The most recent calendar year provided terrific returns, although the primary driver was an increase in price/earnings multiples (rather than increases in earnings). For 2019 our Fund was up 21.4%, which lagged the
S&P 500 (total return) index which notched a 31.5% return. This is not unusual---our Fund will lag in strong up markets, but should perform relatively better in flat to declining markets. Our focus is on
preservation of capital, while enjoying acceptable returns.
“Path to profitability” is the meme of the day. Uber, Lyft, WeWork, among others, have now gotten religion. Investors are no longer willing to give companies unlimited funds to continue to grow the top line, all at
the expense of the bottom line. A number of these companies are aiming to get to profitability by the end of 2021, assuming that everything goes as planned.
We don’t believe in a “path to profitability”; we believe in a “history of profitability”. Putting aside some non-cash write-offs of goodwill, we can’t remember a single one of our portfolio companies losing money on a
cash basis in a single quarter. We’re simply not interested in unprofitable companies. (Obviously, there are a few companies that are extremely seasonal, such as Intuit (TurboTax software) and H. & R. Block (tax preparation), and they have to
be analyzed very differently.)
We were recently researching a company until it showed a significant quarterly loss. That was the death knell of the research, at least for the time being. Companies that can’t produce significant cash earnings on a
regular and consistent basis are dangerous for investors; usually this reflects that either the company has a management problem or doesn’t enjoy much of an “economic moat”.
Paying a high price today for anticipated or expected earnings in the distant future is a fool’s game. Sometimes it works out, but all too often the rosy projections don’t materialize for one reason or another. This
was the fate of the 3-dimensional printing (3D printing) companies that rose to prominence in 2013 and 2014 amid high hopes for a transformative industry.
Three-dimensional printing, also known as additive manufacturing, has wonderful technology, and is producing innovative products for medical, design, manufacturing and other purposes. We have nothing but good things to
say about the technology and its applications; our problem is with the valuations of companies providing the technology.
“At a current price of $78 a share, DDD is trading at approximately 81x 2013 earnings per share and 61x analysts’ estimates of 2014 earnings per share. Yes, the implied growth in per-share earnings
is approximately 32 percent. If (and that is a big ‘if’) DDD can continue to provide earnings growth at this rate, then perhaps it can justify these nosebleed levels.”
What happened to DDD over the next five years? Set forth below is a brief summary of DDD’s actual performance over the following 5-year period. Note that the 2015 results include a $537 Million charge for goodwill
impairment.
As of the close of business on January 10, 2020, DDD was trading at $9.99 a share, down from the $80’s at the time of the letter, and is currently losing money (so no price/earnings multiple makes sense). Clearly the market’s assessment in early
2014 for DDD was far off. This is why we invest on the basis of historic earnings (and reasonable extrapolation going forward), rather than forecasts and hopes for the future.
While we pride ourselves on being long-term “buy and hold” investors, we don’t believe that investors can ignore changing realities. Our Fund owns sizable stakes in AutoZone (AZO) and O’Reilly Automotive (ORLY), but we
continue to ruminate about how both of these companies will fare in a substantially all-electric vehicle world. Obviously, this is not an immediate concern, but the implications for AZO and ORLY are unclear. Electric vehicles have fewer parts, and
less wear. Further, a number of companies, Uber, Lyft and others, are seeking to establish taxi fleets, providing car services for rent. Should those fleets be built, much of the maintenance and upkeep for these vehicles could well be handled at a
centralized facility, thus displacing dealerships and repair shops. We intend to keep a watchful eye on these developments.
As always, we love hearing from our Fund shareholders. As we constantly remind you, we won’t comment on any Fund portfolio purchase or sale that hasn’t been publicly reported, or that is contemplated. With that one
caveat, all other topics are fair game.
Directors Who Are Interested Persons of the Fund and Officers
*The address of Mr. David Sims is the address of the principal executive office of the Fund. David C. Sims is an Interested Person within the meaning of Section 2(a) (19) of the Investment Company Act of 1940 because he is the Chief Financial
Officer, Chief Compliance Officer, Treasurer, and Secretary of the Fund, and he is affiliated with the Fund’s investment advisor, Sims Capital Management LLC (the “Advisor” or “SCM”). David C. Sims is the son of Luke E. Sims, the President, Chief
Executive Officer, and a Director of the Fund.
