Corp.			1,200,000				53,640,000
Software & Tech Services 6.40%
Microsoft Corp.			200,000				75,782,000
PayPal Holdings, Inc.(a)			500,000				28,805,000
							104,587,000

 

See Accompanying Notes to Financial Statements.

Annual Report | November 30, 2023

7

SRH Total Return Fund, Inc.

Statement of Investments

November 30, 2023

 

Description		Shares/Principal Amount				Value (Note 2)
Technology, Hardware & Equipment 3.67%
Cisco Systems, Inc.			1,240,000			$	59,991,200
TOTAL DOMESTIC COMMON STOCK
(Cost $532,460,314)							1,559,582,746
CLOSED-END FUNDS 3.61%
Cohen & Steers Infrastructure Fund, Inc.			2,750,000				58,987,499
TOTAL CLOSED-END FUNDS
(Cost $37,425,470)							58,987,499
LIMITED PARTNERSHIPS 5.98%
Enterprise Products Partners LP			3,650,000				97,747,000
TOTAL LIMITED PARTNERSHIPS
(Cost $71,009,752)							97,747,000
TOTAL LONG TERM INVESTMENTS
(Cost $640,895,536)							1,716,317,245
SHORT TERM INVESTMENTS 8.63%
Money Market Funds 8.63%
State Street Institutional U.S. Government Money Market Fund, Administration Class, 7-Day Yield - 5.06%			141,026,650				141,026,650
TOTAL MONEY MARKET FUNDS
(Cost $141,026,650)							141,026,650
TOTAL SHORT TERM INVESTMENTS
(Cost $141,026,650)							141,026,650
TOTAL INVESTMENTS 113.69%							1,857,343,895
(Cost $781,922,186)

 

See Accompanying Notes to Financial Statements.

www.srhtotalreturnfund.com

8

 

SRH Total Return Fund, Inc.	Statement of Investments
	November 30, 2023

 

Description		Value (Note 2)
SENIOR NOTES (NET OF DEFERRED OFFERING COST OF $1,640,950) (13.67%)			(223,359,050	)
OTHER ASSETS AND LIABILITIES, NET (0.02%)			(312,075	)
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS 100.00%		$	1,633,672,770

 

(a)	Non-income producing security.

(b)	For additional information on portfolio concentration, see Note 6.

(c)	A portion of the security is held as collateral for the written call options in the amount of $850,500.

Percentages are stated as a percent of Net Assets Applicable to Common Stockholders.

 

Written Call Options:

 

Description		Counterparty			Exercise Price				Premiums Received				Expiration Date		Number of Contracts				Notional Value				Value (Note 2)
American Express Co.		Pershing			$	175			$	1,092,500			1/19/2024			(1,050	)		$	(17,930,850	)		$	(325,500	)
Charles Schwab Corp.		Pershing				75				2,230,395			6/21/2024			(3,500	)			(21,462,000	)			(525,000	)
									$	3,322,895									$	(39,392,850	)		$	(850,500	)

 

See Accompanying Notes to Financial Statements.

Annual Report | November 30, 2023

9

 

SRH Total Return Fund, Inc.	Statement of Assets and Liabilities
	November 30, 2023

    

ASSETS:
Total Investments at Value
Cost ($781,922,186)		$	1,857,343,895
Dividends and interest receivable			2,556,673
Prepaid expenses and other assets			72,330
Total Assets			1,859,972,898
LIABILITIES:
Written options, at value
(Premiums received $3,322,895)			850,500
Senior notes (net of deferred offering cost of $1,640,950) (Note 10)			223,359,050
Investment advisory fees payable (Note 4)			1,344,771
Interest payable on senior notes (Note 10)			436,964
Administration fees payable (Note 4)			134,984
Printing fees payable			80,344
Custody fees payable			8,276
Legal fees payable			21,072
Audit and tax fees payable			43,500
Directors’ fees and expenses payable (Note 4)			4,629
Accrued expenses and other payables			16,038
Total Liabilities			226,300,128
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS		$	1,633,672,770
NET ASSETS (APPLICABLE TO COMMON STOCKHOLDERS) CONSIST OF:
Par value of common stock (authorized 249,990,000 shares at $0.01 par value)		$	970,685
Paid-in capital in excess of par value of common stock			523,369,279
Total distributable earnings			1,109,332,806
NET ASSETS (APPLICABLE TO COMMON STOCKHOLDERS)		$	1,633,672,770
Net Asset Value, $1,633,672,770/97,068,474 common stock outstanding		$	16.83

 

See Accompanying Notes to Financial Statements.
www.srhtotalreturnfund.com	10

 

SRH Total Return Fund, Inc.	Statement of Operations
	For the Year Ended November 30, 2023

  

