Eagle Capital Growth Fund, Inc.
Semiannual Report
June 30, 2021
Top Ten Holdings (as of June 30, 2021)
Fellow Shareholders:
Well, the first half of 2021 was much more enjoyable than the first half of 2020. The enthusiasm and optimism of Fall 2020 continued into 2021, yielding nice gains for the Fund and the overall market. Our Fund’s net
asset value rose 15.9% while the S&P 500 total return index rose 15.0%.
We are thrilled at the current position of the economy and the market, especially relative to a year ago. Last year, there remained a lot of uncertainty about the severity of COVID on the population and the
implications for the economy: isolating people to contain the virus had a chilling effect on the economy while rising infections did the same.
The tide finally turned with the availability of the vaccines. Resilient as ever, the US economy roared back. The economy went from its deathbed to best of health in twelve months, a remarkable feat. With the
economy and stock market on solid ground, we all deserve a sigh of relief.
The rapid uptick in the economy, and with it the overall stock market, is showing some symptoms of market euphoria. We can point to the high levels of margin debt, the enthusiasm for special purpose acquisition
companies (SPACs), and the popularity of “meme” stocks as warning signs. Moreover, the inevitability of electric and autonomous vehicles has spawned many new companies (a lot of them going public through SPAC mergers) in various aspects of that
emerging industry. “Meme” stocks (such as GameStop, AMC and others) are an interesting phenomenon whereby a group of investors align themselves on internet forums with certain companies and seek to drive the share price up by coordinated
buying. We live in exciting times, although we’re happy to watch these developments from the sidelines. Ultimately earnings and cash flow drive stock prices, and that concept is first and foremost in our thinking. We expect one or more market
shakeouts at some point, and these disruptions should provide our Fund with solid long-term investment opportunities. We can’t predict the timetable, but we know how the story ends.
There were few Fund transactions in the first half of 2021. We lightened up at the margins on Franklin Resources and Berkshire Hathaway as their share prices rose. A small position in MediaAlpha was sold as the share
price jumped 40% from our December 2020 purchase price. There were few opportunities to buy high-quality companies at attractive prices. So, our ability to reinvest proceeds was limited.
As a closed-end fund, our Fund has a market price which differs from its net asset value (NAV). The net asset value acts as a guide for the market transactions which take place. The discount to NAV widened in late
2020 and persisted into 2021. The Fund repurchased shares on the open market. The Fund discount has narrowed over that time, reducing the appeal of repurchases.
The Fund welcomed Jason Allen as a new Director in mid-April of this year. Jason is a talented corporate lawyer and investor, and we are confident that he will be a valuable asset to the Fund and the Board for many
years to come.
As always, we love hearing from our shareholders, although the ground rules remain the same. We’re happy to talk about all publicly-available information, but decline to talk about possible Fund portfolio purchases
or sales.
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Luke E. Sims
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David C. Sims, CFA
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Email: luke@simscapital.com
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Email: dave@simscapital.com
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Phone: 414/530-5680
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Phone: 414/765-1107
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July 20, 2021
Eagle Capital Growth Fund, Inc.
Statement of Assets, Liabilities and Shareholders’ Equity
As of June 30, 2021 (unaudited)
See Notes to Financial Statements.
Eagle Capital Growth Fund, Inc.
Statement of Operations
For the Six Months Ended June 30, 2021 (unaudited)
See Notes to Financial Statements.
Eagle Capital Growth Fund, Inc.
Statements of Changes in Net Assets
See Notes to Financial Statements.
Eagle Capital Growth Fund, Inc.
Financial Highlights
(A) Expense ratio does not reflect fees and expenses incurred by the Fund as a result of its investments in shares of investment companies. If fees for Fund investments in investment companies were included in the expense ratio, the net impact
would be an increase of approximately 0.21% for the year ended December 31, 2016. For the years ended December 31, 2017, 2018, 2019, and 2020, and for the six-month period ended June 30, 2021, there would have been no increase in the expense ratio.
See Notes to Financial Statements.
Eagle Capital Growth Fund, Inc.
Portfolio of Investments (as of June 30, 2021) (unaudited)
*Non-dividend paying security
See Notes to Financial Statements.
Notes to Financial Statements
Eagle Capital Growth Fund, Inc., a Maryland corporation (“Fund”), is a diversified closed-end investment company subject to the Investment Company Act of 1940.
The Fund follows the accounting and reporting requirements of investment companies under ASC 946 (ASC 946-10-50-1).
Dividends and distributions—Dividends and distributions paid to the Fund from portfolio investments are recorded on the ex-dividend date.
Investments— Investments in equity securities are valued at the closing market price as of the close of regular trading on the applicable valuation date. If no such closing
market price is available on the valuation date, the Fund uses the then most recent closing market price.