**The address of Mr. Luke Sims is the address of the principal executive office of the Fund. Luke E. Sims is an Interested Person within the meaning of Section 2(a) (19) of the Investment Company Act of 1940 because he is the President and Chief
Executive Officer of the Fund, beneficially owns in excess of five percent (5%) of the Fund’s outstanding shares of common stock, and he is affiliated with the Fund’s investment advisor, Sims Capital Management LLC (the “Advisor” or “SCM”). Luke E.
Sims is the father of David C. Sims, the Chief Financial Officer, Chief Compliance Officer, Secretary, Treasurer, and a Director of the Fund.
Directors Who Are Not Interested Persons
*The address of each is the address of the principal executive office of the Fund.
Compensation.
The following tables identify the aggregate compensation paid to all directors and nominees in 2019. Directors’ fees are only payable to directors who are not officers of the Fund or affiliated with the Advisor. For
2019, Fund directors who are entitled to receive directors’ fees received an annual retainer of $11,000, paid quarterly, together with $1,000, paid quarterly, for service on the Audit Committee. The Audit Committee Chairman received an additional
$500 annual retainer, paid quarterly. The fees will be unchanged for 2020.
Luke E. Sims and David C. Sims, who are deemed to be Interested Persons of the Fund, are not entitled to receive directors’ fees from the Fund.
No Fund officer receives compensation in his capacity as an officer of the Fund. Fund officers are: Luke E. Sims, President and Chief Executive Officer; and David C. Sims, Chief Financial Officer, Chief Compliance
Officer, Treasurer, Secretary and Director. Robert M. Bilkie, Jr. is the Fund’s Chairman, which is not an executive officer position.
Sims Capital Management LLC (“SCM”), the investment advisor for the Fund, was paid $268,411 by the Fund in 2019. SCM is 50% owned by Luke E. Sims, the President, CEO and a Director of the Fund, as well as an owner of
more than five percent of the Fund’s outstanding shares. David C. Sims, the Fund’s Chief Financial Officer, Chief Compliance Officer, Treasurer, Secretary and Director, owns the remaining 50% of SCM.
Directors who are Interested Persons of the Fund:
Directors who are not Interested Persons of the Fund:
EAGLE CAPITAL GROWTH FUND, INC. (“Fund”)
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (“Plan”)
ADVANTAGE OF THE PLAN
Participants in the Plan have the ability to have cash dividends from the Fund reinvested in additional Fund shares. Participants may also make cash contributions to the Plan to acquire additional Fund shares.
JOINING THE PLAN
You can enroll in the Plan by going to www.amstock.com or calling American Stock Transfer & Trust Company (the “Plan Agent”) at 877-739-9994. Plan information is also available at the Fund’s website at www.eaglecapitalgrowthfund.com/drip.html.
COSTS OF PARTICIPATION IN THE PLAN
You are not charged any fee or expense for enrolling in the Plan. Shareholders depositing certificated shares are charged a fee of $7.50. Sales of shares incur a sales commission of $15.00, plus $0.10 per share. In
the event a shareholder sends in a check to buy more shares and the check is returned, a $35.00 charge will apply. Fees may change from time to time; please contact AST for information about current fees.
REINVESTMENT OF FUND DISTRIBUTIONS
If the Fund pays a distribution in Fund shares, Participants’ accounts under the Plan will be credited with newly-issued Fund shares at the distribution price, which is the price described in the distribution notice to
shareholders. These shares will be held by the Plan Agent pursuant to the Plan.
The Fund may pay distributions in cash. In the event that the Fund makes a cash distribution, the Plan will first seek to buy shares on the open market up to and including the most recent net asset value (“NAV”) of each
Fund share. The NAV of each Fund share shall be calculated within forty-eight hours of the distribution, excluding Sundays and holidays. Should the market price rise to or above the calculated NAV per share, the Fund may issue new shares to the
Plan at the greater of NAV per share or 95% of the market price. For purposes of the Plan, the market price is the most recently traded price of a Fund share on the NYSE American Exchange. The reinvestment of cash distributions will occur as soon
as practicable, and in no case later than 30 days after the Plan Agent’s receipt of the cash distributions, except where necessary to comply with federal securities laws.