INVESTMENT INCOME:
Dividends		$	32,191,576
Interest and other income			3,992,789
Total Investment Income			36,184,365
EXPENSES:
Investment advisory fees (Note 4)			15,919,629
Interest on senior notes (Note 10)			6,115,086
Administration fees (Note 4)			1,598,067
Directors’ fees and expenses (Note 4)			234,318
Printing fees			142,274
Legal fees			122,126
Custody fees			43,137
Insurance expense			53,267
Audit and tax fees			42,000
Transfer agency fees			42,757
Offering costs (Note 10)			190,348
Other			187,388
Total Expenses			24,690,397
Net Investment Income			11,493,968
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on:
Investments			41,985,253
Written options			2,255,388
Net realized gain			44,240,641
Long-term capital gain distributions from other investment companies			2,698,091
Net change in unrealized appreciation/(depreciation) on:
Investments			81,536,646
Written options			343,007
Net change in unrealized appreciation			81,879,653
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS			128,818,385
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS RESULTING FROM OPERATIONS		$	140,312,353

 

See Accompanying Notes to Financial Statements.
Annual Report | November 30, 2023	11

 

SRH Total Return Fund, Inc.

Statements of Changes in Net Assets

 

		For the Year Ended November 30, 2023				For the Year Ended November 30, 2022
OPERATIONS:
Net investment income		$	11,493,968			$	10,633,346
Net realized gain on investments, written options and foreign currency transactions			44,240,641				43,458,775
Long-term capital gain distributions from other investment companies			2,698,091				2,310,644
Net change in unrealized appreciation on investments, written options and foreign currency translations			81,879,653				7,509,224
Net Increase in Net Assets Applicable to Common Stockholders Resulting from Operations			140,312,353				63,911,989
DISTRIBUTIONS TO COMMON STOCKHOLDERS (NOTE 9):
From distributable earnings			(48,632,411	)			(46,754,112	)
Total Distributions: Common Stockholders			(48,632,411	)			(46,754,112	)
CAPITAL SHARE TRANSACTIONS (NOTE 8):
Repurchase of fund shares			(3,536,681	)			(6,259,136	)
Net Decrease in Net Assets from Capital Share Transactions			(3,536,681	)			(6,259,136	)
Net Increase in Net Assets Applicable to Common Stockholders			88,143,261				10,898,741
NET ASSETS:
Beginning of period			1,545,529,509				1,534,630,768
End of period		$	1,633,672,770			$	1,545,529,509

 

See Accompanying Notes to Financial Statements.
www.srhtotalreturnfund.com	12

 

SRH Total Return Fund, Inc.	Statement of Cash Flows
	For the Year Ended November 30, 2023

 

CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets applicable to Common Stockholders resulting from operations		$	140,312,353
Adjustments to reconcile change in net assets applicable to Common
Stockholders resulting from operations to net cash provided by operating activities:
Purchase of investment securities			(171,144,879	)
Net purchases of short-term investment securities			(33,518,366	)
Proceeds from disposition of investment securities			242,302,032
Amortization of premium and accretion of discount on investments			(654,447	)
Premiums received from written options transactions			3,322,895
Net realized (gain)/loss on:
Investments			(44,683,344	)
Written options			(2,255,388	)
Net change in unrealized appreciation/(depreciation) on:
Investments			(81,536,646	)
Written options			(343,007	)
Amortization of offering costs			190,348
(Increase)/Decrease in assets:
Dividends and interest receivable			51,245
Prepaid expenses and other assets			(1,603	)
Increase/(Decrease) in liabilities:
Interest payable on senior notes			(2,414	)
Investment advisory fees payable			79,891
Administration fees payable			5,186
Directors’ fees and expenses payable			(10,904	)
Legal fees payable			14,586
Audit and tax fees payable			(1,500	)
Custody fees payable			(25,896	)
Printing fees payable			62,420
Accrued expenses and other payables			6,530
Net Cash Provided by Operating Activities			52,169,092
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to Common Stockholders			(48,632,411	)
Repurchase of fund shares			(3,536,681	)
Net Cash Used in Financing Activities			(52,169,092	)
Net increase in cash			—
Cash, beginning balance			—
Cash, ending balance		$	—
Cash paid for interest on senior notes during the period was:		$	6,117,500

 

See Accompanying Notes to Financial Statements.
Annual Report | November 30, 2023	13

 

SRH Total Return Fund, Inc.

Financial Highlights

Contained below is selected data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data for the periods indicated. This information has been determined based upon information provided in the financial statements and market price data for the Fund’s shares.

