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 811-02884
Barrett Opportunity Fund, Inc.
(Exact name of registrant as specified in charter)
90 Park Avenue
New York, NY 10016
(Address of principal executive offices) (Zip code)
Peter Shriver
90 Park Avenue
New York, NY 10016
(Name and address of agent for service)
(212) 983-5080
Registrant's telephone number, including area code
Date of fiscal year end: August 31
Date of reporting period: August 31, 2016
Item 1. Reports to Stockholders.
Annual Report
August 31, 2016
| INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE |
BARRETT
OPPORTUNITY FUND, INC.
Annual Report • August 31, 2016
| Fund Objectives | The Fund seeks to achieve above average long-term capital appreciation. Current income is a secondary objective. The Fund invests primarily in common stocks and securities convertible into or exchangeable for common stock such as convertible preferred stock or convertible debt securities. |
| What’s Inside | Letter from the Chairperson | 1 |
| | Manager Overview | 1 |
| | Fund at a Glance | 4 |
| | Fund Expenses | 5 |
| | Historical Performance | 6 |
| | Schedule of Investments | 7 |
| | Statement of Assets & Liabilities | 9 |
| | Statement of Operations | 10 |
| | Statements of Changes in Net Assets | 11 |
| | Financial Highlights | 12 |
| | Notes to Financial Statements | 13 |
| | Report of Independent Registered Public Accounting Firm | 21 |
| | Additional Information | 22 |
| | Important Tax Information | 24 |
BARRETT
OPPORTUNITY FUND, INC.
| | |
| Letter from the | Dear Shareholder, |
| Chairperson | We are pleased to provide the annual report of the Barrett Opportunity Fund, Inc.1 (the “Fund”) for the twelve-month period ended August 31st, 2016. |
| | |
| | The management team at Barrett Asset Management, LLC has prepared the enclosed Manager’s Overview, which includes a brief market overview, as well as a performance review. I urge you to read it as well as the accompanying financial statements. A detailed summary of the Fund’s performance and other pertinent information are also included in this report. I am sure you will find this informative and useful. |
| | On behalf of the Directors and the Officers of the Fund, I thank you for your ongoing confidence in the Fund and its investment policies. |
| | Sincerely, |
| | |
| |  |
| | |
| | Rosalind A. Kochman |
| | Chairperson |
| | October 14, 2016 |
| | 1 | The Fund was formerly known as the Salomon Brothers Opportunity Fund Inc. The Fund name, investment manager and certain investment policies were changed effective December 1, 2006. |
Manager Overview | Market Overview |
| | The relative quiet in the markets preceding the beginning of this fiscal year quickly gave way to equity price volatility during the twelve month period ending August 31, 2016. The price of oil during that time period was cut practically in half, only to then nearly double off the bottom and then move back to its initial price level. On top of this was the surprising result from the June Brexit vote in the United Kingdom and an increasingly contentious political debate here in the U.S. In spite of this unsettled investment environment the S&P 500 Index posted a positive return of +12.55% for the year ending August 31st. |
| | |
| | The Federal Reserve (“Fed”) increased interest rates last December for the first time in nearly six years. Despite concerns by some that any increase would have a negative impact on equities, the overall market took the news in stride. The market digested the increase without much impact on stock prices, as many pundits had been calling for an increase for some time. The improving economic indicators that convinced the Fed to increase rates have also given corporations increased confidence in their own prospects. Earnings expectations remain positive and capital allocation strategies continued to support healthy dividend payouts and share repurchases. |
BARRETT
OPPORTUNITY FUND, INC.
| | The biggest shock to the global markets in the recent past came from the decision by British citizens to elect to exit the European Union. Pollsters were shocked to wake up on June 24th to find the majority of the British citizens voted in favor of Brexit. The uncertain consequences of the vote unsettled financial markets around the world. However, most markets (with the exception of the foreign exchange market), rebounded to pre-vote levels once investors realized no major decisions were eminent. |
| | As mentioned in previous investment letters, the stock market has advanced in 22 of 26 quarters since the market bottomed in 2009. We believe the direction and tone of the market will be clearer after the U.S. presidential elections in November. Investors are also looking for more clarity on the Fed’s interest rate outlook and that should be forthcoming at some point. While so far this year, the markets have been flat overall, many sectors and stocks have declined more significantly than others which make their valuations more attractive. If interest rates are heading higher, it will take a very vibrant global economy to force the central bank to raise rates appreciably. Therefore, stock dividend yields will likely remain attractive to investors and we think stocks will have the ability to outperform cash and bonds. |
| | Portfolio and Performance Review |
| | During the twelve month period ended August 31, 2016, the Fund’s total return was +10.45%, which compares to a gain of +10.97% for the Lipper Large Cap Value Fund Index and a total return of +12.55% for the S&P 500 Index. |
| | Over the past 12 months, the best performing sectors in the S&P 500 Index were the telecommunication service and utility sectors. In contrast, the Fund’s best performing sectors were consumer sectors as well as information technology. The worst performing sectors in the S&P 500 Index were financials and health care, while financials and energy represented the worst performing sectors for the Fund. The energy stocks were negatively impacted by the volatile movement in the price of oil since November of 2015. |
| | The biggest contributors to positive performance from the Fund’s larger positions were Chubb and General Dynamics. Chubb, the Fund’s largest position, was acquired by ACE Ltd. and the share conversion was completed in January, 2016. We remain pleased with the performance of the combined company and believe they have the ability to deliver successful results going forward. Offsetting the gains in Chubb and General Dynamics were the declines in Leucadia National and Murphy Oil. As discussed earlier, the price of oil swung wildly between the mid $20s to just over $50 per barrel for West Texas Intermediate crude over the past twelve months. Geopolitical factors continue to sway the market’s expectation of where and when the commodity’s price will stabilize. However, despite the near-term uncertainties, most pundits foresee the price of oil to be higher than the current quote, which would clearly help Royal Dutch Shell and Murphy Oil if that scenario, in fact, unfolds. |
| | Murphy USA, a spinoff of Murphy Oil that operates a network of retail distribution stores, was the best performing holding in the Fund. The company benefited from |
BARRETT
OPPORTUNITY FUND, INC.
| | increased discretionary spending at its gas convenience stations. 3M, Rayonier and Alphabet were also strong positive performers in the past year. We remain constructive about the long-term prospects for the companies in the Fund. The backdrop of improving financial standing for consumers and an expectation of gradual rise in interest rates should help bolster the profitability of the Fund. |
| | Thank you for your continued interest in the Fund. |
| | Sincerely, |
| |  |  |
| | | |
| | Robert Milnamow | E. Wells Beck, CFA |
| | Portfolio Manager | Portfolio Manager |
| | | |
| | Past performance is not a guarantee of future results. The outlook, views, and opinions presented are those of the Adviser as of August 31, 2016. These are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Must be preceded or accompanied by a prospectus. Mutual fund investing involves risk. Principal loss is possible. The Fund is non-diversified, which means that it can invest a higher percentage of its assets in any one issuer. Investing in a non-diversified fund may entail greater risks than is normally associated with more widely diversified funds. Small- and Medium- capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Investing in foreign securities is subject to certain risks not associated with domestic investing, such as currency fluctuations and changes in political and economic conditions. These risks are magnified in emerging or developing markets. Some securities held by the fund may be illiquid and can be difficult to value and sell. The Lipper Large-Cap Value Funds Index includes funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three year weighted basis) above Lipper’s U.S. Diversified Equity large-cap floor. The S&P 500® Index is a capitalization weighted index of five hundred large capitalization stocks, which is designed to measure broad domestic securities markets. Investors cannot invest directly in an index. Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of portfolio holdings, please refer to the Schedule of Investments provided in this report. The Barrett Opportunity Fund is distributed by Quasar Distributors, LLC. |
| | |
| | |
| | |
| | |
BARRETT
OPPORTUNITY FUND, INC.