In the event that the open market purchases take more than one day, the Fund will recalculate the NAV on a daily basis. Such recalculated NAV will be used to determine whether the market price per share has risen to or
above the calculated NAV per share. If the Plan Agent terminates open market purchases based on the recalculated NAV and the Fund issues new shares to the Plan at the greater of NAV per share or 95% of the market price, the number of shares received
by the participant in respect of the cash dividend or distribution will be based on the weighted average of prices paid for shares purchased in the open market and the price at which the Fund issues remaining shares.
VOLUNTARY CASH PAYMENTS
Plan participants may make voluntary cash payments of not less than $50 per month (but in any event not more than $250,000 in any year) for the purpose of acquiring additional Fund shares.
Voluntary cash payments received by the Plan Agent on or prior to the last day of any month will be invested beginning on or about the first (1st) business day of the following month (the “Investment Date”).
The Plan will purchase Fund shares in the open market. If the Plan Agent has not completed its open market purchase of Fund shares within thirty (30) days of the Investment Date, then the balance of such voluntary cash payments will be returned to
participants on a pro rata basis. All cash received by the Plan Agent in connection with the Plan will be held without earning interest or income.
Optional cash payments may be made online at www.amstock.com. You will need to know your 10-digit Plan account number to access your
account. The Fund recommends that participants making voluntary cash payments send their cash payments so that they reach the Plan Agent as close as possible but prior to the Investment Date. A participant should be aware of possible delays in the
mail if payment is to be made in that manner. Accordingly, it is recommended that a participant mail the voluntary cash payment no later than ten days prior to an Investment Date, or make cash payments online.
HOLDING OF SHARES
For your convenience, AST will hold in safekeeping all Fund shares you own by reason of your participation in the Plan. Upon your request (whether online at www.amstock.com, by mail, or telephonically to the Plan Agent at (877) 739-9994), AST will send you a physical stock certificate representing a specified number of whole shares acquired or held the Plan in your account.
The Plan Agent will allow you to deposit with it for safekeeping under the Plan any additional stock certificates for Fund shares that you may hold. Such shares, once deposited, will be retained in “book-entry” form
under the Plan.
STATEMENT OF ACCOUNT
At least annually, a detailed statement of transactions in your Plan account for each calendar year will be sent to you by the Plan Agent. You may also access your account information online at www.amstock.com. You will also receive the customary Internal Revenue Service Form 1099 to report taxable income as a result of Fund distributions with respect to Fund shares held in your Plan account.
FEDERAL INCOME TAX CONSIDERATIONS
You should consult your accountant or tax advisor with respect to the Federal and/or other tax consequences resulting from participating in the Plan. However, as a general rule, participants are taxed on Fund
distributions, whether those distributions are paid directly in additional Fund shares, or are in cash (whether such cash is used to purchase additional Fund shares in the open market or otherwise).
SHAREHOLDERS’ RIGHTS
Plan participants enjoy the same rights as Fund shareholders generally with respect to Fund shares held in the Plan, including, without limitation, rights with respect to stock dividends, stock splits, and voting
rights. In the event of a major corporate event affecting the Fund, such as a stock split or a stock dividend, the resulting Fund shares will be properly credited to your Plan account. In the event that a Plan participant holds shares in both a Plan
account and individually in his or her own name, any Fund shares resulting from a major corporate event affecting the Fund will be distributed to the Plan account and the participant individually on a pro rata basis. AST reserves the right to delay,
curtail or suspend any action otherwise required of it under the Plan during the pendency of any major corporate action affecting the Fund.
ADDITIONAL INFORMATION
If you have any questions regarding participation in the Plan, please visit the Plan Agent online at www.amstock.com, call the Plan Agent at (877) 739-9994, or write the Plan
Agent at:
ADDITIONAL TERMS AND CONDITIONS OF PARTICIPATION IN THE EAGLE CAPITAL
GROWTH FUND, INC. DIVIDEND REINVESTMENT AND CASH PAYMENT PLAN
1. By enrolling in the Plan, all of the participant’s cash distributions from the Fund and/or voluntary cash payments will be reinvested in additional Fund shares.