  

OPERATING PERFORMANCE:

Net asset value — Beginning of Period

INCOME FROM INVESTMENT OPERATIONS:

Net investment income(a)

Net realized and unrealized gain/(loss) on investments

Net Increase from Operations Applicable to Common Stockholders

DISTRIBUTIONS TO COMMON STOCKHOLDERS

Distributions from net investment income

Distributions from net realized capital gains

Distributions from tax return of capital

Total Distributions Paid to Common Stockholders

CAPITAL SHARE TRANSACTIONS:

Impact of Capital Share Transactions(a)

Total Capital Share Transactions

Net Increase/(Decrease) in Net Asset Value

Common Share Net Asset Value — End of Period

Common Share Market Price — End of Period

Total Return, Common Share Net Asset Value(b)

Total Return, Common Share Market Price(b)

RATIOS TO AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:(c)

Ratio of operating expenses to average net assets including waiver

Ratio of operating expenses to average net assets excluding waiver

Ratio of operating expenses to average net assets excluding interest on borrowings

Ratio of net investment income to average net assets including waiver

Ratio of net investment income to average net assets excluding waiver

SUPPLEMENTAL DATA:

Portfolio turnover rate

Net Assets Applicable to Common Stockholders, End of Period (000s)

Number of Common Shares Outstanding, End of Period (000s)

BORROWINGS AT END OF PERIOD

Aggregate Amount of Senior Notes Outstanding (000s)

Asset Coverage Per $1,000(g)

 

See Accompanying Notes to Financial Statements.

www.srhtotalreturnfund.com

14

 

SRH Total Return Fund, Inc.

Financial Highlights

 

For the Year  Ended  November 30,  2023				For the Year  Ended  November 30,  2022				For the Year  Ended  November 30,  2021				For the Year  Ended  November 30,  2020				For the Year  Ended  November 30,  2019
$	15.88			$	15.69			$	13.29			$	13.56			$	13.32
	0.12				0.11				0.01				0.06				0.07
	1.32				0.55				2.79				(0.01	)			0.52
	1.44				0.66				2.80				0.05				0.59
	(0.05	)			(0.01	)			—				(0.05	)			(0.08	)
	(0.45	)			(0.47	)			(0.41	)			(0.34	)			(0.30	)
	—				—				—				(0.02	)			(0.03	)
	(0.50	)			(0.48	)			(0.41	)			(0.41	)			(0.41	)
	0.01				0.01				0.01				0.09				0.06
	0.01				0.01				0.01				0.09				0.06
	0.95				0.19				2.40				(0.27	)			0.24
$	16.83			$	15.88			$	15.69			$	13.29			$	13.56
$	13.42			$	13.31			$	13.02			$	10.91			$	11.41
	10.06	%			4.96	%			21.86	%			2.04	%			5.60	%
	4.71	%			6.01	%			23.18	%			(0.45	%)			6.72	%
	1.60	%			1.61	%			1.65	%(d)			1.16	%(d)			1.11	%
	1.60	%			1.61	%			1.68	%			1.17	%			1.11	%
	1.20	%			1.20	%			1.24	%			1.12	%			N/A
	0.74	%			0.70	%			0.07	%(d)			0.52	%(d)			0.54	%
	0.74	%			0.70	%			0.04	%			0.51	%			0.54	%
	10	%			10	%			6	%			6	%			2	%
$	1,633,673			$	1,545,530			$	1,534,631			$	1,305,895			$	1,392,553
	97,068				97,333				97,802				98,271				102,676
$	225,000	(e)(f)		$	223,169	(e)		$	222,978	(e)		$	222,749	(e)			N/A
	8,261				7,925				7,882				6,863				N/A

 

See Accompanying Notes to Financial Statements. 

Annual Report | November 30, 2023

15

 

SRH Total Return Fund, Inc.

Financial Highlights

 

(a)

Calculated based on the average number of common shares outstanding during each fiscal period.

(b)

Total return based on per share net asset value reflects the effects of changes in net asset value on the performance of the Fund during each fiscal period. Total return based on common share market value assumes the purchase of common shares at the market price on the first day and sale of common shares at the market price on the last day of the period indicated. Dividends and distributions, if any, are assumed to be reinvested at prices obtained under the Fund's distribution reinvestment plan.

(c)

Ratios do not reflect the proportionate share of income and expenses of the underlying investee funds (i.e. those listed under Money Market Funds or Closed-End Funds on the Statement of Investments).

(d)

Advisory, sub-advisory and administration fees were voluntarily waived, on amounts attributable to the proceeds of the senior notes issued that remained in cash or cash equivalents.

(e)

The amount shown is due to the issuance of senior notes (See Note 10).

(f)

Principal amount. Excludes the costs incurred in connection with the issuance of the senior notes.

(g)

Calculated by subtracting the Fund’s total liabilities (excluding the principal amount of the senior notes) from the Fund's total assets and dividing by the principal amount of the senior notes, then multiplying by $1,000.

 

See Accompanying Notes to Financial Statements.

www.srhtotalreturnfund.com

16

 

SRH Total Return Fund, Inc.

