Barrett Opportunity Fund N-CSRSCertified semi-annual shareholder report (management investment company)

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.

Dear Shareholder,

We are pleased to provide the semi-annual report of the Barrett Opportunity Fund, Inc.¹ (the “Fund”) for the six-month period ended February 29th, 2020.

The management team at Barrett Asset Management, LLC (“Barrett”) 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 it 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,

David H. Kochman

Chairperson

March 12, 2020

The continued upward trend in the equity markets came to an abrupt halt in February.  Investors were confronted with the sudden rise and gravity of the COVID-19 virus.  The world was quickly consumed by the medical health and financial threat to the global economic growth, quickly erasing the gains equities had generated since the end of August 2019.  The chances of a global recession have become more of a reality than a mere possibility.

Investors are struggling to manage the deluge of news related to the virus’ global spread; while many larger companies have greater access to financial support, the greatest concern for many is the impact this economic interruption could have on small- and medium-sized companies.  The Federal Reserve and other central banks have taken dramatic monetary measures to ensure sufficient liquidity in the financial markets. The U.S. government has injected $2 trillion in fiscal stimulus to provide support for businesses and consumers impacted by the virus’ economic slowdown.

Consumer spending has dramatically come to a halt, forcing many small businesses to close their doors.  Unemployment numbers will certainly spike in the near-term.  The

recessionary environment has led to a steep decline in intermediate bond yields.  That said, the equity market’s road to recovery depends upon the profit outlook for companies in 2021.  Company managers are weighing changes in capital allocation strategies, lowering discretionary capital expenditures and share repurchases.  To date, we have seen a variety of companies who have reduced or suspended their dividends.  More companies are likely to follow this path as managements assess their results for the first quarter of the year.

The decline in stock prices needs to be weighed against the major economic interruption caused by the virus lock down.  Looking forward, if the coronavirus subsides in the summer months, the markets will begin to assess the earnings power of companies over the coming quarters.  We expect companies with solid balance sheets and resilient business models should weather this turbulence and generate favorable earnings growth in 2021. We are optimistic scientists will identify new therapies and tests against the virus that will repair consumers’ damaged confidence.

During the six month period ending February 29, 2020, the Fund declined -3.88% compared to a -1.50% loss for the Lipper Large Cap Value Fund Index and a +1.92% gain for the S&P 500.  During the six month period, the best performing sectors of the S&P 500 were information technology, health care and communication services.  The worst performing sectors in the market were energy, consumer staples and consumer discretionary.

The Fund’s greatest contributing sectors to performance during the six month period were information technology, health care and communication services.  Industrials and energy were the largest detractors to the Fund’s performance.  On an individual company basis, Apple, Microsoft, and AbbVie were the greatest contributors to the Fund’s quarterly performance, while General Dynamics, Royal Dutch Shell, and Philips were the biggest detractors to the Fund’s performance.

During the six month period, we continued to reduce the Fund’s exposure in its largest holdings.  The top five holdings of the Fund represented 50.8% of total assets at the end of February, 2020, versus 54.7% at the end of August, 2019.  Furthermore, we have written options on some of the largest liquid holdings in the portfolio to generate additional income for investors.

Thank you for your continued interest in the Fund.

Sincerely,

The outlook, views, and opinions presented are those of the Adviser as of February 29, 2020. These are not intended to be a forecast of future events, a guarantee of future results, or investment advice.

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.

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:

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 February 29, 2020.  The inputs and methodologies used to value securities may not be an indication of the risk associated with investing in these securities.

There were no transfers of securities between levels during the reporting period. The Fund did not hold any Level 3 securities during the year.

The Fund may invest in derivative instruments. The use of derivatives included written options. Written options are presented in the Statement of Assets & Liabilities.

Statement of Assets & Liabilities – Values of derivative instruments as of February 29, 2020:

The effect of derivative instruments on the Statement of Operations for the fiscal period ended February 29, 2020:

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.

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.  The average notional amount for written options during the period ended February 29, 2020, was $1,272,450.

(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.

Non-cash dividends are recorded at the fair market value of the securities received.  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.

(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, 2019, 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 2016.

(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) 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 February 29, 2020 John B. Gaguine had control of 32.03% of the outstanding shares of the Fund.

(j) Liquidity Risk Management Program

The Fund has adopted and implemented a written liquidity risk management program as required by Rule 22e-4 under the Investment Company Act. The program is reasonably designed to assess and manage the Fund’s liquidity risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources. The Fund’s Board of Directors approved the appointment of representatives of the Adviser as Liquidity Risk Management administrators, who are responsible for the program’s administration and oversight and for reporting to the Board.

During the period ended February 29, 2020, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:

At February 29, 2020, 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:

The Funds designated as long-term capital gain dividend, pursuant to Internal Revenue Code Section 852(b)(3), to reduce the earnings and profits of the Fund related to net capital gain to zero for the tax year ended August 31, 2019.

As of August 31, 2019, the components of accumulated earnings (losses) for income tax purposes were as follows:

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, 2019, the following table shows the reclassifications made: