EQUUS TOTAL RETURN, INC.

Previous wording

We elected to be treated as a BDC under the 1940 Act. We currently qualify as a RIC for federal income tax purposes and, therefore, are not required to pay corporate income taxes on any income or gains that we distribute to our stockholders. We have a wholly-owned Taxable Subsidiary which holds one of our portfolio investments listed on our Schedules of Investments. The purpose of this Taxable Subsidiary is to permit us to hold certain income-producing investments or portfolio companies organized as limited liability companies, or LLCs, (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of our gross revenue for income tax purposes must consist of investment income. Absent the Taxable Subsidiary, a portion of the gross income of these income- producing investments or of any LLC (or other pass-through entity) portfolio investment, as the case may be, would flow through directly to us for the 90% test. To the extent that such income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and, therefore, cause us to incur significant federal income taxes. The income of the LLCs (or other pass-through entities) owned by Taxable Subsidiary is taxed to the Taxable Subsidiary and does not flow through to us, thereby helping us preserve our RIC status and resultant tax advantages. We do not consolidate the Taxable Subsidiary for income tax purposes and they may generate income tax expense because of the Taxable Subsidiary’s ownership of the portfolio investment. We reflect any such income tax expense on our Statements of Operations.

Current wording

We have certain wholly-owned taxable subsidiaries (“Taxable Subsidiaries”) each of which holds one or more portfolio investments listed on our Schedules of Investments. The purpose of these Taxable Subsidiaries was to permit us to hold certain income-producing investments or portfolio companies organized as limited liability companies, or LLCs, (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of our gross revenue for income tax purposes must consist of investment income. Absent the Taxable Subsidiaries, a portion of the gross income of these income-producing investments or of any LLC (or other pass-through entity) portfolio investment, as the case may be, would flow through directly to us for the 90% test. To the extent that such income did not consist of investment income, it could jeopardize our ability to requalify as a RIC and, therefore, cause us to incur federal income taxes as described above. The income of the LLCs (or other pass-through entities) owned by Taxable Subsidiaries is taxed to the Taxable Subsidiaries and does not flow through to us, thereby helping us obtain (or preserve, as the case may be) RIC status and the resultant tax advantages. We do not consolidate the Taxable Subsidiaries for income tax purposes, with the exception of Texas Margins Tax, which is an entity level tax. The Taxable Subsidiaries may generate income tax expense because of the Taxable Subsidiaries’ ownership of the portfolio companies. We reflect any such income tax expense on our Statements of Operations.

Previous wording

Authorization to Withdraw BDC Election. In previous years, holders of a majority of the outstanding common stock of the Fund approved our cessation as a BDC under the 1940 Act and authorized our Board to cause the Fund’s withdrawal of its election to be classified as a BDC, effective as of a date designated by the Board and our Chief Executive Officer. Although this authorization has since expired, we expect to receive a further authorization from our shareholders later in 2024 or in 2025 as a consequence of our expressed intent to transform Equus into an operating company. Notwithstanding any such authorization to withdraw our BDC election, we will not submit any such withdrawal unless and until Equus has entered into a definitive agreement to effect a transformative transaction. Further, even if we are again authorized to withdraw our election as a BDC, we will require a subsequent affirmative vote from holders of a majority of our outstanding voting shares to enter into any such definitive agreement or change the nature of our business. While we are presently evaluating various opportunities that could enable us to accomplish this transformation, we cannot assure you that we will be able to do so within any particular time period or at all, and, although we expect that our shareholders will grant a further authorization, we do not expect to cause the Fund to withdraw its election to be classified as BDC prior to December 31, 2024. Moreover, we cannot assure you that the terms of any such transformative transaction would be acceptable to us.

Current wording

Authorization to Withdraw BDC Election. In previous years, holders of a majority of the outstanding common stock of the Fund approved our cessation as a BDC under the 1940 Act and authorized our Board to cause the Fund’s withdrawal of its election to be classified as a BDC, effective as of a date designated by the Board and our Chief Executive Officer. Although this authorization has since expired, we expect to receive a further authorization from our shareholders later in 2025 as a consequence of our expressed intent to transform Equus into an operating company. Notwithstanding any such authorization to withdraw our BDC election, we will not submit any such withdrawal unless and until Equus has entered into a definitive agreement to effect a transformative transaction. Further, even if we are again authorized to withdraw our election as a BDC, we will require a subsequent affirmative vote from holders of a majority of our outstanding voting shares to enter into any such definitive agreement or change the nature of our business. While we are presently evaluating various opportunities that could enable us to accomplish this transformation, we cannot assure you that we will be able to do so within any particular time period or at all, and, although we expect that our shareholders will grant a further authorization, we do not expect to cause the Fund to withdraw its election to be classified as BDC prior to December 31, 2025. Moreover, we cannot assure you that the terms of any such transformative transaction would be acceptable to us.