Notes to Financial Statements

November 30, 2023

 

NOTE 1. FUND ORGANIZATION

 

SRH Total Return Fund, Inc. (the “Fund” or “STEW”), is a non-diversified, closed-end management company organized as a Maryland corporation and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”).

 

The Fund is considered an investment company for financial reporting purposes under generally accepted accounting principles in the United States of America (“GAAP”) and accordingly follows the investment company accounting and reporting guidance in the Financial Accounting Standards Board Accounting Standards Codification Topic 946 Financial Services – Investment Companies.

 

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

 

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements is in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

 

Portfolio Valuation: Equity securities including closed-end funds and limited partnerships for which market quotations are readily available (including securities listed on national securities exchanges and those traded over-the-counter) are valued based on the last sales price at the close of the applicable exchange. If such equity securities were not traded on the valuation date, but market quotations are readily available, they are valued at the bid price provided by an independent pricing service or by principal market makers. Equity securities traded on NASDAQ are valued at the NASDAQ Official Closing Price. Debt securities are valued at the mean between the closing bid and asked prices, or based on a matrix system which utilizes information (such as credit ratings, yields and maturities) from independent pricing services, principal market makers, or other independent sources. Money market mutual funds are valued at their net asset value per share. Short-term fixed income securities such as Commercial Paper, Bankers Acceptances and U.S. Treasury Bills, having a maturity of less than 60 days are valued using market quotations or a matrix method provided by a pricing service. If prices are not available from the pricing service, then the securities will be priced at fair value under procedures approved by the Board of Directors (the “Board”). Pursuant to Rule 2a-5 under the 1940 Act, the Board has designated the Fund’s investment adviser, Paralel Advisors LLC (“Paralel” or the “Adviser”), as the valuation designee (the “Valuation Designee”) with respect to the fair valuation of the Fund’s portfolio securities, subject to oversight by and periodic reporting to the Board. Fair valued securities are those for which market quotations are not readily available or where the pricing agent or market maker does not provide a valuation or methodology, or provides a valuation or methodology that, in the judgment of the Adviser, does not represent fair value.

 

For valuation purposes, the last quoted prices of non-U.S. equity securities may be adjusted under certain circumstances described below. If the Valuation Designee determines that developments between the close of a foreign market and the close of the New York Stock Exchange (“NYSE”) will, in its judgment, materially affect the value of some or all of the Fund’s portfolio securities, the Valuation Designee may adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of the close of the NYSE. In deciding whether it is necessary to adjust closing prices to reflect fair value, the Valuation Designee reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The Valuation Designee may also fair value securities in other situations, such as when a particular foreign market is closed but the U.S. market is open. The Valuation Designee may use outside pricing services to provide it with closing prices. The Valuation Designee may consider whether it is appropriate, in light of relevant circumstances, to adjust such valuation in accordance with the Fund’s valuation procedures. The Valuation Designee cannot predict how often it will use closing prices and how often it will determine it necessary to adjust those prices to reflect fair value. If the Valuation Designee adjusts prices, the Valuation Designee will periodically compare closing prices, the next day’s opening prices in the same markets and those adjusted prices as a means of evaluating its security valuation process.

 

Annual Report | November 30, 2023

17

 

SRH Total Return Fund, Inc.

Notes to Financial Statements

November 30, 2023

 

Options are valued at the mean of the highest bid and lowest ask prices on the principal exchange on which the option trades. If no quotations are available, fair value procedures will be used. Fair value procedures will also be used for any options traded over-the-counter.

 

Various inputs are used to determine the value of the Fund’s investments. Observable inputs are inputs that reflect the assumptions market participants would use based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions based on the best information available in the circumstances.

 

These inputs are summarized in the three broad levels listed below.

 

Level 1 —	Unadjusted quoted prices in active markets for identical investments that the Fund has the ability to access
Level 2 —	Significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
Level 3 —	Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

 

www.srhtotalreturnfund.com

18

 

SRH Total Return Fund, Inc.

Notes to Financial Statements

November 30, 2023

 

The following is a summary of the Fund’s investments by inputs used to value those investments and other financial instruments as of November 30, 2023:

 

Investments in Securities at Value*		Level 1				Level 2				Level 3				Total
Domestic Common Stock		$	1,559,582,746			$	—			$	—			$	1,559,582,746
Closed-End Funds			58,987,499				—				—				58,987,499
Limited Partnerships			97,747,000				—				—				97,747,000
Money Market Funds			141,026,650				—				—				141,026,650
TOTAL		$	1,857,343,895			$	—			$	—			$	1,857,343,895

 

Other Financial Instruments**		Level 1				Level 2				Level 3				Total
Written Call Options		$	(850,500	)		$	—			$	—			$	(850,500	)
TOTAL		$	(850,500	)		$	—			$	—			$	(850,500	)

 

*

For detailed descriptions and other security classifications, see the accompanying Statement of Investments.