If the Fund declares a distribution in Fund shares but includes a provision allowing shareholders to elect to receive cash in lieu of Fund shares, the Plan Agent will receive the distribution in Fund shares on behalf of
each Plan participant with respect to the Fund shares the participant holds through the Plan, provided that if you (as a Plan participant) desire to elect to receive cash in lieu of Fund shares, you must promptly terminate your participation in the
Plan in accordance with paragraph 5 below. You must also notify the Fund in writing of your election to receive cash. Such written notice to the Plan and to the Fund must be received at least three business days prior to the cut-off election date
in order to be effective prior to the receipt of the declared dividend. If a Plan participant beneficially owns Fund shares outside of the Plan and desires to elect to receive cash in lieu of Fund shares, the participant must individually make this
election.
2. The Plan Agent may commingle participant funds in connection with the receipt of cash distributions from the Fund, and from voluntary cash payments from participants. The Plan Agent will allocate purchased Fund shares among participant
accounts based upon the average price paid (net of any costs).
3. The Plan Agent shall hold shares for participants in its own name or in the name of its nominee. The Plan Agent will acquire Fund shares in the open market at such price or prices then reasonably available to it. Participants understand
that from time to time Fund shares may not be available for purchase, or may not be available for purchase at a reasonable price. Moreover, any temporary or continued closing of the securities trading generally might require the temporary
curtailment or suspension of the Plan Agent’s efforts to purchase Fund shares. The Plan Agent is not responsible or liable for, and shall not be accountable for, any inability on such its part to purchase Fund shares.
4. With respect to the voting of Fund shares held in the Plan, the Plan Agent will provide participants with proxy solicitation materials and request their direction. If a participant does not direct the Plan Agent as to the manner of voting,
the Plan Agent will not vote such participant’s shares.
5. Plan participation may be terminated upon request to the Plan Agent. A participant may terminate by providing written notice to the Plan Agent (the tear-off section at the bottom of participant’s account statement is available for this
purpose). Such written notice must be signed by all persons who are listed on the Plan account. If a request is received fewer than three business days prior to the cut-off election date in the case of a share distribution, or three days prior to
the ex-dividend date in the case of a cash dividend, then the termination will begin after the receipt of Fund shares or reinvestment of the declared dividend, as applicable. The Plan Agent will send to a participant who has terminated participation
in the Plan a certificate(s) representing the number of full shares held by the Plan Agent in such participant’s account under the Plan. In case of termination, a participant’s interest in a fractional share will be converted to, and remitted in
cash, in an amount based upon the then current market value of the share (less service fees). However, the foregoing does not apply to voluntary cash payments held for investment on the Investment Date as a result of voluntary cash payments. A participant
may request the return of any voluntary cash payment, if the participant makes a separate written request which is received by the Plan Agent at the address above at least
forty-eight (48) hours prior to the time when such voluntary cash payment is scheduled to be invested. If a participant so requests, the Plan Agent may sell a terminating participant’s shares and remit the proceeds (less related brokerage
commissions and service fees).
6. The Plan Agent shall not be liable for any action taken in good faith or for any good faith failure to act, including without limitation, any claim of liability (a) arising out of a failure to terminate the participant’s account upon the
participant’s death, prior to receipt of notice in writing of such death and submission of documentation, by the personal representative of the deceased participant, in form and substance satisfactory to the Plan Agent and (b) with respect to the
price or prices at which Fund shares are purchased or sold for a participant’s account and/or the timing of such purchases and/or sales.
7. The Fund reserves the right to amend or terminate the Plan effective upon thirty (30) days written notice (from the date of mailing) to all Plan participants. All inquiries with respect to the Plan should be directed to the Plan Agent at the
addresses and phone numbers identified in the Plan.
8. The Plan shall be governed by, and construed in accordance with, the internal laws of the State of Wisconsin.
9. The Plan has been last amended and revised as of February 15, 2018.
Shareholder Information
Trading. Fund shares trade under the symbol GRF on the NYSE American Exchange.
Fund Stock Repurchases. The Fund is authorized, from time to time, to repurchase its shares in the open market, in private transactions or otherwise, at a price or prices reasonably related to the then
prevailing market price.