In the unlikely event that there is no current or recent closing market price for a portfolio security (whether equity or debt) traded in the over-the-counter market, then the Fund uses the most recent closing bid
price. If there is no closing bid price for a portfolio security for a period of ten (10) consecutive trading days, then the Fund’s Audit Committee or other appropriate committee shall determine the value of such illiquid security. From inception
to June 30, 2021, the Fund has not held a security which required an illiquid pricing valuation.
Investment security purchases and sales are accounted for on a trade date basis. Interest income is accrued on a daily basis while dividends are included in income on the ex-dividend date.
Use of estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at 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.
Federal income taxes—The Fund intends to comply with the general qualification requirements of the Internal Revenue Code applicable to regulated investment companies such as the
Fund. The Fund plans to distribute annually at least 90% of its taxable income, including net long-term capital gains, to its shareholders. In order to avoid imposition of the excise tax applicable to regulated investment companies, the Fund
intends to declare as dividends in each calendar year an amount equal to at least 98% of its net investment income and 98% of its net realized capital gains (including undistributed amounts from previous years).
The following information is based upon the Federal income tax basis of equity portfolio investments as of June 30, 2021:
Expenses—The Fund’s service providers bear all of their expenses in connection with the performance of their services. The Fund bears all of its expenses incurred in connection
with its operations including, but not limited to, investment advisory fees (as discussed in Note 3), legal and audit fees, taxes, insurance, shareholder reporting and other related costs. As noted in Note 3, the Fund’s investment advisor, as part
of its responsibilities under the Investment Advisory Agreement, is required to provide certain internal administrative services to the Fund at such investment advisor’s expense. The Investment Advisory Agreement provides that the Fund may not
incur annual aggregate expenses in excess of two percent (2%) of the first $10 million of the Fund’s average net assets, one and a half percent (1.5%) of the next $20 million of the average net assets, and one percent (1%) of the remaining average
net assets for any fiscal year. Any excess expenses are the responsibility of the investment advisor.
Repurchases—The Fund repurchases shares with the purpose of reducing total shares outstanding. The price paid for the repurchased shares is
recorded to reduce common stock and paid-in capital.
Fair Value Accounting—Accounting standards require certain assets and liabilities be reported at fair value in the financial statements and provides a framework for establishing
that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the inputs and valuation techniques used to measure fair value.
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. All of the Fund’s investments are classified as
Level 1.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other
inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset. These Level 3 fair value measurements are based
primarily on management’s own estimates using pricing models, discounted cash flow methodologies, or similar techniques taking into account the characteristics of the asset.
The Fund’s financial statements, other than investments, consist of receivables and payables due in the near term. Fair value of those instruments approximates historical cost.
Certain impacts from the COVID-19 outbreak may have a significant negative impact on the Fund’s operations and performance. These circumstances may continue for an extended period of time and may have an adverse
impact on economic and market conditions. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual companies, are not known. The extent of the impact to the financial performance and
the operations of the Fund will depend on future developments, which are highly uncertain and cannot be predicted.
Investment advisor—For its services under the Investment Advisory agreement, the investment advisor receives a monthly fee calculated at an annual rate of three-quarters of one
percent (0.75%) of the weekly net asset value of the Fund, as long as the weekly net asset value is at least $3.8 million. The investment advisor is not entitled to any compensation for any week in which the average weekly net asset value falls
below $3.8 million. Pursuant to the Investment Advisory Agreement, the investment advisor is required to provide certain internal administrative services to the Fund at the investment advisor’s expense.
Effective June 1, 2007, following shareholder approval of the Investment Advisory Agreement, Sims Capital Management LLC (“SCM”) began serving as the Fund’s investment advisor. Pursuant to the Investment Advisory
Agreement, SCM is responsible for the management of the Fund’s portfolio, subject to oversight by the Fund’s Board of Directors. Luke E. Sims, a Director, President and Chief Executive Officer of the Fund and owner of more than five percent of the
Fund’s outstanding shares, owns 50% of SCM. David C. Sims, the Chief Financial Officer, Chief Compliance Officer, Secretary, Treasurer, and Director of the Fund and the son of Luke E. Sims, owns the remaining 50% of SCM.
Custodian—US Bancorp serves as the Fund’s custodian pursuant to a custodian agreement. As the Fund’s custodian, US Bancorp receives fees and compensation of expenses for
services provided including, but not limited to, an annual account charge and security transaction fees.
Transfer Agent— American Stock Transfer & Trust Company (“AST”) serves as the Fund’s transfer agent and dividend disbursing agent. AST receives fees for services provided
including, but not limited to, account maintenance fees, activity and transaction processing fees and reimbursement for its out-of-pocket expenses. AST also acts as the agent under the Fund’s Dividend Reinvestment and Cash Purchase Plan (“DRIP”).
The Fund has a Dividend Reinvestment and Cash Purchase Plan which allows shareholders to reinvest cash dividends and make cash contributions. Pursuant to the terms of the DRIP, cash dividends may be used by the DRIP
agent to either purchase shares from the Fund or in the open market, depending on the most favorable pricing available to DRIP participants. Voluntary cash contributions from DRIP participants are used to purchase Fund shares in the open market.