**

Other financial instruments are derivative instruments reflected in the Statement of Investments.

 

Securities Transactions and Investment Income: Securities transactions are recorded as of the trade date. Realized gains and losses from securities sold are recorded on the identified cost basis. Dividend income is recorded as of the ex-dividend date or for certain foreign securities, when the information becomes available to the Fund. Certain dividend income from foreign securities will be recorded, in the exercise of reasonable diligence, as soon as the Fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date and may be subject to withholding taxes in these jurisdictions. Withholding taxes on foreign dividends have been provided for in accordance with the Fund's understanding of the applicable country's tax rules and rates. Non-cash dividends included in dividend income, if any, are recorded at the fair value of the securities received. Interest income, including amortization of premium and accretion of discount on debt securities, as required, is recorded on the accrual basis using the effective yield method.

 

Dividend income from investments in real estate investment trusts (“REITs”) is recorded at management’s estimate of income included in distributions received. Distributions received in excess of this amount are recorded as a reduction of the cost of investments. The actual amount of income and return of capital are determined by each REIT only after its fiscal year-end, and may differ from the estimated amounts. Such differences, if any, are recorded by the Fund in the following annual financial reporting period.

 

Foreign Currency Transactions: The Fund may invest a portion of its assets in foreign securities. In the event that the Fund executes a foreign security transaction, the Fund will generally enter into a forward foreign currency contract to settle the foreign security transaction. Foreign securities may carry more risk than U.S. securities, such as political, market and currency risks. See Foreign Issuer Risk under Note 6.

 

The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period-end, resulting from changes in exchange rates.

 

Annual Report | November 30, 2023

19

 

SRH Total Return Fund, Inc.

Notes to Financial Statements

November 30, 2023

  

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: 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, 2023, 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

20

 

SRH Total Return Fund, Inc.

Notes to Financial Statements

November 30, 2023

 

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, 2023

21

 

SRH Total Return Fund, Inc.	Notes to Financial Statements
	November 30, 2023

 

For the year ended November 30, 2023, 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		Value		Liability Derivatives Statement of Assets and Liabilities Location		Value
Equity Contracts (Written Options)		N/A		—		Written options, at value		$	850,500
Total				—				$	850,500

 

For the year ended November 30, 2023, 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		$	2,255,388			$	343,007
Total				$	2,255,388			$	343,007

 

The average monthly notional value of written option contracts for the Fund was $31,852,158 during the year ended November 30, 2023.

 

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, equal to 0.77% of the first $2 billion of the Fund’s average Managed Assets, plus 0.68% of the Fund’s average Managed Assets over $2 billion.

 

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 an annual fee, calculated and paid monthly, equal to 0.09% of the first $2 billion of the Fund’s average Managed Assets, plus 0.075% of the Fund’s average Managed Assets over $2 billion.

 

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 SLCT 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

22

 

SRH Total Return Fund, Inc.	Notes to Financial Statements
	November 30, 2023

 

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, 2023 were $171,144,879 and $238,542,754 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, 2023, 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, 2023

23

 

SRH Total Return Fund, Inc.	Notes to Financial Statements
	November 30, 2023

  

NOTE 7. SIGNIFICANT STOCKHOLDERS

 

On November 30, 2023, 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 46.75% of the total Common Stock outstanding.

 

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, 2023, the Fund repurchased 264,644 shares of Common Stock at a total purchase amount of $3,536,681 at an average discount of 18.93% of net asset value. 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.

 

NOTE 9. TAX BASIS DISTRIBUTIONS AND TAX BASIS INFORMATION

 

As determined on November 30, 2023, permanent differences resulting primarily from different book and tax accounting for partnership 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 $(11,680) and $11,680 were reclassified at November 30, 2023 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, 2023 was as follows:

 

Distributions Paid From:
Ordinary Income		$	9,944,584
Long-Term Capital Gain			38,687,827
		$	48,632,411

 

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

 

www.srhtotalreturnfund.com

24

 

SRH Total Return Fund, Inc.	Notes to Financial Statements
	November 30, 2023

 

The amount of net unrealized appreciation/(depreciation) and the cost of investment securities for tax purposes at November 30, 2023 were as follows:

 

Cost of investments for income tax purposes		$	754,615,262
Gross appreciation on investments (excess of value over tax cost)			1,118,748,340
Gross depreciation on investments (excess of tax cost over value)			(13,547,311	)
Net unrealized appreciation on investments		$	1,105,201,029

 

As of November 30, 2023, the components of distributable earnings on a tax basis were as follows:        

 

Accumulated Capital Gains		$	4,131,777
Unrealized Appreciation			1,105,201,029
Total		$	1,109,332,806

 

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, 2023.

