As filed with the Securities and Exchange Commission on 02/08/2007
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 811-08769
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BADGLEY FUNDS, INC.
-------------------
(Exact name of registrant as specified in charter)
P.O. BOX 701, MILWAUKEE, WI 53201-0701
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(Address of principal executive offices) (Zip code)
KIRKLAND & ELLIS LLP, 200 EAST RANDOLPH DRIVE, CHICAGO, IL 60601
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(Name and address of agent for service)
1-877-BADGLEY
--------------
Registrant's telephone number, including area code
Date of fiscal year end: MAY 31
------
Date of reporting period: NOVEMBER 30, 2006
-----------------
ITEM 1. REPORT TO STOCKHOLDERS.
SEMI-ANNUAL REPORT
NOVEMBER 30, 2006
[LOGO]
BADGLEY FUNDS, INC.
[GRAPHIC]
Badgley Balanced Fund
TICKER BMFBX
[GRAPHIC]
Badgley Growth Fund
TICKER BMFGX
P.O. Box 701, Milwaukee, Wisconsin 53201-0701 1-877-BADGLEY
www.badgleyfunds.com
TABLE OF CONTENTS
3 LETTER TO SHAREHOLDERS
6 PERFORMANCE GRAPHS
8 SECTOR ALLOCATION OF PORTFOLIO HOLDINGS
9 STATEMENTS OF ASSETS AND LIABILITIES
10 STATEMENTS OF OPERATIONS
11 STATEMENTS OF CHANGES IN NET ASSETS
13 FINANCIAL HIGHLIGHTS
15 SCHEDULE OF INVESTMENTS
24 NOTES TO THE FINANCIAL STATEMENTS
29 EXPENSE EXAMPLE
31 ADDITIONAL INFORMATION
THIS REPORT IS NOT AUTHORIZED UNLESS ACCOMPANIED OR PRECEDED BY A PROSPECTUS FOR
BADGLEY FUNDS, INC. THE BADGLEY FUNDS ARE DISTRIBUTED BY RAFFERTY CAPITAL
MARKETS, LLC. THE DATE OF FIRST USE OF THIS REPORT IS JANUARY 29, 2007.
2 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
LETTER TO SHAREHOLDERS
NOVEMBER 30, 2006
DEAR FELLOW SHAREHOLDERS:
We are pleased to provide the 2006 Semi-Annual Report of the Badgley
Funds, Inc. (the "Funds").
This Semi-Annual Report summarizes the activities of the Badgley Growth
Fund (BMFGX) and the Badgley Balanced Fund (BMFBX) for the six-month period
ending November 30, 2006.
EQUITY MARKET REVIEW
The past six months has been a period of adjustment as the economy
transitions to solid but slower growth. In contrast with prior years, the
current period saw decreases of residential building permits by more than 30%
over the past year and a large decline in automobile production. This pullback
in the housing and automobile markets has challenged our economic growth even
though employment and corporate profits remain strong.
While such declines in economic activity have been well documented, a wide
range of factors supported moderate economic growth and provided investment
opportunities for the Funds. Energy prices declined over the past six month
period, which gave consumers a broader opportunity to purchase goods and
services. Low unemployment coupled with declining energy costs resulted in a
3.1% increase for consumer spending during the third quarter. On the corporate
side, merger and acquisition activity remains quite high. Corporate earnings
continue to grow and support larger dividend payments and stock buy back
programs for many high-quality companies.
FIXED INCOME MARKET HIGHLIGHTS
After seventeen consecutive quarter point rate hikes (a total of 425 basis
points), the Federal Reserve finally held rates steady at 5.25% beginning with
their meeting in August. In the two meetings that followed, the Fed indicated
that economic growth was moderating due to a cooling housing market, yet the
risk of higher inflation remained. At the next meeting in September, the Fed
suggested that the decline in energy prices would help reduce the risk of
inflation.
Yields on all benchmark Treasury securities declined substantially over
the last six months as the economy began to show signs of weakness and it
appeared the Fed was finished raising interest rates. The yield on the ten-year
Treasury dropped by 66 basis points to end at a ten-month low of 4.45% on
11/30/06. The two-year Treasury note's yield declined by 43 basis points and
finished the period at 4.60%. These yield declines reflected increased investor
speculation that the Fed might have to soon start lowering rates in order to
combat a weakening economy.
PERFORMANCE RESULTS
The performance results of the Badgley Balanced and Badgley Growth Funds
and their relevant benchmark indices are detailed in the table below and in the
reports that are included in this Semi-Annual Report.
