EQUUS TOTAL RETURN, INC.

Previous wording

As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of the Fund’s total assets in “qualifying assets,” including securities of private U.S. companies, certain public U.S. companies with a total market capitalization not in excess of $250 million, cash, cash equivalents, U.S. government securities and short-term high-quality debt investments. Equus is a RIC under Subchapter M of the Code. To qualify as a RIC, we must meet certain source of income and asset diversification requirements. If we comply with the provisions of Subchapter M, the Fund generally does not have to pay corporate-level income taxes on any income that is distributed to our stockholders.

Current wording

As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of the Fund’s total assets in “qualifying assets,” including securities of private U.S. companies, certain public U.S. companies with a total market capitalization not in excess of $250 million, cash, cash equivalents, U.S. government securities and short-term high-quality debt investments. Prior to the fourth quarter of 2024, Equus qualified as a RIC under Subchapter M of the Code and may seek to requalify as a RIC in the future. To qualify as a RIC, we must meet certain source of income and asset diversification requirements. If we comply with the provisions of Subchapter M, the Fund generally would not have to pay corporate-level income taxes on any income that is distributed to our stockholders.

Previous wording

*Operating Activities.*We use cash to make new investments and follow-on investments in our existing portfolio companies. We record these investments at cost on the applicable trade date. Realized gains or losses are computed using the specific identification method. On an ongoing basis, we carry our investments in our financial statements at fair value, as determined by our board of directors. See “Critical Accounting Policies – Valuation of Investments” below. As of December 31, 2023, we had invested 43.7% of our assets in securities of portfolio companies that constituted qualifying investments under the 1940 Act. At that time, we had invested 100% in membership interests in limited liability companies.

Current wording

*Operating Activities.*We use cash to make new investments and follow-on investments in our existing portfolio companies. We record these investments at cost on the applicable trade date. Realized gains or losses are computed using the specific identification method. On an ongoing basis, we carry our investments in our financial statements at fair value, as determined by our board of directors. See “Critical Accounting Policies – Valuation of Investments” below. As of December 31, 2024, we had invested 91.9% of our assets in securities of portfolio companies that constituted qualifying investments under the 1940 Act. At that time, we had invested 100% in membership interests in limited liability companies.

Previous wording

*Commitments.*Under certain circumstances, we make follow-on investments in some of our portfolio companies. As of December 31, 2023, we had $1.7 million in outstanding commitments in our portfolio companies.

Current wording

Commitments. Under certain circumstances, we make follow-on investments in some of our portfolio companies. As of December 31, 2024, we had no outstanding commitments in our portfolio companies.

Previous wording

*Financing Activities.*From time to time, we use leverage to finance a portion of our investments. We then repay such debt from the sale of portfolio securities. Under the 1940 Act, we have the ability to borrow funds and issue debt securities or preferred stock that are referred to as senior securities, subject to certain restrictions, including an overall limitation on the amount of outstanding debt, or leverage, relative to equity of 1.5:1. Because of the nature and size of our portfolio investments, we periodically borrow funds to make qualifying investments in order to maintain our qualification as a RIC. During 2023 and 2022, we borrowed such funds by accessing a margin account with a securities brokerage firm. We invest the proceeds of these margin loans in high-quality securities such as U.S. Treasury securities until they are repaid. We refer to these high-quality investments as “restricted assets” because they are not generally available for investment in portfolio companies under the terms of borrowing. If, in the future, we cannot borrow funds to make such qualifying investments at the end of any future quarter, we may not qualify as a RIC and would become subject to corporate-level income tax on our net investment income and realized capital gains, if any. In addition, our distributions to stockholders would be taxable as ordinary dividends to the extent paid from earnings and profits. See “Federal Income Tax Considerations.”