Fund at a Glance (Unaudited)
Top Ten Holdings - as of 8/31/2016 (As a percentage of Total Investments) |
|
| General Dynamics Corp. | 16.7% |
| The Bank of New York Mellon Corp. | 14.8% |
| Chubb Ltd. – ADR | 10.2% |
| Royal Dutch Shell PLC – Class A – ADR | 9.1% |
| Koninklijke Philips Electronics NV – | |
| NY Registered Shares – ADR | 5.6% |
| Forest City Realty Trust, Inc. – Class B | 4.5% |
| Monsanto Co. | 3.3% |
| Forest City Realty Trust, Inc. – Class A | 3.1% |
| 3M Co. | 3.0% |
| Murphy Oil Corp. | 2.7% |
| Sector Weightings - as of 8/31/2016 |
(As a percentage of Total Investments) |
| |
 |
| |
| |
BARRETT
OPPORTUNITY FUND, INC.
Fund Expenses (Unaudited)
Example
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on March 1, 2016, and held for the six months ended August 31, 2016.
Actual Expenses
The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period.”
Hypothetical Example for Comparison Purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| | | | Expenses Paid |
| | Beginning | Ending | During the Period* |
| | Account | Account | March 1, 2016 to |
| | Value | Value | August 31, 2016 |
| Actual Barrett Opportunity Fund, Inc. Expenses | $1,000.00 | $1,152.90 | $7.04 |
| Hypothetical Expenses | | | |
| (5% return per year before expenses) | $1,000.00 | $1,018.10 | $6.60 |
| * | Expenses are equal to the Fund’s annualized six-month expense ratio of 1.30%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
BARRETT
OPPORTUNITY FUND, INC.
Historical Performance (Unaudited)
Value of $10,000 Invested in Barrett Opportunity Fund, Inc. vs.
the S&P 500® Index† (August 2006 – August 2016)
| † | Hypothetical illustration of $10,000 invested in Barrett Opportunity Fund, Inc. on August 31, 2006 assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through August 31, 2016. The S&P 500® Index is a market-value weighted index comprised of 500 widely held common stocks. The Index is unmanaged and it is not subject to the same management and trading expenses of a mutual fund. Please note that an investor cannot invest directly in an index. |
Fund Performance
Average Annual Total Returns* (Unaudited)
| | | | | Since |
| | | | | Inception |
| | 1 Year | 5 Years | 10 Years | (2/28/1979) |
| Barrett Opportunity Fund, Inc. | 10.45% | 10.34% | 2.91% | 10.73% |
| S&P 500 Index | 12.55% | 14.69% | 7.51% | 11.74% |
| * | Assumes the reinvestment of all distributions at net asset value but does not reflect deductions of taxes that a shareholder would pay on Fund distributions and the redemption of Fund shares. All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. |
BARRETT
OPPORTUNITY FUND, INC.
Schedule of Investments
August 31, 2016
| Shares | | | | Value | |
| | | COMMON STOCKS - 87.28% | | | |
| | | | | | |
| | | Beverage and | | | |
| | | Tobacco Product | | | |
| | | Manufacturing - 1.79% | | | |
| | 10,000 | | PepsiCo., Inc. | | $ | 1,067,500 | |
| | | | | | | | |
| | | | Building Material and | | | | |
| | | | Garden Equipment and | | | | |
| | | | Supplies Dealers - 0.90% | | | | |
| | 4,000 | | The Home Depot, Inc. | | | 536,480 | |
| | | | | | | | |
| | | | Chemical | | | | |
| | | | Manufacturing - 4.01% | | | | |
| | 12,000 | | Abbott Laboratories | | | 504,240 | |
| | 12,000 | | AbbVie, Inc. | | | 769,200 | |
| | 5,000 | | Johnson & Johnson | | | 596,700 | |
| | 15,000 | | Pfizer, Inc. | | | 522,000 | |
| | | | | | | 2,392,140 | |
| | | | Computer and | | | | |
| | | | Electronic Product | | | | |
| | | | Manufacturing - 6.51% | | | | |
| | 5,000 | | Apple, Inc. | | | 530,500 | |
| | 115,710 | | Koninklijke Philips Electronics | | | | |
| | | | NV - NY Registered | | | | |
| | | | Shares - ADR | | | 3,348,647 | |
| | | | | | | 3,879,147 | |
| | | | Credit Intermediation and | | | | |
| | | | Related Activities - 14.78% | | | | |
| | 211,471 | | The Bank of New York | | | | |
| | | | Mellon Corp. | | | 8,811,997 | |
| | | | | | | | |
| | | | Data Processing, Hosting | | | | |
| | | | and Related Services - 2.26% | | | | |
| | 15,000 | | Automatic Data | | | | |
| | | | Processing, Inc. | | | 1,347,150 | |
| | | | | | | | |
| | | | Insurance Carriers and | | | | |
| | | | Related Activities - 11.26% | | | | |
| | 4,000 | | Berkshire Hathaway, Inc. - | | | | |
| | | | Class B (a) | | | 601,960 | |
| | 48,152 | | Chubb Ltd. - ADR (b) | | | 6,111,933 | |
| | | | | | | 6,713,893 | |
| | | | Leather and Allied Product | | | | |
| | | | Manufacturing - 0.82% | | | | |
| | 8,500 | | NIKE, Inc. | | | 489,940 | |
| | | | | | | | |
| | | | Merchant Wholesalers, | | | | |
| | | | Nondurable Goods - 3.26% | | | | |
| | 18,242 | | Monsanto Co. | | | 1,942,773 | |
| | | | | | | | |
| | | | Miscellaneous | | | | |
| | | | Manufacturing - 3.01% | | | | |
| | 10,000 | | 3M Co. | | | 1,792,400 | |
| | | | | | | | |
| | | | Other Information | | | | |
| | | | Services - 2.25% | | | | |
| | 1,750 | | Alphabet, Inc. (a) | | | 1,342,338 | |
| | | | | | | | |
| | | | Petroleum and Coal Products | | | | |
| | | | Manufacturing - 14.50% | | | | |
| | 60,600 | | Murphy Oil Corp. | | | 1,619,232 | |
| | 21,825 | | Murphy USA, Inc. (a) | | | 1,595,844 | |
| | 111,100 | | Royal Dutch Shell PLC - | | | | |
| | | | Class A - ADR | | | 5,432,790 | |
| | | | | | | 8,647,866 | |
| | | | | | | | |
| | | | Publishing Industries | | | | |
| | | | (except Internet) - 0.96% | | | | |
| | 10,000 | | Microsoft Corp. | | | 574,600 | |
| | | | | | | | |
| | | | Real Estate - 1.18% | | | | |
| | 17,500 | | Alexander & Baldwin, Inc. | | | 702,275 | |
| | | | | | | | |
| | | | Transportation Equipment | | | | |
| | | | Manufacturing - 16.69% | | | | |
| | 65,400 | | General Dynamics Corp. | | | 9,955,188 | |
The accompanying notes are an integral part of these financial statements.
BARRETT
OPPORTUNITY FUND, INC.