The past six months produced strong stock market returns at a time when
the country focused on the Iraq war, a housing market slowdown and sharp
declines in automobile production. The broad stock market, as noted by the S&P
500 Index, rewarded investments in the telecommunication services, utilities and
information technology sectors. Continued economic growth, coupled with low
unemployment, provided an environment for these industries to attract investors.
BADGLEY FUNDS SEMI-ANNUAL REPORT 3
BADGLEY FUNDS, INC.
LETTER TO SHAREHOLDERS (continued)
NOVEMBER 30, 2006
Several stocks held by the Funds were the source of strong performance in
its investment portfolios. The greatest impact for the Funds came from the
information technology sector. Cisco Systems continues to benefit from the
transfer of data, especially video streaming. Businesses see improved
productivity and opportunities to utilize technology applications already
available on their networks, and consumers continue to seek entertainment and
information through internet applications. Both businesses and consumers expect
more from technology experiences, which has enhanced the earnings of companies
like Cisco Systems. The continuing globalization trend has played out well for
Cognizant Technology Solutions. This U.S.-based application management and
development service provider has used offshore capabilities to post exceptional
earnings' growth in financial services and healthcare areas. Cognizant's newest
services to telecommunications, media and technology firms are attracting new
business above the company's average growth trend rate. Rounding out strong
performing stocks during this time period are Apple Computer, Google, and
Praxair. Stocks that experienced challenging returns during the period include
Teva Pharmaceutical Industries, BJ Services and Expeditors International of
Washington. Concerns about organic revenue growth and increasing foreign
competition contributed to the underperformance of Teva Pharmaceuticals. The
near-term outlook for North American natural gas is subdued which has
contributed to less than desired stock returns for BJ Services, and lower than
expected quarterly earnings for Expeditors International have resulted in
negative returns for its stock during the period.
The fixed income portion of the Badgley Balanced Fund realized moderate
returns as the markets absorbed the economic news suggesting a slowdown in U.S.
economic growth. An end to the Federal Reserve raising its Fed Funds rate plus
declines for home building and automobile manufacturing signaled a slowing
economy. As a result, demand for bonds increased and the U.S. Treasury yield
curve shifted to an inverted position, meaning that shorter-term issues offered
higher yields than those with longer maturities. On November 30, 2006, the
2-Year Treasury Note yield was 4.60% compared to 4.45% for the 10-Year Treasury
Note.
THANK YOU
We thank you for investing in the Badgley Funds. Please visit
www.badgleyfunds.com for more detailed information. We welcome your comments,
suggestions and questions. Please contact us toll free at 1.877.223.4539, in
writing or via email at info@badgleyfunds.com
Sincerely,
BADGLEY FUNDS, INC.
/s/ J. Kevin Callaghan /s/ Lisa P. Guzman
J. KEVIN CALLAGHAN LISA P. GUZMAN PRESIDENT AND
DIRECTOR SECRETARY AND TREASURER
4 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
LETTER TO SHAREHOLDERS (continued)
NOVEMBER 30, 2006
Cumulative Six-month Returns
INVESTMENT RETURNS through November 30, 2006
-------------------------
Badgley Balanced Fund ....................................... 6.56%
Badgley Growth Fund ......................................... 8.83%
Lehman Brothers Intermediate Govt/Credit Bond Index ......... 4.85%
S & P 500 Index ............................................. 11.33%
Russell 1000 Growth Index ................................... 9.29%
Blended Index 1 ............................................. 8.06%
Blended Index 2 ............................................. 7.08%
RETURNS QUOTED ABOVE REPRESENT PAST PERFORMANCE. PAST PERFORMANCE CANNOT
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 THE ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA SHOWN HERE. FOR PERFORMANCE CURRENT THROUGH THE MOST RECENT
MONTH-END, PLEASE CALL 1-877-BADGLEY (1-877-223-4539).
LEHMAN BROTHERS INTERMEDIATE GOV'T./CREDIT BOND INDEX -- An unmanaged market
value-weighted index composed of all bonds that are investment grade (rated
investment grade by at least two of the following rating agencies: Moody's, S&P
or Fitch) or U.S. Government. All issues must be publicly issued, fixed rate (or
have coupon that adjusts according to a predetermined schedule) and have
maturities between one and ten years and outstanding par value of at least $250
million.
S&P 500 INDEX -- An unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of the 500 stocks which represent all major
industries.