Current wording

*Financing Activities.*From time to time, we use leverage to finance a portion of our investments. We then repay such debt from the sale of portfolio securities. Under the 1940 Act, we have the ability to borrow funds and issue debt securities or preferred stock that are referred to as senior securities, subject to certain restrictions, including an overall limitation on the amount of outstanding debt, or leverage, relative to equity of 1.5:1. Because of the nature and size of our portfolio investments, we have periodically borrowed funds to make qualifying investments in order to maintain our qualification as a RIC. Duringthe first three quarters of 2024 and all of 2023, we borrowed such funds by accessing a margin account with a securities brokerage firm. We invested the proceeds of these margin loans in high-quality securities such as U.S. Treasury securities until they were repaid. We refer to these high-quality investments as “restricted assets” because they are not generally available for investment in portfolio companies under the terms of borrowing. If, in the future, we seek to requalify as a RIC and cannot borrow funds to make such qualifying investments at the end of any future quarter, we would not so requalify and would, as a non-RIC, be subject to corporate-level income tax on our net investment income and realized capital gains, if any. In addition, our distributions to stockholders would be taxable as ordinary dividends to the extent paid from earnings and profits. See “Federal Income Tax Considerations.”

Previous wording

Because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values, amounting to $40.9 million and $15.7 million as of December 31, 2023 and 2022, respectively, our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities.

Current wording

Because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values, amounting to $27.5 million and $40.9 million as of December 31, 2024 and 2023, respectively, our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities. SeeNote 3 to the financial statements included in Item 8.

Previous wording

U.S. GDP increased at an annualized rate of 3.3% in the fourth quarter of 2023, substantially higher than consensus estimates for the quarter. GDP growth in the fourth quarter of 2023 also compared favorably to an annualized increase of 2.7% for the fourth quarter of 2022, although down from 4.9% for the third quarter of 2023. Overall, GDP growth was 2.5% for all of 2022, as compared to 2.1% for all of 2022. The slower GDP growth in the fourth quarter of 2023 was largely due to decreases in private inventory investment, federal government spending, residential fixed investment, and consumer spending. The Conference Board is projecting GDP growth of 1.2% for 2024 and 1.4% for 2025. The Congressional Budget Office is predicting 1.5% GDP growth for 2024. (Sources:Bureau of Economic Analysis; The Conference Board; Congressional Budget Office).

Current wording

U.S. GDP increased at an annualized rate of 2.3% in the fourth quarter of 2024, which was relatively consistent with consensus estimates for the quarter, but lower than GDP growth for the third quarter of 2024 (3.1%), as well as the fourth quarter of 2023 (3.2%). Overall GDP growth for the full year 2024 was 2.8% compared to 2.9% in 2023. The increase in GDP during the fourth quarter of 2024 was driven principally by consumer spending, offset by a decrease in business investment during the quarter. The Congressional Budget Office is projecting GDP growth of 1.9% for 2025 and 1.8% for 2026. The CBO report was released prior to the inauguration of the new U.S. President and the administration’s imposition of tariffs which has resulted in a downward adjustment to GDP forecasts. Citing tariff concerns, Morgan Stanley revised its GDP growth forecast for 2025 and 2026 from 1.9% and 1.3%, respectively, to 1.5% and 1.2%. (Sources:Bureau of Economic Analysis; Morgan Stanley; Congressional Budget Office).

Previous wording

As of February 2024, the U.S. unemployment rate stood at 3.7%, and has remained largely stable for a considerable period, fluctuating between 3.4% and 3.8% for the previous 24 months. Most economists, however, do not project this level to continue, as recessionary headwinds and lower growth forecasts suggest an increase during the remainder of 2024. Moreover, the labor participation rate remains at approximately 62.5%, below the pre-pandemic high of 63.3% of February 2020. Most of the recent employment gains in 2022 and 2023 were due to gains in the leisure and hospitality industry, healthcare, construction, and social assistance. (Sources:Bureau of Labor Statistics; Trading Economics).

Current wording

As of February 2025, the U.S. unemployment rate stood at 4.1%, and has remained largely stable for a considerable period, fluctuating between 3.4% and 4.1% for the previous 36 months. With the advent of tariffs, government layoffs, and a more aggressive deportation policy for undocumented immigrants, most economists are projecting the unemployment rate to increase during the remainder of 2025. Moreover, the labor participation rate remains at approximately 62.5%, below the pre-pandemic high of 63.3% of February 2020. Most of the recent employment gains in 2023 and 2024 were due to gains in the leisure and hospitality industry, construction, trade, transportation, and utilities. (Sources:U.S. Bureau of Labor Statistics; Trading Economics).

