SEC Form N-CSR filed by Sprott Focus Trust Inc.

Annual Report

December 31, 2023

Table of Contents

Managed Distribution Policy

The Board of Directors of Sprott Focus Trust, Inc. (the “Fund”) has authorized a managed distribution policy (“MDP”). Under the MDP, the Fund pays quarterly distributions at an annual rate of 6% of the rolling average of the prior four quarter-end net asset values, with the fourth quarter distribution being the greater of this annualized rate or the distribution required by IRS regulations. With each distribution, the Fund will issue a notice to its stockholders and an accompanying press release that provides detailed information regarding the amount and composition of the distribution (including whether any portion of the distribution represents a return of capital) and other information required by the Fund’s MDP. You should not draw any conclusions about the Fund’s investment performance from the amount of distributions or from the terms of the Fund’s MDP. The Fund’s Board of Directors may amend or terminate the MDP at any time without prior notice to stockholders.

Sprott Focus Trust

Performance (Unaudited)

Average Annual Total Returns
As of December 31, 2023 (%)

¹Royce & Associates, LLC served as investment adviser of the Fund from November 1, 1996 to March 6, 2015. After the close of business on March 6, 2015, Sprott Asset Management LP and Sprott Asset Management USA Inc. became the investment adviser and investment sub-adviser, respectively, of the Fund. At the close of business on June 30, 2023, Sprott Asset Management USA Inc. became the investment adviser of the Fund.

²Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell^® is a trademark of Russell Investment Group. The Russell 3000 Total Return index measures the performance of the largest 3,000 U.S. companies. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.

Past performance does not predict future performance and that the graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the sale of fund shares.

Important Performance and Risk Information

All performance information reflects past performance, is presented on a total return basis, net of the Fund’s investment advisory fee and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the most recent month-end may be obtained at www.sprottfocustrust.com. The market price of the Fund’s shares will fluctuate, so shares may be worth more or less than their original cost when sold.

The Fund is a closed-end registered investment company whose shares of common stock may trade at a discount to their net asset value. Shares of the Fund’s common stock are also subject to the market risks of investing in the underlying portfolio securities held by the Fund.

The Fund’s shares of common stock trade on the Nasdaq Select Market. Closed-end funds, unlike open-end funds, are not continuously offered. After the initial public offering, shares of closed-end funds are sold on the open market through a stock exchange. For additional information, contact your financial advisor or call 203.656.2430. Investment policies, management fees and other matters of interest to prospective investors may be found in the closed-end fund prospectus used in its initial public offering, as revised by subsequent stockholder reports.

Sprott Focus Trust

Manager’s Discussion of Fund Performance (Unaudited)

Whitney George

Dear Fellow Shareholders,

We are pleased to report that for the 12 months ended December 31, 2023, Sprott Focus Trust (FUND) appreciated 11.84% on a net asset value (NAV) basis and 6.96% on a market total return basis. FUND’s performance for 2023, while positive and in line with its own long-term averages, was disappointing on a short-term basis relative to the Russell 3000 Index benchmark’s 25.96% return. At this time last year, we were pleased with a flat annual return for 2022. Ironically, we find ourselves a bit disappointed with FUND’s double-digit positive performance this year. We should remind ourselves that ours is a long-term approach (with a three- to five-year investment horizon) as the general equity markets are just now recovering to the peaks last seen in very early 2022. On January 30, 2024, the S&P 500 Index finally surpassed its January 4, 2022, high. The day before, the Russell 3000 Index matched its two year old peak but the average performance of all its constituents was still down by 7.05% with the median stock down 14.70%. Our three-year returns remain very competitive at 11.22% versus 8.54% for the Russell 3000 benchmark, as do FUND’s 5-year returns at 14.28% versus 15.16% for the benchmark. Overall, we are pleased with our absolute results and our current portfolio positioning.

As expected, 2023 was a notably volatile year for all markets as investors adjusted to a significantly higher interest rate environment. The Federal Reserve’s (Fed) final interest rate increase in this inflation-fighting cycle was in July and by the fourth quarter, markets were aggressively pricing in dramatic rate cuts in 2024. The Fed made 11 rate hikes (or 5.25%) during this cycle as it combatted inflation, which declined from a high of 9% in June 2022 to 3% at year-end 2023, not quite the Fed’s 2% target inflation rate. Fixed income markets ended the year roughly where they started, and equity markets recorded historic returns. What was unexpected was the emergence of Artificial Intelligence (AI) as a dominant investment theme and its surprisingly positive impact on a handful of large-capitalization technology companies with dominant weightings in all the broad equity indices. We believe the market may have gotten a bit ahead of itself in 2023 on both interest rate projections and AI fundamentals expectations. As we begin to reach the anniversary of more benign inflation, data readings may become more difficult and price-earnings multiple expansion more elusive. In contradiction to what markets have already priced in, this may support the Fed policy of sticking with “higher for longer” interest rates.