RUSSELL 1000 GROWTH INDEX -- An unmanaged, capitalization weighted index
comprised of the stocks of the top 1000 U.S. corporations as measured by their
market capitalizations. The Russell 1000 Growth Index measures the performance
of those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values. The stocks cross all major industries, and the index
is used to illustrate the performance of the broad domestic economy.
BLENDED INDEX 1 -- Blend of 50% Lehman Brothers Intermediate Gov't. / Credit
Bond Index and 50% S&P 500 Index.
BLENDED INDEX 2 -- Blend of 50% Lehman Brothers Intermediate Gov't. / Credit
Bond Index and 50% Russell 1000 Growth Index.
BADGLEY FUNDS SEMI-ANNUAL REPORT 5
BADGLEY FUNDS, INC.
PERFORMANCE GRAPHS
NOVEMBER 30, 2006
[GRAPHIC] BADGLEY BALANCED FUND
[The following table was represented as a line chart in the printed material.]
Blended
Benchmark I Blended Benchmark II
Lehman 50% S&P / Badgley 50% Russell 1000G / S&P Russell 1000
Brothers 50% LBCGI Balanced 50% LBGCI 500 Growth
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6/25/1998 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
11/30/1998 10,450 10,464 10,308 10,596 10,372 10,622
5/31/1999 10,423 11,100 10,866 11,244 11,680 11,953
11/30/1999 10,567 11,593 11,323 12,260 12,540 13,967
5/31/2000 10,683 11,846 11,868 12,785 12,904 14,940
11/30/2000 11,388 11,824 12,385 12,087 12,011 12,353
5/31/2001 12,027 11,946 12,002 11,558 11,542 10,502
11/30/2001 12,708 11,771 11,633 11,376 10,543 9,537
5/31/2002 12,946 11,554 11,469 10,741 9,944 8,310
11/30/2002 13,584 11,196 11,108 10,421 8,802 7,374
5/31/2003 14,483 11,804 11,317 10,985 9,142 7,658
11/30/2003 14,353 12,382 11,755 11,608 10,130 8,609
5/31/2004 14,419 12,829 12,137 11,924 10,818 9,038
11/30/2004 14,818 13,377 12,481 12,147 11,432 9,111
5/31/2005 15,093 13,670 12,500 12,420 11,709 9,339
11/30/2005 15,060 14,058 12,915 12,845 12,397 9,998
5/31/2006 15,105 14,264 12,940 12,813 12,720 9,913
11/30/2006 15,837 15,414 13,789 13,720 14,162 10,834
This chart assumes an initial gross investment of $10,000 made on 6/25/98
(commencement of operations). Returns shown include the reinvestment of all
dividends and distributions. In the absence of fee waivers and reimbursements,
total return would be reduced. This chart and table below do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
RETURNS SHOWN REPRESENT PAST PERFORMANCE. PAST PERFORMANCE CANNOT 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 THE ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA SHOWN HERE. FOR PERFORMANCE CURRENT THROUGH THE MOST RECENT
MONTH-END, PLEASE CALL 1-877-BADGLEY (1-877-223-4539).
LEHMAN BROTHERS INTERMEDIATE GOV'T./CREDIT BOND INDEX -- An unmanaged market
value-weighted index composed of all bonds that are investment grade (rated
investment grade by at least two of the following rating agencies: Moody's, S&P
or Fitch) or U.S. Government. All issues must be publicly issued, fixed rate (or
have coupon that adjusts according to a predetermined schedule) and have
maturities between one and ten years and outstanding par value of at least $250
million.
S&P 500 INDEX -- An unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of the 500 stocks which represent all major
industries.
RUSSELL 1000 GROWTH INDEX -- An unmanaged, capitalization weighted index
comprised of the stocks of the top 1000 U.S. corporations as measured by their
market capitalizations. The Russell 1000 Growth Index measures the performance
of those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values. The stocks cross all major industries, and the index
is used to illustrate the performance of the broad domestic economy.
BLENDED INDEX 1 -- Blend of 50% Lehman Brothers Intermediate Gov't. / Credit
Bond Index and 50% S&P 500 Index.
BLENDED INDEX 2 -- Blend of 50% Lehman Brothers Intermediate Gov't. / Credit
Bond Index and 50% Russell 1000 Growth Index.
