UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-21399
The Aegis Funds
(Exact name of Registrant as specified in charter)
1100 N. Glebe Road, Suite 1040, Arlington, VA 22201
(Address of principal executive offices) (Zip code)
Scott L. Barbee, 1100 N. Glebe Road., Suite 1040, Arlington, VA 22201
(Name and address of agent for service)
Registrant's telephone number, including area code: (703) 528-7788
Date of fiscal year end: 12/31
Date of reporting period: 12/31/09
Item 1. Reports to Stockholders
Annual Report
December 31, 2009
| | ANNUAL REPORT
DECEMBER 31, 2009 |
Shareholders’ Letter
February 17, 2010
To the Shareholders of the Aegis High Yield Fund:
We are pleased to present the Aegis High Yield Fund Annual Report for the annual period ended December 31, 2009. We would like to welcome any new shareholders to the Fund.
If at any time you would like further information about the Fund, please go to our website at www.aegisfunds.com for a more detailed look at our high yield bond market commentary and the Fund’s performance record. We will briefly review the objectives and strategy of the Aegis High Yield Fund.
The Aegis High Yield Fund seeks to earn consistent total returns that exceed its benchmark index over periods of three to five years, while striving for below-average risk compared to its peers. The Fund’s long-term investment strategy is based on its total return objective. We use in-depth fundamental analysis of issuers to identify bonds and build a portfolio with the potential for capital appreciation due to improved company performance, ratings upgrades, or better industry conditions. We seek situations where Wall Street’s appraisal of a security’s value is more negative than we have determined based upon an independent study of the facts. The bonds purchased for the portfolio are not necessarily the highest-yielding issues in the market. Our goal is to maximize risk-adjusted long-term total return.
For the annual period ended December 31, 2009, the Fund posted a total return of 63.85%, versus a total return of 58.21% for its benchmark, the Barclays Capital High Yield Index. From inception at January 1, 2004 through period end, the Fund’s annualized total return was 7.80%, versus 7.23% for the Barclays Capital High Yield Index.
The weighted average maturity of the Fund portfolio at December 31st was approximately 4.6 years. The duration of the Fund portfolio was 3.0 years, compared to 4.3 years for the Barclays Capital High Yield Index. Duration is a measure of the sensitivity of a portfolio’s value to changes in interest rates. Generally, a shorter duration makes portfolio returns less sensitive to the risk of rising interest rates.
The Fund’s net asset value at December 31st was $10.19 per share, versus $6.78 at the beginning of the year. Income distribution totaling 72 cents per share were paid during the annual period. At December 31st, the Fund’s SEC 30-day annualized yield to maturity was 7.9%.
During 2009, high yield bond prices rallied and high yield spreads compressed. As of this writing, high yield bond spreads (as measured by the Yield-to-Worst of the Barclays Capital High Yield Very Liquid Index over 10-year treasuries) are at 630 basis points. This is down considerably from 1,650 basis points at the start of the year, but still above the 525 basis point 15-year average. This level is reflective of a market where demand and supply for high-yield bonds is more in balance. However, it is noteworthy that the current spread is based off of treasury yields that are at the lower end of historical norms. We are cognizant of the risk of rising interest rates and have made efforts to position the portfolio accordingly, favoring bonds with shorter effective durations.
Shareholders’ Letter ’ (continued)
While attractive risk/reward opportunities in the high-yield market are less plentiful than at the beginning of 2009, we believe select opportunities still exist, especially in the smaller issues. The Fund made significant investments during the period in REIT and energy bonds and to a lesser extent, Canadian dollar denominated debentures of tangible asset companies, which so far have performed well. The fund continues to seek out investments in debt that is favorably situated in the capital structure of companies experiencing improving business and balance sheet fundamentals.
A more in-depth review of the Fund’s performance, outlook, and general market commentary can be found in the Fourth Quarter Quarter 2009 Manager’s Letter. For those of you who do not automatically receive our quarterly manager’s letters in the mail from your broker, they are available on our website at www.aegishighyieldfund.com or by calling us at 800-528-3780. However, please be aware that these manager’s letters are not a part of the SEC-mandated Annual Report contained in this booklet.
Finally, as we have noted in the past, Aegis Financial employees and our families continue to hold significant personal investments in the Fund, totaling over $1 million. We thank you for continuing to invest with us.
Aegis Financial Corporation
Scott L. Barbee, CFA
Managing Director, Portfolio Manager
* Aegis High Yield Fund’s one-year, three-year, five-year and since inception (1/1/2004) average annual returns for the period ending December 31, 2009 are 63.85%, 7.29%, 8.60%, and 7.80% respectively. Returns include reinvestment of dividends and capital gains. Barclays Capital High Yield Index one-year, three-year, five-year and since inception average annual returns for the period ending December 31, 2009 are 58.21%, 5.97%, 6.46%, and 7.23%. All historical performance returns shown in this shareholders’ letter for the Aegis High Yield Fund are pre-tax returns. This report does not constitute an offer or solicitation of any transaction in any securities. The Aegis High Yield Fund is offered by prospectus only.
Investors are advised to consider the fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other information about the Aegis High Yield Fund. For a prospectus and more complete information, including charges and expenses, please call 800-528-3780 or visit our website at www.aegishighyieldfund.com, where an online prospectus is provided. The prospectus should be read carefully before investing.
Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please call 800-528-3780 to obtain performance data current to the most recent month-end.
| | ANNUAL REPORT
DECEMBER 31, 2009 |
About Your Fund’s Expenses
December 31, 2009
(Unaudited)
Important Note:
As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire semi-annual period, July 1, 2009 – December 31, 2009.
Actual Expense
The table below provides information about actual account values and actual expenses.
| | Actual | Hypothetical (5% annual return before expenses) |
| Fund | Beginning Account Value (07/01/2009) | Ending Account Value (12/31/2009) 1 | Expense Paid During Period 2 | Ending Account Value (12/31/2009) | Expenses Paid During Period 2 |
| Aegis High Yield Fund | $1,000.00 | $1,261.60 | $6.84 | $1,019.00 | $6.11 |
(1) | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 to December 31, 2009 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s actual expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2009 to December 31, 2009 was 26.16%. |
(2) | Expenses are equal to the Fund’s annualized expense ratio (1.20%) multiplied by the average account value over the period, multiplied by 184/365 (to reflect the period between 07/01/2009 and 12/31/2009). |
You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purpose
The table above also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. The Fund is a pure no-load fund and does not charge any sales charges (loads), distribution or service fees, or redemption fees.
Key Statistic
Results of a $10,000 Investment
Average Annual Total Returns (As of December 31, 2009)
| | Aegis High Yield | Barclays
Capital HY
Index* |
| Trailing 1 Year | 63.85% | 58.21% |
| Trailing 3 Year | 7.29% | 5.97% |
| Trailing 5 Year | 8.60% | 6.46% |
| Since inception (January 1, 2004) | 7.80% | 7.23% |
Returns on both Aegis High Yield Fund and Barclays Capital High Yield Index* assume reinvestment of all dividends and distributions. Fund returns are after all expenses. Past performance is not predictive of future results. The returns shown do not reflect the deduction of taxes a shareholder would pay on the redemption of Fund shares or Fund distributions. As of December 31, 2008 gross expenses for the fund were 3.24%.
| * | Barclays Capital is now in control of the former Lehman Indices. Lehman High Yield Index has been renamed as Barclays Capital High Yield Index and all past performace data for this index remains the same. |
(a) The Registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the Registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Registrant or a third party.
(b) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the Registrants principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Registrant or a third party, and that relates to any element of the code of ethics description.
(c) The Registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the Registrants principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item's instructions.
| Item 3. | Audit Committee Financial Expert |
(a)(1) The Registrant s Board of Trustees has determined that the Registrant does not have an audit committee financial expert serving on its audit committee.
(a)(2) Not applicable.
(a)(3) Registrants Audit Committee has determined that it will retain the services of an independent expert when and if such need arises.
| Item 4. | Principal Accountant Fees and Services |
(a) AUDIT FEES: The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $14,000 in 2009 and $13,500 in 2008.
(b) AUDIT-RELATED FEES: The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant financial statements and are not reported under paragraph (a) of this Item are NONE.
(c) TAX FEES: The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $2,000 in 2009 and $2,000 in 2008.
Tax Fees represent tax compliance services and tax consultation provided in connection with the preparation of the Registrants federal income tax and excise tax returns and compliance with IRS regulations.
(d) ALL OTHER FEES: The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are NONE.
(e)(1) Disclose the audit committee pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Audit Committee Pre-Approval Policy. All services to be performed for the Registrant by Briggs Bunting & Dougherty, LLP must be pre-approved by the audit committee. All services performed during 2008 and 2009 were pre-approved by the committee.
(e)(2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:
(b) Not applicable
(c) 100%
(d) Not applicable
(f) The percentage of hours expended on the principal accountant s engagement to audit the registrant s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant s full-time, permanent employees was NONE.
(g) The aggregate non-audit fees billed by the registrant s accountant for services rendered to the registrant, and rendered to the registrant s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was NONE in 2009 and NONE in 2008.
(h) The registrant s audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant s independence.
| Item 5. | Audit Committee of Listed Registrants |
Not applicable.
| Item 6. | Schedule of Investments |
The schedule of investments in securities of unaffiliated issuers is included as part of the report to shareholders filed under Item 1.
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies |
Not applicable.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies |
Not applicable.
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers |
Not applicable.
| Item 10. | Submission of Matters to a Vote of Security Holders |
Not applicable.
| Item 11. | Controls and Procedures. |
(a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these disclosure controls and procedures within 90 days of the filing date of this document.
(b) There were no changes in the registrant's internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the last fiscal half-year (the registrant second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
(a)(1) Code of Ethics. Incorporated by reference to the Registrant’s Form N-CSR filed March 6, 2008.
(a)(2) Certifications required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(a)(3) Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The Aegis Funds
| By: | /s/ Scott L. Barbee | | | |
| | Scott L. Barbee, President | | | |
Date: March 2, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Scott L. Barbee | | | |
| | Scott L. Barbee, President | | | |
Date: March 2, 2010
| By: | /s/ Sarah Q. Zhang | | | |
| | Sarah Q. Zhang, Treasurer | | | |
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