 

Series		Principal Outstanding November 30,  2023			Payment  Frequency		Unamortized Offering Costs				Estimated Fair Value November 30, 2023			Fixed Interest  Rate		Maturity Date
A		$	85,000,000		Semi-Annual		$	582,568			$	68,105,204		2.62%		November 5, 2030
B		$	85,000,000		Semi-Annual		$	625,684			$	65,862,736		2.72%		November 5, 2032
C		$	55,000,000		Semi-Annual		$	432,698			$	40,906,732		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, 2023

25

 

SRH Total Return Fund, Inc.	Notes to Financial Statements
	November 30, 2023

  

 

www.srhtotalreturnfund.com

26

 

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. (the “Fund”) as of November 30, 2023, 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, 2023, 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 audit 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, 2023, by correspondence with the custodian and broker. 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 24, 2024

 

Annual Report | November 30, 2023

27

 

SRH Total Return Fund, Inc.

Additional Information

November 30, 2023 (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

28

SRH Total Return Fund, Inc.

Additional Information

November 30, 2023 (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, 2022:

 

Qualified Dividend Income:	100%
Dividend Received Deduction:	100%

 

In early 2023, if applicable, stockholders of record received this information for the distributions paid to them by the Funds during the calendar year 2022 via Form 1099. The Funds will notify shareholders in early 2024 of amounts paid to them by the Funds, if any, during the calendar year ended 2023.

 

Pursuant to Section 852(b)(3) of the Internal Revenue Code, the Fund designated $38,687,827 as long-term capital gain dividends for the fiscal year ended November 30, 2023.

 

STOCKHOLDER MEETING RESULTS

 

On November 16, 2023, the Fund held its Annual Meeting of Stockholders to consider the proposals set forth below. The following votes were recorded:

 

Proposal 1: To elect Class II Director to the Board of Directors to serve until the 2026 Annual Meeting of Stockholders.

 

Election of Joel W. Looney

 

			# of Votes Cast				% of Votes Cast
For				81,105,619				96.00	%
Against/Withhold				3,379,010				4.00	%
TOTAL				84,484,629				100.00	%

 

SECTION 19(A) NOTICES

 

The following table sets forth the estimated amount of the sources of distribution for purposes of Section 19 of the Investment Company Act of 1940, as amended, and the related rules adopted thereunder. The Fund estimates the following percentages, of the total distribution amount per 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.

 

Annual Report | November 30, 2023

29

SRH Total Return Fund, Inc.

Additional Information

November 30, 2023 (Unaudited)

 

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, 2023															% Breakdown of the Total Cumulative Distributions for the year ended November 30, 2023
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
$	0.12508		$	0.21343			$	0.16149			$	0.50000			25.01%			42.69	%			32.30	%			100.00	%

 

The Fund estimates that it has distributed more than its income and net realized capital gains; therefore, a portion of your distribution may be a return of capital. A return of capital may occur for example, when some or all of the money that you invested in the Fund is paid back to you. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with ‘yield’ or ‘income’.

 

You should not draw any conclusions about the Fund’s investment performance from the amount of the distribution or from the terms of the Fund’s Plan.

 

DISCLAIMER

 

The Fund is not sponsored, endorsed, sold or promoted by 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

30

SRH Total Return Fund, Inc.

Summary of Dividend Reinvestment Plan

November 30, 2023 (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, 2023

31

SRH Total Return Fund, Inc.

Summary of Updated Information Regarding the Fund

November 30, 2023 (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, 2022 (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

32

 

SRH Total Return Fund, Inc.

Summary of Updated Information Regarding the Fund

November 30, 2023 (Unaudited)

 

 

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, 2023

33

SRH Total Return Fund, Inc.

Summary of Updated Information Regarding the Fund

November 30, 2023 (Unaudited)

 

www.srhtotalreturnfund.com

34

SRH Total Return Fund, Inc.

Summary of Updated Information Regarding the Fund

November 30, 2023 (Unaudited)

 

Annual Report | November 30, 2023

35

SRH Total Return Fund, Inc.

Summary of Updated Information Regarding the Fund

November 30, 2023 (Unaudited)

 

www.srhtotalreturnfund.com

36

SRH Total Return Fund, Inc.

Summary of Updated Information Regarding the Fund

November 30, 2023 (Unaudited)

 

Annual Report | November 30, 2023

37

SRH Total Return Fund, Inc.

Summary of Updated Information Regarding the Fund

November 30, 2023 (Unaudited)

 

Fundamental Investment Restrictions

The following investment restrictions of the Fund are designated as fundamental policies and as such cannot be changed without the approval of the holders of a majority of the Fund's outstanding voting securities, which as used in this annual report means the lesser of (a) 67% of the shares of the Fund present or represented by proxy at a meeting if the holders of more than 50% of the outstanding shares are present or represented at the meeting or (b) more than 50% of outstanding shares of the Fund. As a matter of fundamental policy the Fund may not:

 

(1)

Issue any senior securities except as permitted under the 1940 Act.