TOTAL RETURNS THROUGH NOVEMBER 30, 2006
AVERAGE ANNUAL
----------------------------------------------
SINCE INCEPTION
SIX MONTHS ONE YEAR FIVE YEARS JUNE 25, 1998
----------------------------------------------------------------
Badgley Balanced Fund 6.56% 6.76% 3.46% 3.88%
Lehman Brothers Intermediate
Gov't./Credit Bond Index 4.85% 5.16% 4.50% 5.60%
S&P 500 Index 11.33% 14.23% 6.08% 4.21%
Russell 1000 Growth Index 9.29% 8.36% 2.58% 0.95%
Blended Index 1 8.06% 9.65% 5.54% 5.24%
Blended Index 2 7.08% 6.81% 3.82% 3.79%
6 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
PERFORMANCE GRAPHS
NOVEMBER 30, 2006
[GRAPHIC] BADGLEY GROWTH FUND
[The following table was represented as a line chart in the printed material.]
S&P Badgley Russell 1000
500 Growth Growth
---------------------------------------------------
6/25/1998 $10,000 $10,000 $10,000
11/30/1998 10,372 10,120 10,622
5/31/1999 11,680 11,465 11,953
11/30/1999 12,540 12,308 13,967
5/31/2000 12,904 13,283 14,940
11/30/2000 12,011 13,595 12,353
5/31/2001 11,542 12,149 10,502
11/30/2001 10,543 10,783 9,537
5/31/2002 9,944 10,352 8,310
11/30/2002 8,802 9,107 7,374
5/31/2003 9,142 8,886 7,658
11/30/2003 10,130 9,709 8,609
5/31/2004 10,818 10,331 9,038
11/30/2004 11,432 10,703 9,111
5/31/2005 11,709 10,572 9,339
11/30/2005 12,397 11,315 9,998
5/31/2006 12,720 11,376 9,913
11/30/2006 14,162 12,380 10,834
This chart assumes an initial gross investment of $10,000 made on 6/25/98
(commencement of operations). Returns shown include the reinvestment of all
dividends and distributions. In the absence of fee waivers and reimbursements,
total return would be reduced. This chart and table below do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
RETURNS SHOWN REPRESENT PAST PERFORMANCE. PAST PERFORMANCE CANNOT 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 THE ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA SHOWN HERE. FOR PERFORMANCE CURRENT THROUGH THE MOST RECENT
MONTH-END, PLEASE CALL 1-877-BADGLEY (1-877-223-4539).
S&P 500 INDEX -- An unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of the 500 stocks which represent all major
industries.
RUSSELL 1000 GROWTH INDEX -- An unmanaged, capitalization weighted index
comprised of the stocks of the top 1000 U.S. corporations as measured by their
market capitalizations. The Russell 1000 Growth Index measures the performance
of those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values. The stocks cross all major industries, and the index
is used to illustrate the performance of the broad domestic economy.
TOTAL RETURNS THROUGH NOVEMBER 30, 2006
AVERAGE ANNUAL
----------------------------------------------
SINCE INCEPTION
SIX MONTHS ONE YEAR FIVE YEARS JUNE 25, 1998
----------------------------------------------------------------
Badgley Growth Fund 8.83% 9.41% 2.80% 2.56%
S&P 500 Index 11.33% 14.23% 6.08% 4.21%
Russell 1000 Growth Index 9.29% 8.36% 2.58% 0.95%
BADGLEY FUNDS SEMI-ANNUAL REPORT 7
BADGLEY FUNDS, INC.
SECTOR ALLOCATION OF PORTFOLIO HOLDINGS
NOVEMBER 30, 2006
Percentages represent market value as a percentage of total investments.
[GRAPHIC] BADGLEY BALANCED FUND
[The following table was represented as a pie chart in the printed material.]
Variable Rate Demand Note 4.9%
Corporate Bonds 19.5%
U.S. Government Agency Issues 12.6%
U.S. Treasury Obligations 12.1%
Common Stocks 50.9%
[GRAPHIC] BADGLEY GROWTH FUND
[The following table was represented as a pie chart in the printed material.]