Dividend Reinvestment and Cash Purchase Plan. By participating in the Fund’s Dividend Reinvestment and Cash Purchase Plan (“Plan”), you can automatically reinvest your cash dividends in additional Fund
shares without paying brokerage commissions. A copy of the plan is included earlier in the Annual Report.
Alternatively, you can secure a copy of the Plan from the Fund’s website (www.eaglecapitalgrowthfund.com) or by contacting American Stock Transfer & Trust Company LLC, 6201 15th Avenue, Brooklyn, NY 11219, telephone number (877)
739-9994.
Dividend Checks/Stock Certificates/Address Changes/Etc. If you have a question about lost or misplaced dividend checks or stock certificates, have an address change to report, or have a comparable
shareholder issue or question, please contact the Fund’s transfer agent, American Stock Transfer & Trust Company LLC, 6201 15th Avenue, Brooklyn, NY 11219, telephone number (877) 739-9994.
Proxy Voting. The Fund typically votes by proxy the shares of portfolio companies. If you’d like information about the policies and procedures that the Fund follows in voting, or how the Fund has voted
on a particular issue or matter during the most recent 12-month period ended June 30, you can get that information (Form N-PX) from the SEC’s website (www.sec.gov) or the Fund’s website (www.eaglecapitalgrowthfund.com), or by calling the Fund at
(414) 765-1107 (collect) or by sending an e-mail request (to dave@simscapital.com).
Fund Privacy Policy/Customer Privacy Notice (January 1, 2020). We collect nonpublic personal information about you from the following sources: (i) information we receive from you on applications or
other forms and (ii) information about your transactions with us or others. We do not disclose any nonpublic personal information about you to anyone, except as permitted by law, and as follows. We may disclose all of the information we collect,
as described above, to companies that perform marketing services on our behalf or to other financial institutions with whom we have joint marketing agreements. If you decide to close your account(s) or no longer be a shareholder of record, we will
adhere to the privacy policies and practices as described in this notice. We restrict access to your personal and account information to those employees who need to know that information to provide services to you. We maintain physical,
electronic, and procedural safeguards to guard your nonpublic personal information. In this notice, the term “we” refers to the Fund, Eagle Capital Growth Fund, Inc.
Additional Information. The Fund has historically filed a complete schedule of its portfolio holdings with the Securities and Exchange Commission (SEC) on SEC Form N-Q as of the end of the first and third
calendar quarter. Commencing during 2020, the Fund is required to file a complete schedule of its portfolio holdings monthly with the SEC on SEC Form N-PORT, although only these forms for the first and third calendar quarter will be available to
the investing public generally. You can obtain copies of these public filings, and other information about the Fund, from the SEC's website (www.sec.gov), from the Fund's website (www.eaglecapitalgrowthfund.com), or by calling the Fund at (414)
765-1107. The Fund's historic Forms N-Q and public Forms N-PORT can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C., and you can obtain information about the operation of the SEC's Public Reference Room by calling the
SEC at (800) 732-0330.
Approval of Renewal of Investment Advisory Agreement. At its December 9, 2019 Board meeting, the Board of Directors approved the renewal of the Fund’s Investment Advisory Agreement with SCM (with Directors
Luke E. Sims and David C. Sims abstaining). The Board reviewed various factors in determining to retain SCM as investment advisor including, among other things, the nature, extent and quality of services provided by SCM, the cost of services
provided by SCM (and benefits to be realized by SCM as a result of its relationship with the Fund), the economies of scale that may be realized as the Fund grows, whether the fee level reflects the economies of scale for the benefit of Fund
investors, the investment philosophy of SCM, the Fund’s portfolio turnover, best execution and trading costs, personnel considerations, resources available to SCM, SCM’s ability to satisfy compliance obligations and other relevant factors. Overall,
the Board remained satisfied with the nature, extent and quality of services provided by SCM.
Electronic Distribution of Shareholder Reports and Other Communications. If you’d like to receive copies of the Fund’s annual report, semiannual report, proxy statement, press releases and other
comparable communications electronically, please provide your e-mail address to dave@simscapital.com. By providing your e-mail address to the Fund, you are consenting to the Fund sending the identified materials to you by e-mail.
General Inquiries. If you have a question or comment on any matter not addressed above, please contact the Fund at: Eagle Capital Growth Fund, Inc., 225 East Mason Street, Suite 802, Milwaukee, WI
53202-3657, telephone number (414) 765-1107, or the Fund’s investment advisor, Sims Capital Management LLC (dave@simscapital.com).