Previous wording

Beginning in 2021 and continuing through 2022, consumer prices increased the most in four decades, reaching a high of 8.3%, before steadily declining throughout 2023, finishing the year at 3.4%. This trend has continued into January 2024, where the U.S. Bureau of Labor Statistics reported an annualized rate of 3.1%. In view of lower growth projections and other economic headwinds, most analysts predict consumer price increases to taper further to approximately 2.4% for all of 2024. (Sources:U.S. Bureau of Labor Statistics; Forbes).

Current wording

Beginning in 2021 and continuing through 2022, consumer prices increased the most in four decades, reaching a high of 8.3%, before steadily declining, more or less, throughout 2023 and 2024, finishing the year at 2.9%. This trend has continued into January 2025, where the U.S. Bureau of Labor Statistics reported an annualized rate of 3.0%. Notwithstanding a projected slowing of the U.S. economy for 2025, most economists are projecting similar rates of inflation for 2025 as compared to 2024, principally due to the effect of expected tariffs on imported goods. (Sources:U.S. Bureau of Labor Statistics; Morgan Stanley).

Previous wording

During 2023, our net asset value increased from $2.61 per share as of December 31, 2022 to $3.55 per share as of December 31, 2023. As of December 31, 202, our common stock was trading at a 45.2% discount to our net asset value as compared to 59.2% as of December 31, 2023.

Current wording

During 2024, our net asset value decreased from $3.55 per share as of December 31, 2023 to $2.17 per share as of December 31, 2024. As of December 31, 2024, our common stock was trading at a 62.9% discount to our net asset value as compared to 59.2% as of December 31, 2023.

Previous wording

Because of the nature and size of the portfolio investments, we may periodically borrow funds to make qualifying investments to maintain our tax status as a RIC. We often borrow such funds by utilizing a margin account with a securities brokerage firm. There is no assurance that such arrangement will be available in the future. If the Fund is unable to borrow funds to make qualifying investments, it may no longer qualify as a RIC. The Fund would then be subject to corporate income tax on its net investment income and realized capital gains, and distributions to stockholders would be subject to income tax as ordinary dividends.

Current wording

Because of the nature and size of the portfolio investments, we have, until the fourth quarter of 2024, periodically borrowed funds to make qualifying investments to maintain our prior tax status as a RIC. As a RIC, we often borrowed such funds by utilizing a margin account with a securities brokerage firm. If we seek to requalify as a RIC, there is no assurance that such arrangement will be available in the future. If the Fund is unable to borrow funds to make qualifying investments, it may no longer requalify as a RIC. The Fund would then continue to be subject to corporate income tax on its net investment income and realized capital gains, and distributions to stockholders would be subject to income tax as ordinary dividends.

Previous wording

We are evaluating the impact of current market conditions on our portfolio company valuations and their ability to provide current income. We have followed valuation techniques in a consistent manner; however, we are cognizant of current market conditions that might affect future valuations of portfolio securities. We believe that our operating cash flow and cash on hand will be sufficient to meet operating requirements and to finance routine capital expenditures through the next twelve months. If we effect a Consolidation of the Fund as described under “Significant Developments – Authorization to Withdraw BDC Election” above, we may utilize some or a substantial portion of our current liquidity in connection with a contemplated transaction as payment of the purchase price and to pay associated legal, due diligence, accounting, and other fees. Further, we may borrow funds from financial institutions or other providers of debt capital to provide and pay for a part of the consideration and expenses necessary to effect a conversion of Equus into an operating company.