A complete copy of the DRIP is available on the Fund’s website (www.eaglecapitalgrowthfund.com) or from AST, the DRIP agent.
Purchases and sales of portfolio securities, other than short-term securities, for the six-month period ended June 30, 2021 were $699,378 and $3,150,546, respectively.
The Financial Highlights present a per share analysis of how the Fund’s net asset value has changed during the periods presented. Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements. The total investment return based on market value assumes that shareholders bought into the Fund at the bid price and sold out of the Fund at the bid price. In reality,
shareholders buy into the Fund at the asked price and sell out of the Fund at the bid price. Therefore, actual returns may differ from the amounts shown.
2021 Annual Shareholder Meeting
The Fund’s 2021 annual meeting of shareholders (“Annual Meeting”) was held on April 15, 2021, for the following purposes:
The following directors were elected under Proposal 1: Carl A. Holth and David C. Sims. Under Proposal 2, shareholders ratified the selection of Plante & Moran, PLLC as the Fund’s independent registered public accountants for the 2021
calendar year.
Tabulation Report
Proposal 1 – Election of Directors
Proposal 2 – Selection of Plante & Moran, PLLC
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For
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Against
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Abstain
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Withheld
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2,408,538
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8,570
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20,550
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0
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Total shares issued and outstanding on record date: 4,074,321
Compensation.
The following tables identify the aggregate compensation paid to all directors and nominees in 2021. Directors’ fees are only payable to directors who are not officers of the Fund or affiliated with the Advisor. For
2021, 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.
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 $157,620 by the Fund in the six months ended June 30, 2021. 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 Vice-President, Chief Financial Officer, Chief Compliance Officer, Treasurer, Secretary and Director, owns the remaining 50% of SCM.
The Fund is not part of a mutual fund complex.
Directors who are “interested persons” of the Fund:
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Name, Position
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Aggregate
Compensation
From Fund
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Pension or Retirement
Benefits Accrued as
part of Fund
Expenses
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Estimated
Annual
Benefits upon
Retirement
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Total
Compensation
from Fund and
Complex
paid to Directors
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David C. Sims,
VP, CFO, CCO,
Treasurer, Secretary,
and Director
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None
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None
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None
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None
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Luke E. Sims,
Director, President,
CEO
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None
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None
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None
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None
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Directors who are not Interested Persons of the Fund:
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Jason W. Allen
Director
Milwaukee, WI
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Robert M. Bilkie, Jr.
Chairman of the Board
Northville, MI
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Phillip J. Hanrahan
Director
Whitefish Bay, WI
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Carl A. Holth
Director
Dearborn, MI
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Luke E. Sims
President & CEO
Milwaukee, WI
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David C. Sims
VP, Treasurer, CFO, CCO
Secretary & Director
Milwaukee, WI
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Donald G. Tyler
Director
Shorewood, WI
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Neal F. Zalenko
Director
Birmingham, MI
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Shareholder Information
Trading. Fund shares trade under the symbol GRF on the NYSE American exchange. The Fund has opted into the Maryland Control Share Acquisition Act.
Fund Stock Repurchases. The Fund is authorized to repurchase its shares in the open market, in private transactions or otherwise, at a price or prices reasonably related to the prevailing market price.
The Fund’s repurchase authorization has 84,896 shares remaining.
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 (dated January 1, 2021). 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 files a complete schedule of its portfolio holdings monthly with the Securities and Exchange Commission (SEC) on Form N-PORT, with the first and third calendar quarter
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 public forms 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 7, 2020 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 previously received various information with respect to the proposed continuation of the investment advisory agreement with the Advisor, including a handout in the Board “book”
materials which identified certain key issues for the Board to consider in evaluating Sims Capital Management LLC (“SCM”) as its Advisor. The Board reviewed these various factors in considering whether to retain the SCM as its 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 to 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, SCM’s investment philosophy, 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. The Board regularly considers the various factors that are involved in such a decision. Overall, the Board understands and is satisfied with the
investment philosophy and investment performance of the Advisor. Given the relatively small size of the Fund vis-à-vis other closed-end and other mutual funds, the Advisor’s annual fee at 0.075% (75 basis points) of assets under management (AUM)
is reasonable (and at the low end of the range for other investment advisors of actively-managed equity funds). There are few economies of scale to be realized by the Fund (as a closed-end fund), primarily because the Fund is required to make
distributions to its shareholders of its net investment income and realized capital gains. Pursuant to this requirement, the Fund declared and paid out $2.2 Million to its shareholders at the end of December 2020, thereby reducing AUM from
slightly over $40 Million to approximately $38 Million. The Fund’s compliance with law and reporting with respect to the Securities and Exchange Commission and other governmental authorities is fine. The Fund’s execution of transactions
(including cost) and portfolio turnover are excellent, and clearly consistent with industry practice. As a general rule, the Board is satisfied with the Advisor’s personnel, including professional competence, conscientiousness, independence and
overall communications.
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).