Variable Rate Demand Note 1.2%
Consumer Discretionary 2.8%
Consumer Staples 10.8%
Energy 7.4%
Financials 10.2%
Health Care 19.5%
Industrials 16.1%
Information Technology 26.0%
Materials 6.0%
8 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 2006
BALANCED FUND GROWTH FUND
- -----------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at market value
(cost of $23,219,911 and $12,663,903, respectively) $ 27,058,572 $ 17,404,384
Interest receivable 172,742 1,638
Dividends receivable 6,373 7,899
Receivable for Fund shares sold 10,000 --
Other assets 28,841 24,360
- -----------------------------------------------------------------------------------------------------------
Total assets 27,276,528 17,438,281
- -----------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable to Adviser 7,645 2,888
Payable for distribution fees 4,690 2,423
Accrued expenses and other liabilities 38,457 35,305
- -----------------------------------------------------------------------------------------------------------
Total liabilities 50,792 40,616
- -----------------------------------------------------------------------------------------------------------
NET ASSETS $ 27,225,736 $ 17,397,665
===========================================================================================================
NET ASSETS CONSIST OF:
Capital stock $ 24,324,562 $ 15,998,935
Undistributed net investment income 1,869 --
Undistributed net realized loss on investments (939,356) (3,341,751)
Net unrealized appreciation on investments 3,838,661 4,740,481
- -----------------------------------------------------------------------------------------------------------
Total net assets $ 27,225,736 $ 17,397,665
- -----------------------------------------------------------------------------------------------------------
Shares outstanding (par value of $0.01, 500,000,000 shares authorized) 2,279,643 1,410,772
===========================================================================================================
Net Asset Value, Redemption Price and Offering Price Per Share $ 11.94 $ 12.33
===========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
BADGLEY FUNDS SEMI-ANNUAL REPORT 9
BADGLEY FUNDS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2006
BALANCED FUND GROWTH FUND
- ------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $ 259,121 $ 5,502
Dividend income (net of withholding tax of $198 and $242, respectively) 51,104 61,747
- ------------------------------------------------------------------------------------------------------------
Total investment income 310,225 67,249
- ------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 121,068 83,066
Shareholder servicing and accounting fees 28,758 25,785
Professional fees 32,273 32,243
Administration fees 15,738 15,555
Distribution fees 16,897 10,518
Federal and state registration fees 8,819 8,403
Directors' fees and expenses 5,124 5,124
Reports to shareholders 4,150 4,160
Custody fees 5,988 3,576
Other 12,855 7,270
- ------------------------------------------------------------------------------------------------------------
Total expenses before waiver and reimbursement 251,670 195,700
Less: Waiver of expenses and reimbursement from Adviser (76,794) (71,101)
- ------------------------------------------------------------------------------------------------------------
Net expenses 174,876 124,599
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 135,349 (57,350)
- ------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 516,776 359,114
Change in net unrealized appreciation/depreciation on investments 1,064,209 1,115,324
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1,580,985 1,474,438
- ------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,716,334 $ 1,417,088
============================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
[GRAPHIC] BADGLEY BALANCED FUND
SIX MONTHS ENDED
NOVEMBER 30, 2006 YEAR ENDED
(UNAUDITED) MAY 31, 2006
- --------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 135,349 $ 448,696
Net realized gain on investments 516,776 1,538,192
Change in net unrealized appreciation/depreciation on investments 1,064,209 (790,177)
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,716,334 1,196,711
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME (202,840) (450,778)
- --------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 505,823 3,050,669
Proceeds from shares issued to holders in reinvestment of dividends 174,994 399,509
Cost of shares redeemed (2,021,253) (12,719,565)
- --------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from
capital share transactions (1,340,436) (9,269,387)
- --------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 173,058 (8,523,454)
NET ASSETS:
Beginning of year 27,052,678 35,576,132
- --------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $1,869 and $69,360, respectively) $ 27,225,736 $ 27,052,678
========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
BADGLEY FUNDS SEMI-ANNUAL REPORT 11
BADGLEY FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
[GRAPHIC] BADGLEY GROWTH FUND
SIX MONTHS ENDED
NOVEMBER 30, 2006 YEAR ENDED
(UNAUDITED) MAY 31, 2006
- ------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment loss $ (57,350) $ (106,149)
Net realized gain on investments 359,114 939,013
Change in net unrealized appreciation/depreciation on investments 1,115,324 361,042
- ------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,417,088 1,193,906