Current wording

We are evaluating the impact of current market conditions on our portfolio company valuations and their ability to provide current income. We have followed valuation techniques in a consistent manner; however, we are cognizant of current market conditions that might affect future valuations of portfolio securities. Our operating cash flow and cash on hand is not sufficient to meet operating requirements or to finance routine capital expenditures through the next twelve months. We are therefore seeking liquidity from the sale of our portfolio interests, as well as seeking external debt and equity financing from third parties. Should either or both of the foregoing events not occur as contemplated, the Fund will not have the necessary funds to maintain normal operations and, therefore, substantial doubt would exist about the Fund’s ability to continue as a going concern. Further, if we effect a transformation of the Fund into an operating company as described under “Significant Developments – Authorization to Withdraw BDC Election” above, we may utilize some or a substantial portion of our current liquidity in connection with a contemplated transaction as payment of the purchase price and to pay associated legal, due diligence, accounting, and other fees. Further, we may borrow funds from financial institutions or other providers of debt capital to provide and pay for a part of the consideration and expenses necessary to effect a conversion of Equus into an operating company.

Previous wording

*Operating Activities.*We used $51.4 million in cash for operating activities in 2023 principally due to $8.3 million in investments, $4.3 million in fees to professional advisors, director and other, $17.0 million increase in unrealized appreciation, along with $38.9 million increase in net investments in U.S. Treasury bills.

Current wording

*Operating Activities.*We used $51.4 million in cash for operating activities in 2023 principally due to $8.3 million in investments, $4.3 million in fees to professional advisors, director and other fees, along with $38.9 million increase in net investments in U.S. Treasury bills.

Previous wording

Financing Activities. We provided $39.1 million in cash from financing activities for 2023, principally in connection with borrowings on margin.. We did not declare any dividends in 2023.

Current wording

Financing Activities. We provided $39.1 million in cash from financing activities for 2023, principally in connection with net borrowings on margin. We did not declare any dividends in 2023.

Previous wording

Total income from portfolio securities was $0.3 million for 2023 and $0 for 2022.

Current wording

Total income from portfolio securities was $1.3 million for 2024 and $0.3 for 2023. Compensation expense decreased to $1.8 million in 2024 from $1.9 million in 2023.

Previous wording

As a result of the factors described above, net investment loss after expenses was $4.0 million for 2023 as compared to a net investment loss of $3.6 million in 2022.

Current wording

As a result of the factors described above, net investment loss after expenses was $3.3 million for 2024 as compared to a net investment loss of $4.0 million in 2023.

Previous wording

Morgan E&P, LLC (“Morgan”) was organized by the Fund on April 3, 2023 as a Delaware limited liability company and a wholly-owned subsidiary of the Fund. On May 22, 2023, Morgan completed the acquisition of 4,747.52 net acres, in the Bakken/Three Forks formation in the Williston Basin of North Dakota, and acquired approximately 1,100 additional acres on September 26, 2023. The acreage and associated mineral rights were acquired from Pro Energy I LLC (“Pro Energy”), a company whose principals have decades of oil and gas experience and who have themselves drilled over 1,800 horizontal wells in the Williston Basin over a 10-year period. In May 2023, we entered into an agreement with Morgan to provide it up to $10.0 million in senior debt financing, subject to a schedule of disbursements and draws that we determine. As of December 31, 2023, we advanced Morgan $8.3 million under this facility (SeeSubsequent Eventsbelow where we increased the total amount of the facility to $10.5 million and where we advanced, subsequent to year-end, an additional $2.0 million under the facility). During 2023, Morgan substantially increased its reserves, completed the drilling of two new wells, and also reclassified certain of its proved reserves from undeveloped to producing. As a result, the fair value of this holding was $22.6 million at December 31, 2023.

Current wording

Morgan E&P, LLC (“Morgan”) was organized by the Fund on April 3, 2023 as a Delaware limited liability company and a wholly-owned subsidiary of the Fund. On May 22, 2023, Morgan completed the acquisition of 4,747.52 net acres, in the Bakken/Three Forks formation in the Williston Basin of North Dakota, and acquired approximately 1,100 additional acres on September 26, 2023. The acreage and associated mineral rights were acquired from Pro Energy I LLC (“Pro Energy”), a company whose principals have decades of oil and gas experience and who have themselves drilled over 1,800 horizontal wells in the Williston Basin over a 10-year period. In May 2023, we entered into an agreement with Morgan to provide it up to $10.0 million in senior debt financing, which amount was subsequently amended to $10.5 million, subject to a schedule of disbursements and draws that we determine. As of December 31, 2024, we advanced Morgan $10.5 million under this facility. During 2023 and 2024, Morgan substantially increased its reserves and completed the drilling of two new wells. However, due to mechanical issues, these two wells were classified as non producing during the fourth quarter of 2024. As a result, the fair value of our debt and equity interest in Morgan was $23.5 million at December 31, 2024.