Schedule of Investments (continued)
August 31, 2016
| Shares | | | | Value | |
| | | Waste Management and | | | |
| | | Remediation Services - 0.85% | | | |
| | 66,850 | | TRC Cos., Inc. (a) | | $ | 509,397 | |
| | | | | | | | |
| | | | Wood Product | | | | |
| | | | Manufacturing - 2.25% | | | | |
| | 70,000 | | Leucadia National Corp. | | | 1,340,500 | |
| | | | Total Common Stocks | | | | |
| | | | (Cost $14,693,790) | | | 52,045,584 | |
| | | | | | | | |
| | | | REAL ESTATE INVESTMENT | | | | |
| | | | TRUSTS (REITS) - 10.08% | | | | |
| | | | | | | | |
| | | | Real Estate - 10.08% | | | | |
| | 77,400 | | Forest City Realty Trust, Inc. - | | | | |
| | | | Class A | | | 1,831,284 | |
| | 112,500 | | Forest City Realty Trust, Inc. - | | | | |
| | | | Class B (c) | | | 2,667,375 | |
| | 54,985 | | Rayonier, Inc. | | | 1,513,737 | |
| | | | Total Real Estate Investment | | | | |
| | | | Trusts (Cost $583,101) | | | 6,012,396 | |
| | | | | | | | |
| | | | SHORT-TERM | | | | |
| | | | INVESTMENTS - 2.65% | | | | |
| | | | | | | | |
| | | | Money Market Funds - 2.65% | | | | |
| | 1,578,636 | | Fidelity Institutional Money | | | | |
| | | | Market Fund - Government | | | | |
| | | | Portfolio - Class I, 0.26% (d) | | | 1,578,636 | |
| | | | Total Short-Term Investments | | | | |
| | | | (Cost $1,578,636) | | | 1,578,636 | |
| | | | Total Investments | | | | |
| | | | (Cost $16,855,527) - 100.01% | | | 59,636,616 | |
| | | | Liabilities in Excess | | | | |
| | | | of Other Assets - (0.01)% | | | (3,166 | ) |
| | | | Total Net Assets - 100.00% | | $ | 59,633,450 | |
| | | | | | | | |
| Number of | | | | | | |
| Contracts | | | | | | |
| | | | SCHEDULE OF OPTIONS | | | | |
| | | | WRITTEN | | | | |
| | | | | | | | |
| | | | Call Options | | | | |
| | | | Chubb Ltd. - ADR | | | | |
| | 100 | | Expiration: November 2016, | | | | |
| | | | Exercise Price: $130.00 | | $ | 18,500 | |
| | 100 | | Expiration: November 2016, | | | | |
| | | | Exercise Price: $125.00 | | | 46,000 | |
| | | | Total Options Written | | | | |
| | | | (Premiums Received $64,390) | | $ | 64,500 | |
| Percentages stated are a percentage of net assets. |
| ADR American Depository Receipt |
| (a) | Non-income producing security. |
| (b) | A portion of this security may be subject to call options written and is pledged as collateral for options written. The value of this security held as collateral as of August 31, 2016 was $2,538,600. See Note 2. |
| (c) | Convertible into Forest City Reality Trust, Inc. - Class A shares. |
| (d) | Variable rate security. The rate listed is as of August 31, 2016. |
The accompanying notes are an integral part of these financial statements.
BARRETT
OPPORTUNITY FUND, INC.
Statement of Assets & Liabilities
August 31, 2016
| ASSETS: | | | |
| Investments, at value (cost $16,855,527) | | $ | 59,636,616 | |
| Dividend and interest receivable | | | 150,200 | |
| Other assets | | | 33,064 | |
| Total Assets | | | 59,819,880 | |
| | | | | |
| LIABILITIES: | | | | |
| Written options, at value (premium received $64,390) | | | 64,500 | |
| Payable to Adviser | | | 35,197 | |
| Payable to Directors | | | 6,460 | |
| Payable for funds shares redeemed | | | 5,430 | |
| Other accrued expenses | | | 74,843 | |
| Total Liabilities | | | 186,430 | |
| | | | | |
| NET ASSETS | | $ | 59,633,450 | |
| | | | | |
| NET ASSETS CONSIST OF: | | | | |
| Capital stock | | $ | 3,594,676 | |
| Accumulated undistributed net investment income | | | 479,682 | |
| Accumulated undistributed net realized gain | | | 12,778,113 | |
| Net unrealized appreciation (depreciation) on: | | | | |
| Investments | | | 42,781,089 | |
| Written options | | | (110 | ) |
| Total Net Assets | | $ | 59,633,450 | |
| | | | | |
| Shares outstanding | | | 1,915,184 | |
| Net asset value, offering price and redemption price | | | | |
| per share (15,000,000 shares authorized, $0.01 par value) | | $ | 31.14 | |
The accompanying notes are an integral part of these financial statements.
BARRETT
OPPORTUNITY FUND, INC.
Statement of Operations
Year Ended August 31, 2016
| INVESTMENT INCOME: | | | |
| Dividend income* | | $ | 1,354,397 | |
| Interest income | | | 2,909 | |
| | | | 1,357,306 | |
| EXPENSES: | | | | |
| Investment advisory fees (see Note 2) | | | 399,473 | |
| Transfer agent fees and expenses | | | 58,697 | |
| Legal fees | | | 57,864 | |
| Administration fees | | | 44,081 | |
| Directors’ fees and expenses | | | 42,413 | |
| Fund accounting fees | | | 28,076 | |
| Federal and state registration fees | | | 26,383 | |
| Audit fees | | | 17,503 | |
| Reports to shareholders | | | 12,349 | |
| Custody fees | | | 4,756 | |
| Other | | | 34,594 | |
| Net expenses | | | 726,189 | |
| Net investment income | | | 631,117 | |
| | | | | |
| REALIZED AND UNREALIZED GAIN ON INVESTMENTS: | | | | |
| Net realized gain on: | | | | |
| Investments | | | 12,743,020 | |
| Written options | | | 46,007 | |
| Total net realized gain | | | 12,789,027 | |
| Net change in unrealized depreciation on: | | | | |
| Investments | | | (7,776,035 | ) |
| Written options | | | (12,867 | ) |
| Total net change in unrealized depreciation | | | (7,788,902 | ) |
| Net realized and unrealized gain on investments | | | 5,000,125 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 5,631,242 | |
* Net of $78,306 of foreign taxes withheld.
The accompanying notes are an integral part of these financial statements.
BARRETT
OPPORTUNITY FUND, INC.
Statements of Changes in Net Assets
| | | Year Ended | | | Year Ended | |
| | | August 31, 2016 | | | August 31, 2015 | |
| OPERATIONS: | | | | | | |
| Net investment income | | $ | 631,117 | | | $ | 537,612 | |
| Net realized gain (loss) on: | | | | | | | | |
| Investments | | | 12,743,020 | | | | 5,901,397 | |
| In-kind redemptions | | | — | | | | 1,337,006 | |
| Written options | | | 46,007 | | | | (43,205 | ) |
| Change in net unrealized appreciation (depreciation) on: | | | | | | | | |
| Investments | | | (7,776,035 | ) | | | (9,759,914 | ) |
| Written options | | | (12,867 | ) | | | 9,706 | |
| Net increase (decrease) in net assets resulting from operations | | | 5,631,242 | | | | (2,017,398 | ) |
| | | | | | | | | |
| DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Net investment income | | | (510,673 | ) | | | (760,568 | ) |
| Net realized gains on investment | | | (5,538,413 | ) | | | (6,130,171 | ) |
| Total dividends and distributions | | | (6,049,086 | ) | | | (6,890,739 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Shares sold | | | 83,116 | | | | 18,605 | |
| Shares issued in reinvestment of dividends | | | 3,658,269 | | | | 3,970,623 | |
| Shares redeemed | | | | | | | | |
| Cash redemptions | | | (2,260,807 | ) | | | (3,163,788 | ) |
| In-kind redemptions | | | — | | | | (1,474,375 | ) |
| Net increase (decrease) in net assets from capital share transactions | | | 1,480,578 | | | | (648,935 | ) |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | 1,062,734 | | | | (9,557,072 | ) |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of year | | | 58,570,716 | | | | 68,127,788 | |
| End of year (including accumulated undistributed net | | | | | | | | |
| investment income of $479,682 and $359,238, respectively) | | $ | 59,633,450 | | | $ | 58,570,716 | |
The accompanying notes are an integral part of these financial statements.