Throughout 2023, commodities markets and China continued to face challenges, the latter being a critically important market in recent decades. Energy, the most relevant sector for FUND, produced the greatest headwinds to performance after a stellar contribution in 2022. This was especially surprising given the recent turmoil in the Middle East with the outbreak of the Gaza-Israeli conflict. On the other hand, gold continued to do its job as a portfolio diversifier and a safe haven asset, climbing 13.10% for the year, soundly outperforming “safe” fixed income assets. While we did not participate in gold’s performance through our ownership of gold mining equities, which lagged the metal in performance, we are optimistic that gold mining equities will re-link themselves to the physical metal in 2024 after a historic bout of relative underperformance.

Finally, global liquidity stood out as the number one driver for markets in 2023. Continued massive fiscal deficits competed for capital with private markets in all developed markets. A strong U.S. dollar (USD) makes things worse, and a weaker USD lightens the burden on all. We would expect more of the same in 2024 while noting the world is now moving away from the USD as a reserve currency in earnest. Last year, 20% of the world’s oil trading was conducted with currencies other than USD. This bodes well for FUND’s hard asset themes in the long run.

Positioning & Portfolio Activity

Portfolio turnover was very low for FUND in 2023, 14.64% as shown in Figure 3. By comparison, FUND’s turnover was 19.65% in 2022 and 22.00% in 2021. Last year’s low turnover ratio reflects our strong conviction for FUND’s positions. It also reflects the challenges of harvesting portfolio positions in a rising U.S. equity market and then identifying equally attractive new purchases that meet our valuation criteria.

FUND had 36 equity investments at year-end, up from 34 a year ago, as we liquidated one position and initiated three new positions during 2023. Cash was 2.6%, down from 4.0% at mid-year, which we consider relatively fully invested. As shown in Figure 2, the Materials sector was FUND’s greatest exposure at 39.4%. Our long-term investment thesis for mining stocks in both precious and critical metals continues. However, we are mindful of changing dynamics that could necessitate repositioning. Financial Services at 14.8% and Energy at 13.2% comprised the next-largest sector exposures. Eight of the previous period’s 10 largest positions remain, with the current top 10 holdings comprising 45% of net assets, unchanged from mid-year, June 30, 2023, as shown in Figure 1.

Figure 1

Holdings may vary, and this list is not a recommendation to buy or sell any security.

Sprott Focus Trust

Manager’s Discussion of Fund Performance (Unaudited)

Figure 2

At mid-year, we discussed liquidating a small position in Lam Research Corporation and purchasing a starter position in CF Industries Holdings, Inc. In the second half of 2023, the rising equity markets offered relatively few additional opportunities to buy quality at a discount. One portfolio holding, DDH1 Ltd. in Australia, was acquired at a material premium by a larger and more diversified Australian mining services company named Perenti Ltd., paying a combination of cash and shares. While we were disappointed in the low implied price paid to acquire DDH1 Ltd., we cannot argue with the strategic rationale of the acquiror. The enlarged Perenti offers expanded global contract mining services, greater scale with possible ASX 200 Index inclusion and re-weights its business back to the more attractive Australian market, accelerating utilization of Perenti’s accumulated tax losses. The share-for-share exchange enables FUND’s continued ownership of the resulting combined entity, which we believe dramatically undervalues the business.

We initiated new starter positions in two companies toward the end of 2023. The first is a well-known French consumer products company, Société BIC SA (BIC), which derived only 8% of its revenues in France (and 29% in Europe) in 2022. Many of its products will be familiar since 42.7% of sales were in North America. BIC has long been a world leader in stationery lighters and shavers, with well-recognized brands known for quality products at low prices. After reaching a high of €160 per share in August 2015, BIC shares declined to a low of €40 per share during 2020 due to a stale product portfolio, poor acquisitions, declining revenues and operating margins that peaked at 22% in 2015, and then fell to less than 10% in 2020. BIC is controlled by the Bich family, who collectively own more than 63% of voting rights and 47% of shares outstanding. In November 2020, BIC embarked on its new five-year Horizon Strategic Plan to return the business to prominence by becoming more consumer-centric without eroding the strong manufacturing and distribution-led competencies BIC is known for. Early signs of successful execution of specific growth initiatives are reassuring. With BIC’s strong net cash balance sheet and its shares trading at a material discount to our assessment of fair value, risk-reward appears to be very attractive.

Another opportunity came after corporate governance-related issues led to a shake-up of Osisko Gold Royalties’ management and Board of Directors, driving its shares down by more than 30%. Osisko’s gold royalty portfolio was previously highly valued in the market for its high quality, solid growth prospects, concentration in safe mining jurisdictions and strong ESG (environmental, social and governance) performance. Disagreements with the board led Osisko’s CEO to leave the company and led to the eventual resignation of its Chairman. Uncertainty about further shoes to drop prompted investors to sell Osisko and seek gold royalty exposure elsewhere until things settled further. Sprott’s team of gold mining specialists is very familiar with the assets within Osisko’s portfolio and the nuances of its corporate governance challenges and possible resolution, enabling a more measured assessment of risk and reward. This assessment showed Osisko’s valuation near 1.0x estimated net asset value as an attractive opportunity. In relatively short order, board member Norm MacDonald was elevated to Chairman and new CEO Jason Attew was hired. Osisko is now firmly back on track with its growth plans intact and a new management team to drive the return to its premium valuation.

Figure 3

¹Geometric Average. This weighted calculation uses each portfolio holding’s market cap in a way designed to not skew the effect of very large or small holdings; instead, it aims to better identify the portfolio’s center, which management believes offers a more accurate measure of average market cap than a simple mean or median.

²Harmonic Average. This weighted calculation evaluates a portfolio as if it were a single stock and measures it overall. It compares the total market value of the portfolio to the portfolio’s share in the earnings or book value, as the case may be, of its underlying stocks.

³The Fund’s P/E ratio calculation excludes companies with zero or negative earnings.

Sprott Focus Trust

Manager’s Discussion of Fund Performance (Unaudited)

Performance Contributors and Detractors

Figure 4 shows which positions contributed and detracted the most from FUND’s aggregate performance in 2023. Once again, strength during the first half of the year was sustained during the second half as four positions remained as top five contributors.

Figure 4

Top Contributors in 2023

It is interesting to note that our two best performers in 2023 (Artisan Partners and THOR), were our two worst performers in 2022. Artisan Partners Asset Management, Inc. was FUND’s biggest contributor to performance in 2023, adding 2.29% as the continued strength in equity markets helped drive higher average assets under management (AUM) versus mid-year. During Artisan Partners’ first-ever Investor Day held in New York in September, management shared its recipe for success in hiring and developing new investment teams. According to CEO Eric Colson, “The common components are differentiated talent, alignment of interests, customized business support, minimal distractions and patience.” While certain traits may be considered unexceptional in isolation, Artisan’s dogged adherence to each and keen sense of where future market opportunities lie amid a changing investment landscape has driven exceptional business results. Management believes its fixed income business is poised for success next, given this past year’s higher interest rate regime.

Thor Industries contributed 1.81% to FUND’s performance in 2023. European demand for recreational vehicles (RVs) strengthened further during the second half of 2023, partially offsetting ongoing weakness in North American sales. While the macroeconomic environment for manufacturers like Thor is relatively consistent across the globe – higher interest rates, higher inflation, supply chain constraints, geopolitics/war and the myriad of uncertainties they foster – Thor’s flexible business

model allows for speedy adaptation to changing market conditions during periods like this. Thor’s excellent management team has performed well through the challenges of previous cycles in similar ways – controlling costs, inventory, pricing and other variables within its control.

FUND’s steel investments contributed meaningfully to its performance results in 2023 as Reliance Steel & Aluminum Co. and Nucor Corporation shares were strong performers, adding 1.77% and 1.53%, respectively. Nucor is the largest steel producer in the United States and has benefited from its large scale and dominant market position serving very large end markets such as non-residential construction and infrastructure. Favorable U.S. government policy initiatives such as the Inflation Reduction Act (IRA), the Bipartisan Infrastructure Law (BIL) and the CHIPS and Science Act have bolstered structural demand drivers that were already underway, leading to abnormally high and sustained steel pricing and profits. Nucor’s cash-rich balance sheet and value-driven capital allocation record should ensure that Nucor shareholders will likely continue to benefit from this prolonged steel upcycle.

Operating a very different business model than Nucor, Reliance Steel & Aluminum is a metals service center company, processing (i.e., changing the shape, size and/or form) and distributing steel and aluminum products to smaller end-market consumers with quick delivery. As a result, Reliance realizes higher through-cycle margins, more stable realized pricing and counter-cyclical free cash flow (FCF) generation. The localized nature of Reliance’s business creates opportunities for it to acquire established regional (typically family-owned) businesses periodically. Reliance has completed 70 such acquisitions since 1974. We spent a day on site researching Reliance subsidiary Yarde Metals in Southington, CT, in November 2023. The tour of its operating facilities and meetings with various levels of Yarde Metals management provided a comprehensive understanding of its business model and competitive advantages in that locale.

Lastly, Westlake Corporation contributed 1.68% and was FUND’s fourth-ranked performer for the twelve months. Westlake compared favorably against its commodity chemical-oriented peers due to its more diverse business. Westlake’s Performance and Essential Materials segment (64% of revenues in Q3 2023) was negatively impacted along with its peers by higher interest rates weighing on demand and lowering global industrial activity. Mitigating this somewhat was Westlake’s structural feedstock and energy cost advantage. The greatest offsetting impact, however, came from its growing Housing and Infrastructure Products (HIP) business, which has much higher and more stable operating margins through the cycle. This diversity in Westlake’s business helped drive its business and share price performance this year.

Top Detractors in 2023

Not all positions impacted performance positively in 2023. Little changed on that side of the ledger since mid-year as Helmerich & Payne, Inc. remained FUND’s top detractor for the full year after its shares fell; it detracted 1.08% from FUND’s performance. It is worth noting that Helmerich & Payne has been a long-term holding of FUND and was its top-performing holding in 2022. As the largest provider of super-spec drilling rigs to the oil and gas

Sprott Focus Trust

Manager’s Discussion of Fund Performance (Unaudited)

industry in the U.S., cyclically depressed drill rig activity and lower oil and gas prices in 2023 proved too great to overcome, given the difficult energy investing climate. While the short-term outlook is unclear, Helmerich & Payne remains disciplined on rig pricing amid lower industry rig utilization. This should serve margins and returns well in the medium term when the cycle turns upward again, which company management expressed confidence in during its most recent quarterly results call. We share this optimism and maintain faith in Helmerich & Payne’s demonstrated track record of doing what is best for shareholders.

Kennedy-Wilson Holdings , Inc. detracted 0.75% from FUND’s 2023 results, as it was a casualty from the general malaise impacting commercial real estate in general — higher interest rates and increased vacancies in certain sub-segments. The impact of higher interest rates on the net asset values of real estate projects has been universally negative. But for Kennedy-Wilson, there is more to the story. Kennedy-Wilson’s primary exposure is to the healthier multi-family home segment, where demand remains robust. Household formation continues apace and demand for housing exceeds supply growth, mitigating the damage experienced by real estate companies more geared to struggling commercial high-rise and retail property investments. In addition, Kennedy-Wilson has historically invested opportunistically amid previous periods of disruption with great success. Last spring, the mini-banking crisis affecting several California regional banks created one such opportunity. During the third fiscal quarter of 2023, Kennedy-Wilson acquired a $4.1 billion construction loan portfolio from PacWest Bank at a material discount, representing the largest single transaction in its history. This deal is similar to the opportunity in 2011 when Kennedy-Wilson bought a $2.2 billion high-quality loan portfolio secured by 23 assets in London at a discount. With estimated fair values across the sector being negatively impacted in the short term by higher capitalization rates, Kennedy-Wilson is playing the long game by creating opportunities for substantial long-term capital appreciation amid the current disruption.

In our semi-annual shareholder letter, we discussed the underperformance of aviation aftermarket services and sales company AerSale Corporation. Unfortunately, the song remained the same at year-end and this holding detracted 0.66% from FUND’s performance in 2023. Despite achieving key milestones during the year’s second half, AerSale’s share price continued to suffer. Aftermarket flight equipment sales significantly improved, and the Federal Aviation Administration (FAA) finally approved the company’s revolutionary Enhanced Flight Vision System, AerAware. These two positive developments were offset by the sale of a large tranche of 4 million shares by its concentrated private equity shareholder Leonard Green & Partners, which continues to liquidate its holding into each increment of good news. While its sizable stake nearly halved during 2023, Leonard Green & Partners’ remaining approximately 19% ownership stake remains an overhang. The long-term growth opportunity from AerAware could transform its business, unlocking significant value as the technology is deployed.

There were few places to hide in the energy space in 2023 and one of the oil and gas industry’s largest producers, Exxon Mobil Corporation, was a modest detractor, subtracting 0.30% from FUND’s performance in 2023. Growing fears of recession and its impact on demand have kept the price of oil range-bound. At the same time, calls for increased renewable energy over fossil fuels continue to dampen longer-term sentiment. Exxon Mobil has several initiatives in its traditional business and future-facing solutions,

such as carbon capture and storage that exemplify its status as an industry leader. Exxon Mobil’s upstream offshore oil development projects in Guyana are key growth assets. They are among the best performing in the world with respect to emissions intensity, outpacing 75% of oil-producing assets globally, according to independent energy consultant Rystad Energy. Other low carbon business initiatives include its recent $5 billion all-stock purchase of Denbury, Inc., which expanded carbon capture and storage opportunities through access to the largest CO2 pipeline network in the U.S. Other investments in lithium, hydrogen, biofuel, and carbon capture and storage will help address climate change and closely align with Exxon Mobil’s competitive advantages and core capabilities.

During the California Gold Rush of the mid-nineteenth century, prospectors needed to buy a pick and a shovel to break rocks in their search for a golden fortune. Often, these efforts went unrewarded, while the companies that sold picks and shovels were more consistently profitable and less risky. The concept still applies in today’s modern mining industry despite great technological advancement in exploration techniques. Drilling services companies such as Major Drilling Group International, Inc. are the modern-day sellers of picks and shovels and are as integral to mineral discovery and production as ever. Its shares languished last year and the holding detracted 0.26% from FUND’s results, as investor interest in mining-related investments paled compared to capital-light technology companies focused on AI. The irony in this comparison is that mining has been the lifeblood of all technological improvements since the beginning of time. Without exaggeration, modern civilization has increasingly relied upon metals and minerals extracted from the earth to provide food, shelter, energy, transportation, and countless industrial and electronic products that make life comfortable. Recent shorter-term movements in the prices of mined materials have driven current investor apathy toward “picks and shovel” plays like Major Drilling. With a slightly longer investment time horizon, we believe an extremely attractive opportunity awaits patient investors to benefit from a strong multi-year upcycle in demand for metals and high-quality drilling services.

Outlook

As 2024 represents a U.S. presidential election year, we assume there will be little appetite for any fiscal restraint in the American political establishment. Record deficits will continue, and a larger government debt pile will need to be financed at higher interest rates. Concurrently, the global appetite for USD, and therefore U.S. Treasury bonds, will likely continue to diminish. Irrespective of what the Fed decides to do with interest rates, new pools of liquidity will be required to prevent further bouts of Treasury market dysfunction. We believe that the Fed’s quantitative tightening program is ending and will likely be replaced with new policies and programs that will have the effect of quantitative easing in all forms but the name. If we are correct, the USD will weaken and inflation will persist above desirable targets. Commodities should do better as the long-term supply-demand fundamentals of the developed world overcome weakened commodity demand from China. We expect that precious metals will once again gain a level of interest from Western investors that already exists in the developing world, particularly Asia. While much of the U.S. economy will continue to struggle if not recede, there will be pockets of strength in industries related to infrastructure and clean energy. The process of de-globalization and de-carbonization will continue to provide attractive opportunities.

Sprott Focus Trust

Manager’s Discussion of Fund Performance (Unaudited)

FUND remains well-positioned to capitalize on several well-entrenched yet under-appreciated themes. Our heavy exposure to clean steel, domestic natural gas and precious metals mining should benefit even if we are only partially correct in our economic assessments. FUND’s portfolio, as always, contains a collection of high-quality companies at very attractive absolute valuations and bargain basement prices on a relative basis. Our shares, trading at a 9.74% discount to Net Asset Value at this writing, appear to be a bargain, so we will continue our daily share repurchase program. In 2023, we retired 1,211,710 shares at an average price of $7.97.

Many thanks to the Sprott Team for its daily support, particularly Matt Haynes’ contributions to this letter. And mostly, thank you to all our loyal and patient fellow shareholders. We welcome any questions or comments at any time.

Sincerely,

W. Whitney George

Senior Portfolio Manager

January 30, 2024

Sprott Focus Trust

Performance Review (Unaudited)

Growth of $10,000 (as of December 31, 2023)
Comparison of Change in Value of $10,000 Investment in the Fund and the Underlying Index

This chart assumes an initial gross investment of $10,000 made on 10/31/1996. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns shown include the reinvestment of all dividends and other distributions. Past performance is not predictive of future performance. Investment return and principal value will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost.

The Russell 3000 Index is a capitalization-weighted index measuring the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. Returns include the reinvestment of all dividends. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index.

Calendar Year Total Returns (%)

Past performance does not predict future performance and the graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the sale of fund shares.

Important Performance and Risk Information

All performance information reflects past performance, is presented on a total return basis, and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the most recent month-end may be obtained at www.sprottfocustrust.com. The market price of the Fund’s shares will fluctuate, so shares may be worth more or less than their original cost when sold. The Fund normally invests primarily in small-/mid-cap companies, which may involve considerably more risk than investing in larger-cap companies. The Fund also generally invests a significant portion of its assets in a limited number of stocks, which may involve considerably more risk than a broadly diversified portfolio because a decline in the value of any one of these stocks would cause the Fund’s overall value to decline to a greater degree. Regarding the “Top Contributors” and “Top Detractors” tables shown on page 4, the sum of all contributors to, and all detractors from, performance for all securities in the portfolio would approximate the Fund’s performance for 2023 to date.

Sprott Focus Trust

History Since Inception (Unaudited)

The following table details the share accumulations by an initial investor in the Fund who reinvested all distributions and participated fully in primary subscriptions for each of the rights offerings. Full participation in distribution reinvestments and rights offerings can maximize the returns available to a long-term investor. This table should be read in conjunction with the Performance and Portfolio Reviews of the Fund.

¹The purchase price used for annual distribution totals is a weighted average of the distribution reinvestment prices for the year.

²Values are stated as of December 31 of the year indicated, after reinvestment of distributions.

³Includes a return of capital.

Sprott Focus Trust

Distribution Reinvestment and Cash Purchase Options (Unaudited)

Sprott Focus Trust

Schedule of InvestmentsDecember 31, 2023​

See Notes to Financial Statements.

Sprott Focus Trust

Schedule of InvestmentsDecember 31, 2023​

See Notes to Financial Statements.

Sprott Focus Trust

Statement of Assets and LiabilitiesDecember 31, 2023​

See Notes to Financial Statements.

See Notes to Financial Statements.

Sprott Focus Trust

Statement of OperationsFor the Period January 1, 2023 Through December 31, 2023​

^(a)Net of foreign tax withholding in the amount of $158,980.

See Notes to Financial Statements.

Sprott Focus Trust

Statements of ChangesDecember 31, 2023​

Sprott Focus Trust

Financial Highlights

This table is presented to show selected data for a share of Common Stock outstanding throughout each period, and to assist stockholders in evaluating the Fund’s performance for the periods presented.

^(a)Calculated using average shares outstanding during the period.

^(b)Represents less than $0.005

^(c)The Net Asset Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period using net asset value. Dividends and distributions are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Market Value Total Return is calculated on the same basis, except that the Fund’s market value is used on the purchase and sale dates instead of net asset value.

See Notes to Financial Statements.

Sprott Focus Trust

Notes to Financial StatementsDecember 31, 2023​

1. ORGANIZATION

Sprott Focus Trust, Inc. (the “Fund”) is a diversified closed-end investment company incorporated under the laws of the State of Maryland. The Fund commenced operations on March 2, 1988, and Sprott Asset Management LP and Sprott Asset Management USA Inc. assumed investment management responsibility for the Fund after the close of business on March 6, 2015. Royce & Associates, LLC was the Fund’s previous investment manager. After March 6, 2015, Sprott Asset Management LP was the investment adviser, and Sprott Asset Management USA Inc., was the sub-adviser of the Fund. During the reporting period, Sprott Asset Management LP was the investment adviser to the Fund from January 1, 2023 to June 30, 2023, and Sprott Asset Management USA Inc. commenced acting as investment adviser to the Fund on July 1, 2023 and continues to serve in such capacity (Sprott Asset Management LP and Sprott Asset Management USA Inc. collectively are referred to as the “Adviser”). On July 1, 2023, Sprott Asset Management LP became the sponsor of the Fund.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

At December 31, 2023, officers, employees of Sprott Inc. and its subsidiaries, Fund directors, and other affiliates owned approximately 49% of the Fund.

A. Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from these estimates.

B. Portfolio Valuation and Methodologies

Securities are valued as of the close of trading on the New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern time) on the valuation date. All exchange traded securities are valued using the last trade or closing sale price from the primary publicly recognized exchange. If no current closing sale price is available, the mean of the closing bid and ask price is used. If no current day price quotation is available, the previous business day’s closing sale price is used. Investments in open-end mutual funds such as money market funds are valued at the closing NAV. Repurchase agreements are valued at contract amount plus accrued interest, which approximates market value. The Fund values its non-U.S. dollar denominated securities in U.S. dollars daily at the prevailing foreign currency exchange rates as quoted by a major bank. If events (e.g., market volatility, company announcement or a natural disaster) occur that are expected to materially affect the value of the Fund’s investment, or in the event that it is determined that valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued in accordance with the Adviser’s policies and procedures as reflecting fair value (“Fair Value Policies and Procedures”). U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Board of Directors of the Fund (the “Board”) has approved the designation of the Adviser of the Fund as the valuation designee for the Fund. If a security’s market price is not readily available or does not otherwise accurately represent the fair value of the security, the security will be valued in accordance with the Fair Value Policies and Procedures as reflecting fair value. The Adviser has formed a committee (the “Valuation Committee”) to develop pricing policies and procedures and to oversee the pricing function for all financial instruments.

C. Fair Value Hierarchy

The fair valuation approaches that may be used by the Valuation Committee include market approach, income approach and cost approach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation approaches and are typically used in determining fair value. When determining the price for fair valued investments, the Valuation Committee seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Valuation Committee deems relevant and consistent with the principles of fair value measurement.

Various inputs are used in determining the value of the Fund’s investments, as noted above. These inputs are summarized in the three broad levels below:

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

Sprott Focus Trust

Notes to Financial StatementsDecember 31, 2023​

The following is a summary of the Fund’s investments as of December 31, 2023 based on the inputs used to value them. For a detailed breakout of common stocks by sector classification, please refer to the Schedule of Investments.

There were no transfers between levels for investments held at the end of the period.

D. Investment Transactions and Related Investment Income

Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on an accrual basis. Premium and discounts on debt securities are amortized using the effective yield-to-maturity method. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes.

Income received from foreign sources may result in withholding tax. Withholding taxes are accrued at the same time as the related income if the tax rate is fixed and known, unless a tax withheld is reclaimable from the local tax authorities in which case it is recorded as receivable. If the tax rate is not known or estimable, such expense or reclaim receivable is recorded when the net proceeds are received.

E. Expenses

The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund’s operations, while expenses applicable to more than one fund managed by the Adviser are allocated equitably.

F. Compensating Balance Credits

The Fund has an arrangement with its custodian bank, whereby a portion of the custodian’s fee is paid indirectly by credits earned on the Fund’s cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments. Conversely, the Fund pays interest to the custodian on any cash overdrafts, to the extent they are not offset by credits earned (interest accrued) on positive cash balances. The amount of credits earned on the Fund’s cash on deposit amounted to $1,534 for the year ended December 31, 2023.

3. RISKS

A. Common Stock

The Fund invests a significant amount of assets in common stock. The value of common stock held by the Fund will fluctuate, sometimes rapidly and unpredictably, due to general market and economic conditions, perceptions regarding the industries in which the issuers of common stock held by the Fund participate or factors relating to specific companies in which the Fund invests.

B. Repurchase Agreements

The Fund may enter into repurchase agreements with institutions that the Adviser has determined are creditworthy. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of the counter-party, including possible delays or restrictions upon the ability of the Fund to dispose of its underlying securities. The maturity associated with these securities is considered continuous.

C. Foreign Currency

The Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, expiration of currency forward contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, including investments in securities at the end of the reporting period, as a result of changes in foreign currency exchange rates.

Sprott Focus Trust

Notes to Financial StatementsDecember 31, 2023​

D. Metals and Mining Industry Risk

Companies in the metals and mining industry are susceptible to fluctuations in worldwide metal prices and extraction and production costs. In addition, metals and mining companies may have significant operations in areas at risk for social and political unrest, security concerns and environmental damage. These companies may also be at risk for increased government regulation and intervention. Such risks may adversely affect the issuers to which the Fund has exposure.

4. TAXES

As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year.

The cost of total investments for Federal income tax purposes was $194,119,193. At December 31, 2023, net unrealized appreciation for all securities was $71,234,448, consisting of aggregate gross unrealized appreciation of $79,419,844 and aggregate gross unrealized depreciation of $(8,185,396).

The tax character of distributions paid to common stockholders during 2023 and 2022 were as follows:

As of December 31, 2023, the tax basis components of distributable earnings included in stockholder’s equity were as follows:

As of December 31, 2023, the Fund did not have any post October capital or currency losses.

The difference between book and tax basis unrealized appreciation (depreciation) is attributable primarily to deferral of losses on wash sales, the realization for tax purposes of unrealized gains on investments in passive foreign investment companies, and non-REIT return of capital basis adjustments. For financial reporting purposes, capital accounts and distributions to stockholders are adjusted to reflect the tax character of permanent book and tax differences. Any permanent differences resulting from different book and tax treatment are reclassified at year-end and have no impact on net income, NAV or NAV per share to the fund. For the year ended December 31, 2023 there were no permanent differences requiring a reclassification between total distributable earnings (losses) and paid-in capital.

Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (2020-2023) and has concluded that as of December 31, 2023, no provision for income tax is required in the Fund’s financial statements.

5. DISTRIBUTIONS

The Fund pays quarterly distributions on the Fund’s Common Stock at the annual rate of 6% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 1.5% of the rolling average or the distribution required by IRS regulations. Distributions are recorded on ex-dividend date and to the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year-end is distributed in the following year.

Sprott Focus Trust

Notes to Financial StatementsDecember 31, 2023​

7. INVESTMENT ADVISORY AGREEMENT

The Investment Advisory Agreement between the Adviser and the Fund provides for fees to be paid at an annual rate of 1.0% of the Fund’s average daily net assets. The Fund accrued investment advisory fees totaling $2,541,762 to the Adviser for the period ended December 31, 2023.

8. PURCHASES AND SALES OF INVESTMENT SECURITIES

For the year ended December 31, 2023, the costs of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $36,007,806 and $43,234,951 respectively.

9. LENDING OF PORTFOLIO SECURITIES

The Fund, using State Street Bank and Trust Company (“State Street”) as its lending agent, may loan securities to qualified brokers and dealers in exchange for negotiated lenders’ fees. The Fund receives cash collateral, which may be invested by the lending agent in short-term instruments. Collateral for securities on loan is at least equal to 102% (for loans of U.S. securities) or 105% (for loans of non-U.S. securities) of the market value of the loaned securities at the inception of each loan. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. As December 31, 2023, the cash collateral received by the Fund was invested in the State Street Navigator Securities Lending Government Money Market Portfolio, which is a 1940 Act registered money market fund. To the extent that advisory or other fees paid by the State Street Navigator Securities Lending Government Money Market Portfolio are for the same or similar services as fees paid by the Fund, there will be a layering of fees, which would increase expenses and decrease returns. Information regarding the value of the securities loaned and the value of the collateral at period end is included in the Schedule of Investments. The Fund could experience a delay in recovering its securities, a possible loss of income or value and record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. These loans involve the risk of delay in receiving additional collateral in the event that the collateral decreases below the value of the securities loaned and the risks of the loss of rights in the collateral should the borrower of the securities experience financial difficulties.

Pursuant to the current securities lending agreement, the Fund retains 80% of securities lending income (which excludes collateral investment expenses). Securities lending income is generally equal to the total of income earned from the reinvestment of cash collateral (and excludes collateral investment fees), and any fees or other payments to and from borrowers of securities. State Street bears all operational costs directly related to securities lending.

As of December 31, 2023, the Fund had outstanding loans of securities to certain approved brokers for which the Fund received collateral:

Sprott Focus Trust

Notes to Financial StatementsDecember 31, 2023​

The following table presents financial instruments, net of the related collateral received by the Portfolio as of December 31, 2023.

^(a)Represents market value of loaned securities at year end.

^(b)The actual collateral received is greater than the amount shown here due to collateral requirements of the security lending agreement.

All securities on loan are classified as Common Stock in the Fund’s Schedule of Investments as of December 31, 2023, with a contractual maturity of overnight and continuous.

Other information regarding the Fund is available in the Fund’s most recent Report to Stockholders. This information is available through Sprott Asset Management’s website (www.sprottfocustrust.com) and on the Securities and Exchange Commission’s website (www.sec.gov).

10. SUBSEQUENT EVENTS

The Fund has evaluated the need for disclosures and/or adjustments resulting from subsequent events that occurred between December 31, 2023 and the date the financial statements were issued. Based on this evaluation, no adjustments were required to the financial statements.

Sprott Focus Trust

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
of Sprott Focus Trust, Inc.

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Sprott Focus Trust Inc., (the “Fund”), including the schedule of investments, as of December 31, 2023, 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 financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2023, 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.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the Fund’s auditor since 1998.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2023 by correspondence with custodians. We believe that our audits provide a reasonable basis for our opinion.

TAIT, WELLER & BAKER LLP

Philadelphia, Pennsylvania
February 29, 2024

Sprott Focus Trust

Fund’s Portfolio Management, Investment Objectives and Policies and Principal Risks (Unaudited)

Since January 1, 2023, the first day after the Fund’s most recent annual reporting period, there have been no material changes of the Fund’s investment objectives and policies, charter or by-laws, principal risk factors associated with investment in the company and the persons who are primarily responsible for the day-to-day management of the company’s portfolio.

Portfolio Management

W. Whitney George is the portfolio manager of the Fund. He has served as the portfolio manager of the Fund since 2000.

Royce & Associates, LLC served as investment adviser of the Fund from November 1, 1996 to March 6, 2015. After the close of business on March 6, 2015, Sprott Asset Management LP and Sprott Asset Management USA Inc. became the investment adviser and investment sub-adviser, respectively, of the Fund. On July 1, 2023, Sprott Asset Management USA Inc. became the investment adviser of the Fund and Sprott Asset Management LP became the sponsor of the Fund.

Sprott Focus Trust

Fund’s Portfolio Management, Investment Objectives and Policies and Principal Risks (Unaudited)

Sprott Focus Trust

Directors and Officers (Unaudited)

All Directors and Officers may be reached c/o Sprott Asset Management USA, Inc. 320 Post Road, Suite 230, Darien, CT 06820.

¹Mr. George is an “interested person”, as defined in Section 2(a)(19) of the 1940 Act, of the Fund due to several relationships including his position as Chief Executive Officer of Sprott, Inc., the parent company of Sprott Asset Management USA Inc., the Fund’s adviser.

The Statement of Additional Information has additional information about the Fund’s Directors and is available without charge, upon request, by calling (203) 656-2430.

Sprott Focus Trust

Notes to Performance and Other Important Information (Unaudited)

Sprott Focus Trust

Notes to Performance and Other Important Information (Unaudited)

Sprott Focus Trust

APPENDIX (unaudited)

2023 19(a) Notices

www.sprott.com