Previous wording

We formed Equus Energy, as a wholly-owned subsidiary of the Fund, to make investments in companies in the energy sector, with particular emphasis on income-producing oil & gas properties. In December 2011, we contributed $250,000 to the capital of Equus Energy. On December 27, 2012, we invested an additional $6.8 million in Equus Energy for the purpose of additional working capital and to fund the purchase of $6.6 million in working interests presently represented by 136 producing and non-producing oil and gas wells, including associated development rights of approximately 21,520 acres situated on 10 separate properties in Texas and Oklahoma. On September 30, 2020, the Fund provided an additional $0.6 million in capital to Equus Energy for the purpose of additional working capital. On June 30, 2021, the Fund provided an additional $0.35 million in capital to Equus Energy for the purpose of additional working capital. On December 31, 2022, the Fund provided an additional $0.15 million in capital to Equus Energy for the purpose of additional working capital. The working interests held by Equus Energy range from ade minimus amount to 50% of the leasehold production of these wells. The wells are operated by a number of experienced operators such as Burk Royalty, which has operating responsibility for leasehold interests in the Conger Field, representing approximately one-third of the producing well interests. The assets were purchased from Warren American Oil Company, LLC, a Tulsa-based oil and gas firm. The fair value of our holding in Equus Energy decreased from $15.65 million at December 31, 2022 to $10.0 million at December 31, 2023, principally due to decreases in the forward curve for natural gas and its effect on the economic viability of Equus Energy’s gas reserves for future development.

Current wording

$250,000 to the capital of Equus Energy. On December 27, 2012, we invested an additional $6.8 million in Equus Energy for the purpose of additional working capital and to fund the purchase of $6.6 million in working interests that, as of December 31, 2024, consisted of 136 producing and non-producing oil and gas wells, including associated development rights of approximately 21,520 acres situated on 9 separate properties in Texas and Oklahoma. On September 30, 2020, the Fund provided an additional $0.6 million in capital to Equus Energy for the purpose of additional working capital. On June 30, 2021, the Fund provided an additional $0.35 million in capital to Equus Energy for the purpose of additional working capital. On December 31, 2022, the Fund provided an additional $0.15 million in capital to Equus Energy for the purpose of additional working capital. The working interests held by Equus Energy range from ade minimusamount to 50% of the leasehold production of these wells. The wells are operated by a number of experienced operators such as Burk Royalty, which has operating responsibility for leasehold interests in the Conger Field, representing approximately one-third of the producing well interests. The assets were purchased from Warren American Oil Company, LLC, a Tulsa-based oil and gas firm. The fair value of our holding in Equus Energy decreased from $10.0 million at December 31, 2023 to $4.0 million at December 31, 2024, principally due to decreases in the forward curve for oil and natural gas and its effect on the economic viability of Equus Energy’s gas reserves for future development. SeeSubsequent Events below where we sold our interest in Equus Energy in March 2025 for a combination of cash and preferred stock valued at $4.0 million.

Previous wording

Our current office space lease since December 31, 2020 is on a month-to-month basis. Rent expense, inclusive of common area maintenance costs, was $94,000 for the year ended December 31, 2023.

Current wording

Our current office space lease since December 31, 2020 is on a month-to-month basis. Rent expense, inclusive of common area maintenance costs, was $97,000 for the year ended December 31, 2024.

Previous wording

As of December 31, 2023, we had $1.7 million in outstanding commitments to our portfolio company investments.

Current wording

As of December 31, 2024, we had no outstanding commitments to our portfolio company investments.