BARRETT
OPPORTUNITY FUND, INC.
Financial Highlights
| | | Year Ended August 31, | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Per Share Data: | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | | $ | 31.52 | | | $ | 36.34 | | | $ | 33.53 | | | $ | 31.65 | | | $ | 31.87 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | 0.33 | | | | 0.29 | | | | 0.38 | | | | 0.48 | | | | 0.40 | |
| Net realized and unrealized | | | | | | | | | | | | | | | | | | | | |
| gain (loss) on investments | | | 2.57 | | | | (1.40 | ) | | | 5.38 | | | | 4.98 | | | | 2.41 | |
| Total from investment operations | | | 2.90 | | | | (1.11 | ) | | | 5.76 | | | | 5.46 | | | | 2.81 | |
| | | | | | | | | | | | | | | | | | | | | |
| Less distributions: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.28 | ) | | | (0.41 | ) | | | (0.30 | ) | | | (0.56 | ) | | | (0.30 | ) |
| Net realized gain on investments | | | (3.00 | ) | | | (3.30 | ) | | | (2.65 | ) | | | (3.02 | ) | | | (2.73 | ) |
| Total distributions | | | (3.28 | ) | | | (3.71 | ) | | | (2.95 | ) | | | (3.58 | ) | | | (3.03 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of year | | $ | 31.14 | | | $ | 31.52 | | | $ | 36.34 | | | $ | 33.53 | | | $ | 31.65 | |
| | | | | | | | | | | | | | | | | | | | | |
Total return1 | | | 10.45 | % | | | (3.27 | )% | | | 18.06 | % | | | 18.51 | % | | | 9.40 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Supplemental data and ratios: | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of year (000,000’s) | | $ | 60 | | | $ | 59 | | | $ | 68 | | | $ | 64 | | | $ | 61 | |
| Ratio of net expenses | | | | | | | | | | | | | | | | | | | | |
| to average net assets | | | 1.27 | % | | | 1.17 | % | | | 1.16 | % | | | 1.19 | % | | | 1.19 | %2 |
| Ratio of net investment income | | | | | | | | | | | | | | | | | | | | |
| to average net assets | | | 1.11 | % | | | 0.84 | % | | | 1.07 | % | | | 1.38 | % | | | 1.25 | %2 |
| Portfolio turnover rate | | | 6 | % | | | 2 | % | | | 1 | % | | | 0 | % | | | 4 | % |
1 | Performance figures may reflect compensating balance arrangements fee waivers and/or expense reimbursements. In the absence of these arrangements, total returns would have been lower. |
2 | Such percentages are after advisory fee waiver. Effective April 29, 2011, the adviser voluntarily agreed to waive 0.05% of average net assets of its advisory fee for the period of one year, of which 0.03% of average net assets was for the year ended August 31, 2012. In the absence of this waiver, the ratio of net expenses to average net assets would be 0.03% higher for the year ended August 31, 2012. |
The accompanying notes are an integral part of these financial statements.
BARRETT
OPPORTUNITY FUND, INC.
Notes to Financial Statements
| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES | Barrett Opportunity Fund, Inc. (“the ”Fund“), a Maryland corporation organized in 1978, is registered as a non-diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the ”1940 Act). The Fund’s investment objective is to achieve above average long-term capital appreciation. Current income is a secondary objective. The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 “Financial Services – Investment Companies”. |
| |
| |
| |
| |
| | |
| | | The following are significant accounting policies consistently followed by the Fund and are in conformity with generally accepted accounting principles in the United States of America (“GAAP”). |
| | | (a) Investment Valuation |
| | | Equity securities, including common stocks and REITs, for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. |
| | | Redeemable securities issued by open-end, registered investment companies, including money market funds, are valued at the net asset value (“NAV”) of such companies for purchase and / or redemption orders placed on that day. |
| | | Exchange traded options, including options written, are valued at the composite price, using the National Best Bid and Offer quotes (“NBBO”). NBBO consists of the highest bid price and lowest ask price across any of the exchanges on which an option is quoted, thus providing a view across the entire U.S. options marketplace. Specifically, composite pricing looks at the last trades on the exchanges where the options are traded. If there are no trades for the option on a given business day, composite option pricing calculates the mean of the highest bid price and lowest ask price across the exchanges where the option is traded. |
| | | When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities at fair value as determined in accordance with procedures approved by the Fund’s Board of Directors. |
| | | The Fund uses valuation techniques to measure fair value that are consistent with the market approach and / or income approach, depending on the type of the security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value. |
BARRETT
OPPORTUNITY FUND, INC.
| | | Financial Accounting Standards Board (“FASB”) Accounting Standards Codification, “Fair Value Measurements and Disclosures” Topic 820 (“ASC Topic 820”), establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Fund’s investments, and requires additional disclosure about fair value. The hierarchy of inputs is summarized below: |
| | | ● | Level 1 – quoted prices in active markets for identical investments as of the measurement date |
| | | | |
| | | ● | Level 2 – other 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) |
| | | Inputs refer broadly to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Fund. The Fund considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Fund’s perceived risk of that instrument. |
| | | Investments whose values are based on quoted market prices in active markets include listed equities, including common stocks and REITs, and certain money market securities, and are classified within Level 1. Instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs, are classified within Level 2. Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or not at all. |
| | | The following is a summary of the inputs used in valuing the Fund’s assets carried at fair value as of the year ended August 31, 2016. The inputs and methodologies used to value securities may not be an indication of the risk associated with investing in these securities. |
BARRETT
OPPORTUNITY FUND, INC.
| | | | | | | Other | | | | | | | |
| | | | | | | Significant | | | Significant | | | | |
| | | | Quoted | | | Observable | | | Unobservable | | | | |
| | | | Prices | | | Inputs | | | Inputs | | | | |
| | Description | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | |
| | Assets | | | | | | | | | | | | |
| | Common Stocks | | | | | | | | | | | | |
| | Administration | | | | | | | | | | | | |
| | Support and | | | | | | | | | | | | |
| | Waste Management | | $ | 509,397 | | | $ | — | | | $ | — | | | $ | 509,397 | |
| | Finance & Insurance | | | 15,525,890 | | | | — | | | | — | | | | 15,525,890 | |
| | Information | | | 3,264,088 | | | | — | | | | — | | | | 3,264,088 | |
| | Manufacturing | | | 29,564,681 | | | | — | | | | — | | | | 29,564,681 | |
| | Real Estate, | | | | | | | | | | | | | | | | |
| | Rental & Leasing | | | 702,275 | | | | — | | | | — | | | | 702,275 | |
| | Retail Trade | | | 536,480 | | | | — | | | | — | | | | 536,480 | |
| | Wholesale Trade | | | 1,942,773 | | | | — | | | | — | | | | 1,942,773 | |
| | Total Common Stocks | | | 52,045,584 | | | | — | | | | — | | | | 52,045,584 | |
| | REITs | | | 6,012,396 | | | | — | | | | — | | | | 6,012,396 | |
| | Money Market Funds | | | 1,578,636 | | | | — | | | | — | | | | 1,578,636 | |
| | Total Assets | | $ | 59,636,616 | | | $ | — | | | $ | — | | | $ | 59,636,616 | |
| | Liabilities | | | | | | | | | | | | | | | | |
| | Written Options | | $ | (18,500 | ) | | $ | (46,000 | ) | | $ | — | | | $ | (64,500 | ) |
| | | Transfers between Level 1 and Level 2 as of August 31, 2016 resulted from securities priced either at the market closing price (Level 1 securities) or at the mean of the bid and asked prices (Level 2 securities) when a closing price was not available. Transfers as of August 31, 2016 are summarized in the table below. The Fund did not hold any Level 3 securities during the period. It is the Fund’s policy to records transfers between levels as of the end of the reporting period. |
| | Transfers into Level 1 | | $ | 2,667,375 | |
| | Transfers out of Level 1 | | | — | |
| | Net Transfers in and/or out of Level 1 | | $ | 2,667,375 | |
| | Transfers into Level 2 | | $ | — | |
| | Transfers out of Level 2 | | | (2,667,375 | ) |
| | Net Transfers in and/or out of Level 2 | | $ | (2,667,375 | ) |
BARRETT
OPPORTUNITY FUND, INC.
| | | Derivative Instruments |
| | | The Fund may invest in derivative instruments. The use of derivatives included written options. The following table summarizes the effect of derivatives: |
| | | Statement of Assets & Liabilities – Values of derivative instruments as of August 31, 2016: |
| | | | Liability Derivatives |
| | | Derivatives not | Statement of | |
| | | accounted for as | Assets and | |
| | | hedging instruments | Liabilities Location | Value |
| | | Equity Contracts – Options | Options written, at value | $64,500 |
| | | | | |
| | | The effect of derivative instruments on the Statement of Operations for the fiscal year ended August 31, 2016: |
| | | | | |
| | | Derivatives not | Amount of Realized Gains | |
| | | accounted for as | on Derivatives Transactions | |
| | | hedging instruments | Options | |
| | | Equity Contracts | $46,007 | |
| | | | | |
| | | Derivatives not | Change in Net Unrealized Depreciation | |
| | | accounted for as | on Derivatives Recognized in Income | |
| | | hedging instruments | Options | |
| | | Equity Contracts | ($12,867) | |
| | | | | |
| | | The Fund is not subject to any Master Netting Agreements; therefore, the Fund was not required to offset any assets or liabilities. |
| | | (b) Options |
| | | GAAP requires enhanced disclosures about the Fund’s derivative activities, including how such activities are accounted for and their effect on the Fund’s financial position and results of operations. |
| | | The Fund is subject to equity price risk in the normal course of pursuing its investment objective. The Fund enters into written call options to hedge against changes in the value of equities. The Fund’s option component of the overall investment strategy is often referred to as a “buy-write” strategy (also called a “covered call” strategy), in which the Adviser (as defined below) writes (sells) a call option contract while at the same time owning an equivalent number of shares of the underlying stock to generate moderate current income. The writing of call options is intended to reduce the volatility of the portfolio and to earn premium income. Written call options expose the Fund to minimal counterparty credit risk since they are exchange traded and the exchange’s clearing house guarantees the options against default. |
| | | As the writer of a call option, the Fund has the obligation to sell the security at the exercise price during the exercise period in the event the option is exercised. |
BARRETT
OPPORTUNITY FUND, INC.
| | | When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from options written. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or, if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Fund has realized a gain or a loss. The Fund as writer of an option bears the market risk of an unfavorable change in the price of the security underlying the written option. |
| | | Transactions in options written during the year ended August 31, 2016 were as follows: |
| | Call Options | | Contracts | | | Premiums | |
| | Outstanding, beginning of period | | | 300 | | | $ | 46,007 | |
| | Options written | | | 200 | | | | 64,390 | |
| | Options terminated in closing transactions | | | — | | | | — | |
| | Options exercised | | | — | | | | — | |
| | Options expired | | | (300 | ) | | | (46,007 | ) |
| | Outstanding, end of year | | | 200 | | | $ | 64,390 | |
| | | (c) Security Transactions and Investment Income |
| | | Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Under applicable tax laws, a withholding tax may be imposed on interest, dividends, and capital gains at various rates and 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. The cost of investments sold is determined by use of the specific identification method for computing the gain/loss on the transaction. It is the Fund’s policy to recognize a loss on a worthless security once it is determined beyond a reasonable doubt that there is no possibility of future worth. Proceeds from bankruptcy settlements will generally be recognized as a realized gain if the security is no longer held and as a return of capital if the security is still held. |
| | | (d) Distributions to Shareholders |
| | | The Fund will distribute any net investment income and any net realized long- or short-term capital gains at least annually. Distributions from net realized gains for book purposes may include short-term capital gains. All short-term capital gains are included in ordinary income for tax purposes. Distributions to shareholders are recorded on the ex-dividend date. The Fund may also pay a special distribution at the end of the calendar year to comply with federal tax requirements. |
BARRETT
OPPORTUNITY FUND, INC.
| | | (e) REIT Distributions |
| | | The character of distributions received from REITs held by the Fund is generally comprised of net investment income, capital gains, and return of capital. It is the policy of the Fund to estimate the character of distributions received from underlying REITs based on historical data provided by the REITs. After each calendar year end, REITs report the actual tax character of these distributions. Differences between the estimated and actual amounts reported by the REITs are reflected in the Fund’s records in the year in which they are reported by the REITs by adjusting related investment cost basis, capital gains and income, as necessary. |
| | | |
| | | (f) Federal Income Taxes |
| | | It is the Fund’s policy to comply with the federal income and excise tax requirements of subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), necessary to qualify as a regulated investment company. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal income tax provision is provided in the Fund’s financial statements. |
| | | |
| | | As of and during the year ended August 31, 2016, the Fund did not have a liability of any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to uncertain tax benefits as income tax expense in the Statement of Operations. During the year, the Fund did not incur any interest or penalties. The Fund is not subject to examination by U.S. taxing authorities for tax periods prior to 2012. |
| | | |
| | | (g) Use of Estimates |
| | | The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
| | | |
| | | (h) Indemnification |
| | | In the normal course of business the Fund enters into contracts that contain general indemnification clauses. The Fund’s maximum exposure under these agreements is unknown, as this would involve future claims against the Fund that have not yet occurred. Based on experience, the Fund expects the risk of loss to be remote. |
| | | |
| | | (i) Subsequent Events |
| | | Effective January 1, 2017, David Kochman will assume the role of chairperson. Rosalind A. Kochman will relinquish her duty as chairperson, but will remain a Director. |
BARRETT
OPPORTUNITY FUND, INC.