(2)

Invest in the securities of companies conducting their principal business activity in the same industry if, immediately after such investment, the value of its investments in such industry would exceed 25% of the value of its total assets.

(3)

Participate on a joint or a joint and several basis in any trading account in securities, except that the Fund may, to the extent permitted by rules, regulations or orders of the 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.

 

www.srhtotalreturnfund.com

38

 

SRH Total Return Fund, Inc.

Directors & Officers

November 30, 2023 (Unaudited)

 

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.

 

INDEPENDENT DIRECTORS*
Name, Age and Address(1)	Position(s) Held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Director(2)	Other Directorships Held by Director
Thomas J. Moore Birth Year: 1965	Class I Director	Term expires 2025.	Former Senior Partner at EY, LaSalle National Bank, CPA licensed in Colorado.	1	None
Richard I. Barr Birth Year: 1937	Lead Independent Director and Class III Director	Term expires 2024; Director since 2002 (Lead Independent Director since 2013).	Retired (since 2001); Various executive positions (1963-2001), Advantage Sales and Marketing, Inc. (food brokerage) and CBS Marketing (1963-1996).	1	None
Steven K. Norgaard Birth Year: 1964	Class III Director	Term expires 2024; Director since 2011.	Attorney (since 1990), Steven K. Norgaard, P.C. (law firm).	2	Frontier Funds (6 Funds) (since 2013); Elevation Series Trust (3 Funds) (since 2022)

 

Annual Report | November 30, 2023

39

SRH Total Return Fund, Inc.

Directors & Officers

November 30, 2023 (Unaudited)

 

INTERESTED DIRECTORS^*

Name, Age and Address(1)	Position(s) Held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Director(2)	Other Directorships Held by Director
Joel W. Looney Birth Year: 1961(3)	Chairman and Class II Director; President of the Fund	Term expires 2026; Director since 2002; Chairman since 2003; President since 2018.	Chief Investment Officer (since April 2022), President (since June 2017) and Asst. Investment Officer (2013-2022), Rocky Mountain Advisers, LLC (“RMA”); Manager (since June 2017), Fund Administrative Services, LLC (“FAS”); President (since 2018).	1	None
Nicole L. Murphey Birth Year: 1977(3)	Class I Director	Term expires 2025; Director since 2021.	Chief Compliance Officer (since 2016), RMA; Founder and Managing Director (since 2018), Whistlepig Compliance Solutions, LLC; Chief Compliance Officer (since 2019), BSW Wealth Partners, Inc.; Chief Compliance Officer (2019-2023), R3 Returns, LLC; Vice President and Treasurer of RMA (2011-2018) and Assistant Manager of FAS (2011-2018).	1	None

 

*Directors and Director Nominees who are not “interested persons” of the Fund (as that term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) are referred to as “Independent Directors.” Directors and Director Nominees who are “interested persons” of the Fund under the 1940 Act are referred to as “Interested Directors.”

 

(1)	Unless otherwise specified, the Directors’ and Director Nominees’ respective addresses are 1700 Broadway, Suite 1850 Denver, CO 80290.

(2)

The term “Fund Complex” means two or more registered investment companies that hold themselves out to investors as related companies for purposes of investment and investor services; or have a common investment adviser or that have an investment adviser that is an affiliated person of the investment adviser of any of the other registered investment companies.

(3)	Mr. Looney is considered an “interested person” by virtue of being the President and Chief Investment Officer of RMA and an employee of FAS, an affiliate of RMA. Ms. Murphey is considered an “interested person” by virtue of being the Chief Compliance Officer and employee of RMA.

 

www.srhtotalreturnfund.com

40

SRH Total Return Fund, Inc.

Directors & Officers

November 30, 2023 (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.

 

Annual Report | November 30, 2023

41

SRH Total Return Fund, Inc.

Board Approvals of Investment Advisory and Sub-Advisory Agreements

November 30, 2023 (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 2, 2023 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 2, 2024, the Board met on October 20, 2023 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 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 renewal of 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, as well as the due diligence completed regarding product structure, resources, personnel, technology, performance, compliance and oversight of the Sub-Adviser. The Directors highlighted the sustained growth of Paralel and its affiliated firms, noting the continued high level of service provided by the firm throughout. The Board acknowledged that the firm had continued to enhance its compliance program across its growth to ensure adherence to regulatory requirements. Furthermore, the Directors considered the qualifications and experience of Paralel’s senior personnel, noting the firm had no turnover across personnel working with the Fund and continued to engage additional qualified individuals to assist with the services provided to the Fund. The Directors considered that Paralel provides the Fund with its treasurer, secretary and chief compliance officer as part of its advisory services, emphasizing the valuable expertise and knowledge of these and other employees of Paralel with long tenures of serving the Fund.