The Fund has adopted a Code of Ethics for Financial Professionals, which applies to the principal executive officer of the Fund, all professionals serving as principal financial officer, the principal account officer or controller, or persons
performing similar functions, regardless of whether these individuals are employed by the Fund or a third party, and the members of the Fund’s Board of Directors. The Code of Ethics for Financial Professionals has been posted on the Fund’s website at
www.eaglecapitalgrowthfund.com.
AUDIT COMMITTEE FINANCIAL EXPERT
The Fund’s Board of Directors has determined that Neal F. Zalenko qualifies as a financial expert; and that Carl A. Holth, Donald G. Tyler, and Phillip J. Hanrahan also qualify as financial experts. Phillip J. Hanrahan, Carl A. Holth, Donald G.
Tyler, and Neal F. Zalenko are independent, non-interested directors.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees. The Fund paid Plante & Moran, PLLC $17,500 for the calendar year ended December 31, 2019, and $17,000 for the calendar year ended December 31, 2018, for audit fees.
Audit-Related Fees. The Fund did not pay Plante & Moran, PLLC any audit-related fees in either of the last two calendar years.
Tax Fees. The Fund paid Plante & Moran, PLLC $5,500 for the calendar year ended December 31, 2019, and $5,500 for the calendar year ended December 31, 2018, for tax fees in connection with the preparation of the Fund’s tax returns and
assistance with Internal Revenue Service notice and tax matters.
All Other Fees. The Fund did not pay Plante & Moran, PLLC any other amounts in either of the last two calendar years.
“Audit fees” are fees paid by the Fund to Plante & Moran, PLLC for professional services for the audit of our financial statements, or for services that are usually provided by an auditor in connection with statutory and regulatory filings and
engagements. “Audit-related fees” are fees for assurance and related services that are reasonably related to the performance of the audit or review of financial statements. “Tax fees” are fees for tax compliance, tax advice and tax planning. All
other Fund fees are fees billed for any services not included in the first three categories.
None of the services covered under the captions “Audit-Related Fees,” “Tax Fees,” and “All Other Fees” with respect to Plante & Moran, PLLC were provided under the de minimis exception to Audit Committee approval of 17 CFR 210.2-01(c) 7(i)(C)
and (ii) Plante & Moran, PLLC was not engaged during the last two calendar years to provide non-audit services to the Fund or to the Advisor or any of its affiliates that provide ongoing services to the Fund (“Other Non-Audit Services”). Under
the Audit Committee charter, the Audit Committee must approve in advance all non-audit services of the Fund and all Other Non-Audit Services. The Audit Committee has not adopted “pre-approval policies and procedures” as such term is used in 17 CFR
210.2-01(c)(7)(i)(B) and (ii).
AUDIT COMMITTEE OF LISTED REGISTRANTS
The Fund’s Board of Directors has separately-designed standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the committee are Neal F. Zalenko, Carl A. Holth, Donald G.
Tyler, and Phillip J. Hanrahan.
The Fund’s schedule of investments is included as part of the report to shareholders filed under Item 1 of this Form.
DISCLOSURE OF PROXY VOTING AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Sims Capital Management LLC, a Wisconsin limited liability company (the “Advisor”), is the investment advisor for the Fund. The Fund and the Advisor are parties to an Investment Advisory Agreement dated as of February 16, 2007 (the “Advisory
Agreement”). The Fund is one of the Advisor’s two institutional advisory clients.
The Advisor’s authority to vote the proxies of the Fund is established through the Investment Advisory Agreement. It has adopted the following policies and procedures:
The Company will vote proxies for its clients and, therefore, will adhere to the following requirements:
A. General Statement of Policy. Consistent with its duty of care the Company monitors proxy proposals just as it monitors other corporate events affecting the companies in which its clients invest. The Company votes securities subject to its
control consistent with its analysis and judgment of each issue, regardless of whether such voting position is consistent with the approach proposed by the issuer’s board of directors or management.
B. There may be instances where the interests of the Company may conflict or appear to conflict with the interests of its clients. For example, the Company may manage a pension plan of a company whose management is soliciting proxies and there
may be a concern that the Company would vote in favor of management because of its relationship with the Company. In such situations, the Company will, consistent with its duty of care and duty of loyalty, vote the securities in accordance with its
pre-determined voting policy, but only after the disclosing the conflict to clients and affording the clients the opportunity to direct the Company in the voting of such securities.
C. Record Keeping. The Company will maintain the following records with respect to proxy voting:
(1) A copy of this proxy voting policy;
(2) A copy of all proxy statements received (the Company may rely on the EDGAR system to satisfy this requirement);
(3) A record of each vote cast on behalf of a client (the Company may rely on a third party to satisfy this requirement);
(4) A copy of any document prepared by the Company that was material to making a voting decision or that memorializes the basis for that decision;
(5) A copy of each written client request for information on how the Company voted proxies on the client’s behalf, and a copy of any written response to any (written or oral) client request for information on how the Company voted proxies on
behalf of the requesting client.
D. Disclosure. The Company will furnish a copy of this policy to all of its clients. The Company will disclose to clients how proxies were voted upon request.
PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Luke E. Sims
President and Chief Executive Officer (since 2007) and Director of the Fund (since 2002). Luke Sims has been a partner in the law firm of Foley & Lardner since 1984 until February 2010. Luke Sims is a 50% equity owner in the Advisor.
David C. Sims
Chief Financial Officer and Chief Compliance Officer of the Fund (since 2007), Secretary of the Fund (since 2009) and Director of the Fund (since 2015). David C. Sims is President, operating manager, and 50% equity owner in the Advisor.
The Advisor is also the investment advisor of Peregrine Investment Fund LLC (“Peregrine”), a private investment fund, with approximately $2.6 million in assets under management as of December 31, 2019. Peregrine has similar investment objectives
to the Fund. The Advisor receives an investment advisory fee from Peregrine of one and one-half percent of its assets under management. To the extent investment opportunities arise in which both the Fund and Peregrine will invest and in which the
amount to be purchased is limited, the investment will be made pro rata based on the respective asset size of the Fund and Peregrine.
With respect to the Fund, Luke Sims is the principal decision maker with respect to the Fund’s portfolio, and David Sims participates in the decision-making process. With respect to Peregrine, David Sims is the principal decision maker with
respect to Peregrine’s portfolio and private accounts, and Luke Sims participates in the decision-making process.
Luke Sims receives no compensation as an officer of the Fund and receives a fixed salary from the Advisor (not tied to the Fund’s or Peregrine’s performance or private account performance) out of the respective investment advisory fees paid by the
Fund, private accounts and Peregrine. David Sims receives no compensation as an officer of the Fund and a fixed salary from the Advisor (not tied to the Fund’s or Peregrine’s performance or private account performance) out of the respective
investment advisory fees paid by the Fund, private accounts and Peregrine. Luke Sims owns 50% of the equity of Sims Capital Management and David Sims owns the remaining 50% of the equity of Sims Capital Management.
Dollar range of equity securities of the Fund. beneficially owned as of December 31, 2019, by Luke Sims is in excess of $1 million and by David Sims is between $500,000-1,000,000.
PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
During the period covered by this report, no purchases were made by or on behalf of the registrant or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934 (the “Exchange Act”) of shares of
registrant’s equity securities that are registered by the registrant pursuant to Section 12 of the Exchange Act.
SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
No changes to the procedures by which shareholders may recommend nominees to the registrant’s board of directors have been implemented after registrant last provided disclosure in response to Item 407(c)(2) in registrant’s 2020 proxy statement.
(i) As of March 3, 2020, an evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) was performed under the supervision and with the
participation of the registrant’s President and Chief Executive Officer (the principal executive officer) and the Chief Financial Officer (the principal financial officer). Based on that evaluation, the registrant’s President and Chief Executive
Officer and Chief Financial Officer concluded that the registrant’s controls and procedures are effectively designed to ensure that information required to be disclosed by the registrant has been recorded, processed, summarized and reported within
the time periods required by the Commission’s rules and forms, and that information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s management, including its principal executive officer and
principal financial officer, or persons performing similar functions as appropriate, to allow timely decisions regarding required disclosure.
(ii) There has been no change in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act) that occurred during the second fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.