| | | (j) Beneficial Ownership |
| | | The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of the fund, under Section 2(a)(9) of the 1940 Act. At August 31, 2016, John B. Gaguine had control of 26.08% of the outstanding shares of the Barrett Opportunity Fund. |
| | | |
| 2. | INVESTMENT ADVISER AGREEMENT AND OTHER TRANSACTIONS | The Fund has an Investment Advisory Agreement with Barrett Asset Management, LLC (“Barrett Asset Management” or the “Adviser”). Under the Investment Advisory Agreement, the Fund pays an advisory fee, calculated daily and paid monthly, in accordance with the following breakpoint schedule: |
| |
| |
| |
| | Average Daily Net Assets | Annual Rate |
| | First $1 billion | 0.700% |
| | Next $1 billion | 0.675% |
| | Next $3 billion | 0.650% |
| | Next $5 billion | 0.625% |
| | Over $10 billion | 0.600% |
| | | For the year ended August 31, 2016, the advisory fee totaled $399,473. |
| | | |
| | | The officers of the Fund are also officers and employees of Barrett Asset Management and do not receive compensation from the Fund. |
| | | |
| 3. | INVESTMENTS | During the year ended August 31, 2016, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows: |
| | | Purchases | Sales |
| | | $3,213,074 | $3,109,318 |
| 4. | CAPITAL SHARES | At August 31, 2016, the Fund had 15,000,000 shares of capital stock authorized with a par value of $0.01 per share. Transactions in shares of the Fund were as follows: |
| | | | Year Ended | | | Year Ended | |
| | | | August 31, 2016 | | | August 31, 2015 | |
| | Shares sold | | | 2,808 | | | | 566 | |
| | Shares issued on reinvestment | | | 131,451 | | | | 123,311 | |
| | Shares redeemed | | | (77,194 | ) | | | (95,035 | ) |
| | In-kind redemptions | | | 0 | | | | (45,548 | ) |
| | Net increase (decrease) | | | 57,065 | | | | (16,706 | ) |
| 5. | INCOME TAX | The tax character of distributions paid during the fiscal years ended August 31 were as follows: | |
| | INFORMATION | | | | | | | |
| | AND | | | | 2016 | | | | 2015 | |
| | DISTRIBUTIONS | Distributions Paid From: | | | | | | | | |
| | TO | Ordinary Income | | $ | 510,673 | | | $ | 957,545 | |
| | SHAREHOLDERS | Net long-term capital gains | | | 5,538,413 | | | | 5,933,194 | |
| | | Total distributions paid | | $ | 6,049,086 | | | $ | 6,890,739 | |
BARRETT
OPPORTUNITY FUND, INC.
| | | The Fund designated as long-term capital gain dividends, pursuant to Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the earnings and profits of the Fund related to net capital gain to zero for the tax year ended August 31, 2016. |
| | | |
| | | At August 31, 2016, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows: |
| | Tax cost of investments | | $ | 16,855,527 | |
| | Gross unrealized appreciation | | | 42,816,918 | |
| | Gross unrealized depreciation | | | (35,829 | ) |
| | Net unrealized appreciation | | $ | 42,781,089 | |
| | | As of August 31, 2016, the components of accumulated earnings (losses) on a tax basis were as follows: |
| | Undistributed operating income | | $ | 548,035 | |
| | Undistributed long-term gains | | | 12,738,675 | |
| | Distributable earnings | | | 13,286,710 | |
| | Unrealized appreciation | | | 42,781,089 | |
| | Other accumulated losses* | | | (29,025 | ) |
| | Total accumulated gains | | $ | 56,038,774 | |
| | | * Other temporary differences are primarily attributable to the timing of certain expenses. |
| | | Additionally, U.S. generally accepted accounting principles require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the year ended August 31, 2016, the following table shows the reclassifications made: |
| | | Undistributed Net | Accumulated Net | Paid-In |
| | | Investment Loss | Realized Loss | Capital |
| | | $ — | $ — | $ — |
BARRETT
OPPORTUNITY FUND, INC.
| REPORT OF | To the Shareholders and Board of Directors of |
| INDEPENDENT | Barrett Opportunity Fund, Inc. |
| REGISTERED | |
PUBLIC ACCOUNTING FIRM | We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Barrett Opportunity Fund, Inc. (the “Fund”) as of August 31, 2016, and the related statement of operations for the year then ended, the statements of 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. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. |
| | We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2016, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. |
| | In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Barrett Opportunity Fund, Inc. as of August 31, 2016, the results of its operations for the year then ended, the changes in its 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. |
| | |
| |  |
| | |
| | COHEN & COMPANY, LTD. |
| | Cleveland, Ohio |
| | October 28, 2016 |
BARRETT
OPPORTUNITY FUND, INC.
Additional Information (Unaudited)
1. INFORMATION ABOUT DIRECTORS AND OFFICERS
The business and affairs of the Fund are conducted by management under the supervision and subject to the direction of its Board of Directors. The business address of each Director is c / o Barrett Asset Management, LLC, the Fund’s investment manager (“Barrett Asset Management”), 90 Park Avenue, 34th Floor, New York, New York, 10016. Information pertaining to the Directors and officers of the Fund is set forth below.
The Statement of Additional Information includes additional information about Directors and is available, without charge, upon request by calling the Fund at 1-877-363-6333.
| | | | | Number of | |
| | | | | Portfolios | |
| | | | | in Fund | Other Board |
| | Position(s) | Term of Office* | | Complex | Memberships |
| Name, Address | Held with | and Length of | Principal Occupation(s) | Overseen | Held by |
and Birth Year | Fund | Time Served** | During Past 5 Years | by Director | Director |
| | | | | | |
INDEPENDENT DIRECTORS†: | | | | | |
| Barry Handel, CPA | Director | Since 2005 | Partner, Shalik, Morris & | 1 | None |
| Birth Year: 1951 | | | Company, LLP | | |
| | | | (accounting firm) | | |
| | | | | | |
David H. Kochman(1) | Director | Since 2011 | Member, Harris Beach PLLC | 1 | None |
| Birth Year: 1959 | | | (law firm) | | |
| | | | | | |
Rosalind A. Kochman(2) | Director | Since 1990 | Retired (since 2002); formerly, | 1 | None |
| Birth Year: 1937 | | | Chief Executive Officer, | | |
| | Chairperson | Since 2005 | Brooklyn Eye Surgery Center, | | |
| | | | and Administrator, Kochman, | | |
| | | | Lebowitz & Mogil, MDs | | |
| | | | | | |
| William Morris, Jr., CPA | Director | Since 2005 | President, William Morris & | 1 | None |
| Birth Year: 1948 | | | Associates P.C. (accounting | | |
| | | | firm) | | |
| | | | | | |
| OFFICERS: | | | | | |
| Peter H. Shriver, CFA | President | Since 2006 | Chief Executive Officer | N/A | N/A |
| Barrett Asset Management | and Chief | | of Barrett Asset Management | | |
| 90 Park Avenue | Executive | | (since 2011); President of | | |
| New York, NY 10016 | Officer | | Barrett Asset Management | | |
| Birth Year: 1952 | | | (2011-2014) | | |
| (1) | Mr. Kochman is Ms. Kochman’s son. |
| (2) | Ms. Kochman is Mr. Kochman’s mother. |
BARRETT
OPPORTUNITY FUND, INC.