Previous wording

Impact of Economic and Geopolitical Events on the Oil and Gas Sector. Beginning in the second quarter of 2022, crude prices began a steady decline following increases that were largely due to increased post-Covid demand and the buildup and subsequent invasion of Ukraine by Russian forces. Prices began to rise and fall in successive quarters between the third quarter of 2023 and the third quarter of 2024, and stood at $68.27 as of September 30, 2024. Natural gas prices experienced high volatility in 2022 before collapsing in 2023 and have thereafter remained generally stable, finishing the first nine months of 2024 at $2.92 per MMBTU. Relative oil price stability has been a significant factor in increased consolidation activity in the Permian Basin where Equus Energy holds most of its development rights, as well as in the Williston Basin region in North Dakota where Morgan holds its development rights. On October 8, 2024, the U.S. Energy Information Administration issued estimates of $79.91 and $73.13 for the average WTI price per barrel of oil for the years 2024 and 2025, respectively, and estimated average gas prices of $2.30 and $3.10 for 2024 and 2025, respectively.

Current wording

Impact of Economic and Geopolitical Events on the Oil and Gas Sector. Beginning in the second quarter of 2022, crude prices began a steady decline following increases that were largely due to increased post-Covid demand and the buildup and subsequent invasion of Ukraine by Russian forces. Prices began to increase and fall in successive quarters between the third quarter of 2023 and the third quarter of 2024 before stabilizing, and stood at $71.48 as of March 31, 2025. Natural gas prices experienced high volatility in 2022 before collapsing in 2023 and then steadily increasing each quarter thereafter, finishing the quarter ended March 31, 2025 at $4.11 per MMBTU. Relative oil price stability has been a significant factor in increased consolidation activity in the Williston Basin region in North Dakota where Morgan E&P, LLC holds its development rights.

Previous wording

The U.S. Economy. U.S. GDP increased at an annualized rate of 2.8% in the third quarter of 2024, below consensus estimates of 3.0% for the period. This followed increases of 3.0% and 1.4% on an annualized basis for the second and first quarters of 2024. The principal drivers of the increase during the third quarter of 2024 were increased consumer and government spending. The Conference Board is projecting an increase in GDP of 2.6% for all of 2024, slowing to 1.7% for 2025. (Sources: Bureau of Economic Analysis; The Conference Board).

Current wording

The U.S. Economy. U.S. GDP contracted at an annualized rate of 0.3% in the first quarter of 2025, a swift downturn from consensus estimates of a 0.4% gain for the period only weeks prior to the end of the quarter. The decrease followed an increase of 2.4% on an annualized basis for the fourth quarter of 2024 and represented an approximate 1.9% annualized decrease from the first quarter of 2024, where GDP growth was approximately 1.6% on an annualized basis. The principal drivers of the contraction was a surge in imports, a slowdown in consumer spending, and a sharp decline in federal spending. The Congressional Budget Office is projecting an increase in GDP of 1.9% for all of 2025, slowing to 1.8% for 2026. (Sources: Bureau of Economic Analysis; The Congressional Budget Office).

Previous wording

Employment and Housing. The U.S. added only 12,000 new jobs in October 2024, but the overall unemployment rate held steady at 4.1%, offsetting concerns of a pending recession. The Congressional Budget Office is predicting no change in the unemployment rate through 2025. Persistently high borrowing costs have constrained sales volumes of existing and new homes during 2023 and the first nine months of 2024 to their lowest levels in decades, although home prices continue to increase and have outpaced inflation. Recent releases of neutral economic data has resulted in continued high mortgage rates, suggesting that acquisition and refinancing activity for 30-year mortgages will not increase until later in 2025 (Sources: Bureau of Labor Statistics; Freddie Mac).

Current wording

Employment and Housing. The U.S. added 177,000 jobs in April 2025, holding the overall unemployment rate steady at 4.2% as compared to the first quarter of 2025, temporarily offsetting concerns of a pending recession. The labor force participation rate also remained consistent at 62.6%, up slightly from 62.5% in March 2025. The Congressional Budget Office is predicting a slight increase to 4.5% in the unemployment rate for the remainder of 2025. Persistently high borrowing costs have constrained sales volumes of existing and new homes for the previous two years and continuing into the first quarter of 2025, to their lowest levels in decades, although mid-level home prices continue to increase and have generally outpaced inflation. Recent releases of conflicting economic data, such as a stable unemployment rate contrasted against negative GDP growth, has resulted in continued high mortgage rates, suggesting that acquisition and refinancing activity for 30-year mortgages will not increase until later in 2025 or even 2026 (Sources: Bureau of Labor Statistics; Congressional Budget Office).