 

www.srhtotalreturnfund.com

42

SRH Total Return Fund, Inc.

Board Approvals of Investment Advisory and Sub-Advisory Agreements

November 30, 2023 (Unaudited)

 

With respect to the nature, extent, and quality of the services provided by RMS, the Directors considered the firm’s level of care and conscientiousness in performing its duties, along with the intricate nature of executing RMA’s investment process employed for the Fund. The Board considered 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 acknowledged the experience of the firm’s portfolio managers and the additional support engaged by RMA to assist these individuals in their roles. The Directors agreed that RMA continued to successfully execute the Fund’s long-term investment thesis. Further, the Directors highlighted the strong collaboration between senior personnel at Paralel and the Sub-Adviser, underlining the synergies benefiting the Fund from this partnership. The Board agreed that Sub-Adviser’s level of service indicated its continued commitment to the Fund.

 

Based on the totality of the information considered, the Directors concluded that the Fund was likely to continue to benefit from the nature, extent and quality of Paralel’s and RMA’s services.

 

Investment Performance of the Fund. The Board reviewed the Fund’s investment performance over time. In completing this review, the Board utilized a report from FUSE Research Network, LLC (“FUSE”), an independent provider of investment company data which provided comparison of the Fund against a group of investment companies determined to be most similar to the Fund by FUSE (the “Peer Group”). The Board considered the Fund’s net asset value total return compared to the relative to the average and median returns for the Peer Group and the Fund benchmark index across the 3 month, 1-year, 3-year, 5-year, 10-year and since inception periods. The Board acknowledged that the Fund outperformed the average return of the Peer Group across each of the 3 month, 1-year, 3-year, and since inception periods, while slightly trailing the Peer Group average in the 5-year and 10-year periods. The Board considered RMA’s statement that value investments lagged growth stocks during the market bull run of certain mid-to-longer term periods, noting the Fund’s recent shorter-term outperformance aligned with strong value investment returns. 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 peer closed-end funds with similar strategies. 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, in the FUSE report. 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 annual managed assets, plus 0.80% of the Fund’s average annual managed assets over $2 billion. The Board acknowledged 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, but slightly and was slightly higher than the average Peer Group fee. The Board considered the fact that certain Peer Group funds which were internally managed, noting differences in structure made fee comparisons to these funds difficult.

 

The Board also obtained information regarding the combined profitability for Paralel (and its affiliates) from serving in administrator and investment adviser roles for the Fund to assist the Board in evaluating 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 profit from its work with the Fund. It considered the fact that this increase was partly driven by Paralel’s continued growth in clients and revenue, resulting in a reduction of expenses allocated towards the Fund. Based on its analysis of each piece of information discussed, 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, was not 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.

 

Annual Report | November 30, 2023

43

SRH Total Return Fund, Inc.

Board Approvals of Investment Advisory and Sub-Advisory Agreements

November 30, 2023 (Unaudited)

 

The Directors considered that the fee to be paid to RMA 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 it believed that compensation payable to the Sub-Adviser was reasonable, appropriate and fair in light of the nature and quality of the services provided to Paralel and to the Fund. The Directors considered its determination that overall contractual fee rate under the arrangement was not unreasonable. The Board 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 received from its relationship to the Fund. As part of this review, the Directors also considered information regarding the combined profitability of RMA and Paralel related to all services provided to the Fund. Based on its analysis of this information, the Board determined that the level of profits earned by RMA from providing the sub-advisory services was not unreasonable with respect to the services rendered and the fact that the Adviser, not the Fund, is responsible for payment of the Sub-Adviser. Further, the Board agreed at the fee split was not unreasonable in consideration of the services provided by each firm and representations of Paralel on the same.

 

Profitability and Economies of Scale. The Directors reviewed the profitability information provided by Paralel and the Sub-Adviser and considered whether the firms would be expected to realize economies of scale related to their work with the Fund, and whether such economies would be appropriately shared with stockholders in light of the fee breakpoints under the Advisory Agreement. In consideration of each of Paralel’s and RMA’s profitability levels and the extent to which the Fund’s assets were expected to increase, the Board agreed that the fee breakpoints under the Advisory Agreement and the Sub-Advisory Agreement continued to be appropriate 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 RMA 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 RMA 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.

 

www.srhtotalreturnfund.com

44

SRH Total Return Fund, Inc.

Board Approvals of Investment Advisory and Sub-Advisory Agreements

November 30, 2023 (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.

 

Annual Report | November 30, 2023

45

DIRECTORS			Richard I. Barr Joel W. Looney Thomas J. Moore 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 Congress Street, Suite 1 Boston, MA 02114-2016
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