| | | | | Number of | |
| | | | | Portfolios | |
| | | | | in Fund | Other Board |
| | Position(s) | Term of Office* | | Complex | Memberships |
| Name, Address | Held with | and Length of | Principal Occupation(s) | Overseen | Held by |
and Birth Year | Fund | Time Served** | During Past 5 Years | by Director | Director |
| | | | | | |
| OFFICERS (Continued): | | | | | |
| E. Wells Beck, CFA | Vice | Since 2010 | Managing Director and | N/A | N/A |
| Barrett Asset Management | President | | Director of Research, Barrett | | |
| 90 Park Avenue | and | | Asset Management (since | | |
| New York, NY 10016 | Investment | | 2011) | | |
| Birth Year: 1968 | Officer | | | | |
| | | | | | |
| Robert J. Milnamow | Vice | Since 2014 | President and Chief | N/A | N/A |
| Barrett Asset Management | President | | Investment Officer of | | |
| 90 Park Avenue | and Chief | | Barrett Asset Management | | |
| New York, NY 10016 | Investment | | (since 2011); Executive Vice | | |
| Birth Year: 1950 | Officer | | President, Barrett Asset | | |
| | | | Management (2006-2014) | | |
| | | | | | |
| Madeleine Morreale | Chief | Since 2011 | Chief Compliance Officer, | N/A | N/A |
| Barrett Asset Management | Compliance | | Barrett Asset Management | | |
| 90 Park Avenue | Officer | | (2011-Present) | | |
| New York, NY 10016 | and | | | | |
| Birth Year: 1956 | Anti-Money | | | | |
| | Laundering | | | | |
| | Officer | | | | |
| | | | | | |
| John G. Youngman | Chief | Since 2011 | Managing Director, | N/A | N/A |
| Barrett Asset Management | Financial | | Barrett Asset Management | | |
| 90 Park Avenue | Officer | | (2011-Present); Managing | | |
| New York, NY 10016 | and | | Director, Barrett Associates | | |
| Birth Year: 1968 | Treasurer | | (2010-2011) | | |
| + | Directors who are not “interested persons” of the Fund within the meaning of Section 2(a)(19) of the 1940 Act. |
| * | Each Director and officer serves until his respective successor has been duly elected and qualified or until his earlier death, resignation, retirement or removal. |
| ** | Indicates the earliest year in which the Director became a board member or the officer took such office. |
BARRETT
OPPORTUNITY FUND, INC.
2. IMPORTANT TAX INFORMATION
The following information is provided with respect to the distributions paid during the taxable year ended August 31, 2016:
| Record Date: | 12/17/15 |
| Payable Date: | 12/18/15 |
| | |
| Ordinary Income: | |
| Qualified Dividend Income for Individuals | 100.00% |
| Dividends Qualifying for the Dividends Received Deduction for Corporations | 100.00% |
| Long-Term Capital Gain Dividend | $3.00743 |
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions is 0.0%.
Please retain this information for your records.
3. CONSIDERATION OF INVESTMENT ADVISORY AGREEMENT (UNAUDITED)
Section 15(c) under the 1940 Act, requires that a registered investment company’s board of directors, including a majority of independent directors voting separately, approve any new investment advisory contract for the fund and thereafter review and approve the terms of the fund’s investment advisory agreement on an annual basis.
At a meeting (the “Contract Renewal Meeting”) held in-person on April 21, 2016, the Board of Directors (the “Board”) of the Fund, including a majority of its members that are not considered to be “interested persons” under the 1940 Act (the “Independent Directors”), considered and approved continuation of the Investment Advisory Agreement between the Fund and Barrett Asset Management for an additional one-year term. To assist in its consideration of the renewal of the Investment Advisory Agreement, the Board requested, received and considered a variety of information about Adviser, certain portions of which are discussed below. The information provided to the Board relating to the renewal of the Investment Advisory Agreement at the Contract Renewal Meeting is referred to in this section as the “Contract Approval Information.”
In addition to the Contract Approval Information, the Board received performance and other information throughout the year relating to the Fund’s operations and the services provided to it by the Adviser. The Board’s evaluation of the Investment Advisory Agreement took into account not only the Contract Approval Information but also the information received throughout the year and also reflected the knowledge and familiarity gained as Board members of the Fund with respect to the services provided to the Fund by the Adviser.
In its deliberations regarding the approval of the Investment Advisory Agreement, the Board considered each of the factors below:
Nature, Extent and Quality of the Investment Advisory Services Provided to the Fund. The Board received and considered the Contract Approval Information regarding the nature, extent and quality of the investment advisory and other services provided to the Fund by the Adviser during the past year. The Board reviewed the qualifications, backgrounds and responsibilities of the Adviser’s senior personnel and the portfolio management team and the services that such persons provided to the Fund, including, but not limited to, making the day-to-day decisions for investing the Fund’s assets in accordance with the Fund’s objectives and policies and investment restrictions, subject to the supervision and direction of the Board. Based on these factors and other relevant factors, including those discussed below, the Board concluded that the services provided to the Fund under the Investment Advisory Agreement continued to be satisfactory.
Fund Performance. The Board received and considered performance information (the “Morningstar Performance Information”) for the Fund, as well as a group of funds identified by Morningstar® DirectSM (“Morningstar”), an
BARRETT
OPPORTUNITY FUND, INC.
independent provider of investment company data, as comparable to the Fund in their objectives and strategies and with assets ranging from $25 million to $100 million (the “Morningstar Large Value Category”). The Morningstar Large Value Category consisted of 33 large cap value funds, including the Fund, for the 1-year period ended February 29, 2016; 28 funds, including the Fund, for the 3-year period ended such date; 26 funds, including the Fund, for the 5-year period ended such date; and 24 funds, including the Fund, for the 10-year period ended such date. The Morningstar Performance Information comparing the Fund’s performance to that of the Morningstar Large Value Category showed that: (i) 19 funds had worse performance and 13 funds had better performance than the Fund for the 1-year period; (ii) four funds had worse performance and 23 funds had better performance than the Fund for the 3-year period; (iii) one fund had worse performance and 24 funds had better performance than the Fund for the 5-year period; and (iv) one fund had worse performance and 22 funds had better performance than the Fund for the 10-year period. In assessing the reasons for the Fund’s comparative performance, the Board took into consideration that the Fund is managed in a tax-aware manner in light of its substantial unrealized capital gains and that the Fund’s investment strategy is conservative. In this regard, the Adviser has expressed its belief that the Fund’s shareholders expect the Fund to be managed very conservatively and to invest principally in large cap, quality names with healthy dividends and with due consideration to safety of principal. The Adviser has noted its further belief that the other funds in the Morningstar Large Value Category are not managed in the same way or with the same objective in carrying out their investment programs. The Directors also received and considered the information provided by the Adviser comparing past investment performance of the Fund against the S&P 500® Index and the Lipper Large-Cap Value Funds Index. The Directors noted that, according to the information provided by the Adviser, the Fund outperformed the Lipper Large-Cap Value Funds Index for the 1-year period but otherwise underperformed both the S&P 500® Index and the Lipper Large-Cap Value Funds Index for each of the 1-, 3-, 5- and 10-year periods. The Directors gave significant weight to the Fund’s performance in absolute terms and concluded that, in light of the Adviser’s investment approach and the constraints upon the Fund’s investment program, the Adviser has appropriate expertise to continue to manage the Fund in accordance with its investment objectives and management strategies under current and anticipated market conditions.
Investment Advisory Fees and Expense Ratio. The Board reviewed and considered the advisory fee (the “Advisory Fee”) paid by the Fund to the Adviser under the Investment Advisory Agreement. The Board received and considered information and analyses (the “Morningstar Expense Information”) prepared by Morningstar as of March 31, 2016 comparing the Advisory Fee and the Fund’s overall expenses with those groups of 34 other large cap value funds, as classified by Morningstar®, with assets between $25 million and $100 million. The comparison was based upon the constituent funds’ latest fiscal years. The Morningstar Expense information showed, among other things, that the contractual investment advisory fee for the Fund ranked in the second quartile of its Morningstar® Large Value Category and was below the category average of 0.780% at 0.700%. On a “net,” or actual basis, the advisory fee for the Fund was above (i.e., worse than) the industry average of 0.590%. The Fund’s total expense ratio of 1.180% was ranked in the third quartile of its Morningstar® Large Value Category and was slightly below (i.e., better than) the category mean total expense ratio of 1.210% and above the Morningstar® Large Value Category median of 1.160%. The Adviser does not manage any funds other than the Fund and has noted that the other funds in the Morningstar Large Value Category, unlike the Fund, may have opportunities to realize economies of scale and to share certain costs as members of fund families with multiple funds.