Previous wording

Consumer Prices. After experiencing substantial increases in 2022 and into 2023, consumer price increases have significantly ebbed. As of September 30, 2024, the consumer price index was up 2.1% over the previous 12-month period, down from 2.3% in August 2024, and at a three-year low. Largely as a result of slowing of economic growth, most commentators are forecasting a decrease in the rate of inflation throughout the remainder of 2024 and into 2025. (Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; Trading Economics).

Current wording

Consumer Prices. After experiencing substantial increases in 2022 and into 2023, consumer price increases have significantly ebbed through 2024 and the first quarter of 2025. As of March 2025, the consumer price index was up 2.4% over the previous 12-month period, down from 2.8% in February 2025, and remain consistent with the prior five quarters. Largely as a result of the introduction of tariffs in the first quarter of 2025, most commentators are forecasting an increase in the rate of inflation throughout the remainder of 2025 and into 2026. (Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; Morgan Stanley Research; Goldman Sachs).

Previous wording

Interest Rates. Principally as a response to declining rates of GDP growth and inflation, on September 18, 2024, the Federal Reserve cut interest rates for the first time in four years, decreasing the federal funds rate by 50 basis points, and indicated that further cuts may be on the horizon. With decreases in the consumer price index and increases in the U.S. unemployment rate, most analysts are expecting further cuts in late 2024 or at the Federal Open Market Committee’s meetings in January or March 2025. (Sources: Forbes; The Federal Reserve Board).

Current wording

Interest Rates. Principally as a response to declining rates of GDP growth and inflation, on September 18, 2024, the Federal Reserve cut interest rates for the first time in four years, decreasing the federal funds rate by 50 basis points, and indicated that further cuts may be on the horizon. However, with stable unemployment and inflation data, the Federal Reserve declined to reduce the rate further in the Federal Open Market Committee’s May 2025 meeting. Given the uncertainty regarding the U.S. economy and the implementation of tariffs, commentators are mixed in forecasting further rate cuts in the second and third quarters of 2025. (Sources: The Wall Street Journal; The Federal Reserve Board).

Previous wording

During the nine months ended September 30, 2024, our net asset value decreased from $3.55 per share to $2.96 per share, a decrease of 16.6%. As of September 30, 2024, our common stock is trading at a 54.1% discount to our net asset value as compared to 59.2% as of December 31, 2023.

Current wording

During the three months ended March 31, 2025, our net asset value increased from $2.17 per share to $2.52 per share, an increase of 16.0%. As of March 31, 2025, our common stock is trading at a 59.9% discount to our net asset value as compared to 49.3% as of December 31, 2024.

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. Ifwe areunable to borrow funds to make qualifying investments, Equusmay 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, in the event we seek to requalify as a RIC, we may periodically borrow funds to make qualifying investments to maintain this tax status. In such case, we will 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. Ifwe seek to requalify as a RIC and areunable to borrow funds to make qualifying investments, Equus would continue to be subject to corporate income tax on its net investment income and realized capital gains, and distributions to stockholders would continue to be subject to income tax as ordinary dividends.

Previous wording

Net investment loss was relatively unchanged at $0.7 million and $1.1 million for the three months ended September 30, 2024 and 2023, respectively and $2.7 million and $3.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Current wording

Net investment loss was $1.1 million for the three months ended March 31, 2025 and 2024.

Previous wording

General and administrative expenses were $0.04 million and $0.03 million for the three months ended September 30, 2024 and 2023, respectively and $0.1 million for the nine months ended September 30, 2024 and 2023.

Current wording

General and administrative expenses were comparable and were $0.05 million and $0.03 million for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

During the nine months ended September 30, 2024, we made a $2.2 million follow-on debt investment in Morgan E&P, LLC (“Morgan”). During this period, we also recorded a decrease of $3.6 million in the fair value of our equity holding in Morgan. The decrease was primarily due to declines in oil prices, as well as declines in production during the period.

Current wording

During the three months ended March 31, 2024, we made a $2.2 million follow-on debt investment. We recorded a decrease of $1.35 million in the fair value of our equity holding in Morgan.

Previous wording

During the nine months ended September 30, 2023, with respect to our holding in Equus Energy, LLC, we recorded no change in the fair value of this investment.

Current wording

During the three months ended March 31, 2024, with respect to our holding in Equus Energy, LLC, we recorded no change in the fair value of this investment.

Previous wording

Management performed an evaluation of the Fund’s activity through the date the financial statements were issued, noting the following subsequent events:

Current wording

Management performed an evaluation of the Fund’s activity through the date the financial statements were issued, noting there were no subsequent events.