Adviser Profitability. The Directors considered unaudited information from the Adviser as to the profitability of the Adviser’s relationship with the Fund. Given the need to assure continuity in the investment advisory services to the Fund and the absence of any alternative to the Investment Advisory Agreement, the Directors did not give significant weight to the Fund’s profitability to Barrett Asset Management. However, the profitability to Barrett Asset Management from its Fund relationship was determined by the Board not to be excessive in light of the nature, quality and extent of investment advisory and other services provided to the Fund by the Adviser.
BARRETT
OPPORTUNITY FUND, INC.
Economies of Scale. The Directors considered that, while the Investment Advisory Agreement does contain breakpoints for the Adviser to pass on economies of scale to the Fund, economies of scale are not likely to be realized since the Fund has decreased in size in recent years and is not actively marketed. They considered that any future growth in assets will occur through appreciation in the Fund’s portfolio holdings.
Other Benefits to the Investment Adviser. The Board considered other benefits received by the Adviser as a result of its relationship with the Fund, including the opportunity to obtain research services from brokers who effect Fund portfolio transactions, but did not regard such benefits as excessive as the Fund’s low turnover limits the amount of commission dollars.
Other Alternatives to the Investment Advisory Agreement. The Board considered possible alternatives to the Investment Advisory Agreement from the standpoint of the Fund and its shareholders. The Directors considered whether another investment adviser (or advisers) might possibly be identified to perform all or a part of the advisory, administrative, or operational tasks that the Adviser provides but concluded that no other investment adviser was likely to be interested in managing the Fund’s portfolio management given the small size of the Fund and the various portfolio management, marketing and other difficulties presented by its unrealized capital gains. The Directors considered that the only alternative to the Investment Advisory Agreement could be liquidation of the Fund. Because of the Fund’s unrealized capital gains, liquidation would carry significant adverse tax consequences to all shareholders. The Directors noted that if the Fund continued to operate, those shareholders willing to accept the resulting tax consequences could redeem their shares in the Fund at any time while other shareholders wishing to remain in the Fund could do so.
The Directors, including the Independent Directors, concluded that, under the Fund’s circumstances, the terms of the Investment Advisory Agreement are acceptable and that the fees stated therein are reasonable in light of the services to be provided to the Fund and the need to assure continuity of investment advisory services to the Fund in the absence of any realistic alternative to the Investment Advisory Agreement. In considering whether to approve the continuation of the Investment Advisory Agreement, the Board principally identified its determination that continuation of the Fund’s operations would be in the interests of shareholders and that continuity of investment advisory services to the Fund therefore must be assured. The Board also separately considered the operational, administrative, and other services provided to the Fund.
The Independent Directors were satisfied with the non-investment advisory services provided by the Adviser to the Fund and concluded that the Fund’s investment performance and expense levels (including the Advisory Fee) under the circumstances were not such as to support termination of the Investment Advisory Agreement.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call the Fund at 1-877-363-6333.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling the Fund at 1-877-363-6333 and (2) on the SEC’s website at www.sec.gov.
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BARRETT OPPORTUNITY FUND, INC.
c/o U.S. Bancorp Fund Services, LLC
615 E. Michigan Street
Milwaukee, WI 53202
DIRECTORS
Barry Handel, CPA
David H. Kochman
Rosalind A. Kochman, Chairperson
William Morris, Jr., CPA
INVESTMENT MANAGER
Barrett Asset Management, LLC
90 Park Avenue
New York, NY 10016
ADMINISTRATOR, FUND ACCOUNTANT & TRANSFER AGENT
U.S. Bancorp Fund Services, LLC
615 E. Michigan Street
Milwaukee, WI 53202
DISTRIBUTOR
Quasar Distributors, LLC
615 E. Michigan Street
Milwaukee, WI 53202
CUSTODIAN
U.S. Bank, N.A.
Custody Operations
1555 River Center Drive, Suite 302
Milwaukee, WI 53212
LEGAL COUNSEL
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Cohen & Company, Ltd.
1350 Euclid Avenue, Suite 800
Cleveland, OH 44115
This report is transmitted to the shareholders of Barrett Opportunity Fund, Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
This report must be preceded or accompanied by a free prospectus. Investors should consider the Fund’s investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.
Item 2. Code of Ethics.
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer. The registrant has not made any substantive amendments to its code of ethics during the period covered by this report. The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report.
Incorporated by reference to the registrant’s N-CSR filed on November 7, 2011.
Item 3. Audit Committee Financial Expert.
The registrant’s board of directors has determined that there is at least one audit committee financial expert serving on its audit committee. Mr. William Morris is the “audit committee financial expert” and is considered to be “independent” as each term is defined in Item 3 of Form N‑CSR.
Item 4. Principal Accountant Fees and Services.
The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the past two fiscal years. “Audit services” refer to performing an audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. “Audit-related services” refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. “Tax services” refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. There were no “Other services” provided by the principal accountant. The following table details the aggregate fees billed or expected to be billed for each of the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant.
| | FYE 08/31/2016 | FYE 08/31/2015 |
| Audit Fees | 15,000 | 14,500 |
| Audit-Related Fees | 0 | 0 |
| Tax Fees | 2,500 | 2,500 |
| All Other Fees | 0 | 0 |
The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre‑approve all audit and non‑audit services of the registrant, including services provided to any entity affiliated with the registrant.
The percentage of fees billed by Cohen & Company, Ltd. applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:
| | FYE 08/31/2016 | FYE 08/31/2015 |
| Audit-Related Fees | 0% | 0% |
| Tax Fees | 0% | 0% |
| All Other Fees | 0% | 0% |
All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full‑time permanent employees of the principal accountant.
The following table indicates the non-audit fees billed or expected to be billed by the registrant’s accountant for services to the registrant and to the registrant’s investment adviser (and any other controlling entity, etc.—not sub-adviser) for the last two years. The audit committee of the board of trustees/directors has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser is compatible with maintaining the principal accountant's independence and has concluded that the provision of such non-audit services by the accountant has not compromised the accountant’s independence.
| Non-Audit Related Fees | FYE 08/31/2016 | FYE 08/31/2015 |
| Registrant | 2,500 | 2,500 |
| Registrant’s Investment Adviser | 0 | 0 |
Item 5. Audit Committee of Listed Registrants.
Not applicable to registrants who are not listed issuers (as defined in Rule 10A-3 under the Securities Exchange Act of 1934).
Item 6. Investments.
Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed‑End Management Investment Company and Affiliated Purchasers.
Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11. Controls and Procedures.
| (a) | The Registrant’s [President/Principal Executive Officer] and [Treasurer/Principal Financial Officer] have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d‑15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider. |
| (b) | There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. |
Item 12. Exhibits.
| (a) | (1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Filed herewith. |
(2) A separate certification for each principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(3) Any written solicitation to purchase securities under Rule 23c‑1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable to open-end investment companies.
| (b) | Certifications pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002. Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Barrett Opportunity Fund
By (Signature and Title /s/Peter Shriver
Peter Shriver, President
Date November 2, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* /s/Peter Shriver
Peter Shriver, President
Date November 2, 2016
By (Signature and Title)* /s/John Youngman
John Youngman, Treasurer
Date November 2, 2016
* Print the name and title of each signing officer under his or her signature.