- ------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 352,919 2,639,416
Cost of shares redeemed (907,563) (4,492,085)
- ------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from
capital share transactions (554,644) (1,852,669)
- ------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 862,444 (658,763)
NET ASSETS:
Beginning of year 16,535,221 17,193,984
- ------------------------------------------------------------------------------------------------------
End of year $ 17,397,665 $ 16,535,221
======================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD
[GRAPHIC] BADGLEY BALANCED FUND
SIX MONTHS
ENDED
NOVEMBER 30, YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
2006 MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
(UNAUDITED) 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period $ 11.29 $ 11.06 $ 10.90 $ 10.31 $ 10.65 $ 11.36
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06 0.16 0.16 0.15 0.18 0.21
Net realized and unrealized
gain (loss) on investments 0.68 0.23 0.16 0.59 (0.33) (0.71)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.74 0.39 0.32 0.74 (0.15) (0.50)
- -----------------------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.09) (0.16) (0.16) (0.15) (0.19) (0.21)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.94 $ 11.29 $ 11.06 $ 10.90 $ 10.31 $ 10.65
===================================================================================================================================
TOTAL RETURN 6.56% 3.52% 2.99% 7.25% -1.33% -4.44%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $27,225,736 $27,052,678 $35,576,132 $31,870,627 $29,195,847 $28,588,070
Ratio of net expense to average net assets:
Before expense reimbursement 1.87% 1.71% 1.62% 1.86% 1.82% 1.72%
After expense reimbursement 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
Ratio of net investment income
to average net assets:
Before expense reimbursement 0.44% 0.98% 1.16% 0.86% 1.26% 1.48%
After expense reimbursement 1.01% 1.39% 1.48% 1.42% 1.78% 1.90%
Portfolio turnover rate 6.93% 23.78% 27.48% 29.27% 32.08% 35.98%
===================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
BADGLEY FUNDS SEMI-ANNUAL REPORT 13
BADGLEY FUNDS, INC.
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD
[GRAPHIC] BADGLEY GROWTH FUND
SIX MONTHS
ENDED
NOVEMBER 30, YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
2006 MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
(UNAUDITED) 2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period $ 11.33 $ 10.53 $ 10.29 $ 8.85 $ 10.31 $ 12.10
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)(1) (0.07)(1) (0.04)(1) (0.05) (0.04) (0.07)
Net realized and unrealized
gain (loss) on investments 1.04 0.87 0.28 1.49 (1.42) (1.72)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.00 0.80 0.24 1.44 (1.46) (1.79)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.33 $ 11.33 $ 10.53 $ 10.29 $ 8.85 $ 10.31
==================================================================================================================================
TOTAL RETURN 8.83% 7.60% 2.33% 16.27% -14.16% -14.79%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $17,397,665 $16,535,221 $17,193,984 $16,231,949 $16,678,147 $17,539,824
Ratio of net expense to average
net assets:
Before expense reimbursement 2.36% 2.27% 2.39% 2.51% 2.43% 2.23%
After expense reimbursement 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%
Ratio of net investment loss to average
net assets:
Before expense reimbursement (1.55)% (1.41)% (1.23)% (1.52)% (1.42)% (1.41)%
After expense reimbursement (0.69)% (0.64)% (0.34)% (0.51)% (0.49)% (0.68)%
Portfolio turnover rate 13.10% 40.62% 30.96% 45.58% 29.52% 39.51%
==================================================================================================================================
(1) Net investment loss per share is calculated using the balance of
undistributed net investment loss prior to considerations of adjustments
for book and tax differences.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 2006
[GRAPHIC] BADGLEY BALANCED FUND
SHARES VALUE
==========================================================================================
COMMON STOCKS -- 50.6%
CONSUMER DISCRETIONARY -- 1.5%
11,135 Starbucks Corporation (a) $ 392,954
- ------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 5.6%
7,175 Costco Wholesale Corporation 374,965
13,240 CVS Corporation 380,915
6,750 PepsiCo, Inc. 418,298
9,375 Sysco Corporation 336,094
- ------------------------------------------------------------------------------------------
1,510,272
- ------------------------------------------------------------------------------------------
ENERGY -- 3.7%
8,375 BJ Services Company 282,824
10,175 Consol Energy, Inc. 373,524
5,235 Schlumberger Limited (b) 358,493
- ------------------------------------------------------------------------------------------
1,014,841
- ------------------------------------------------------------------------------------------
FINANCIALS -- 5.3%
5,925 American Express Company 347,916
4,585 American International Group, Inc. 322,417
6,455 State Street Corporation 401,049
8,375 T. Rowe Price Group, Inc. 362,889
- ------------------------------------------------------------------------------------------
1,434,271
- ------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
BADGLEY FUNDS SEMI-ANNUAL REPORT 15
BADGLEY FUNDS, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 2006 -- (continued)
[GRAPHIC] BADGLEY BALANCED FUND
SHARES VALUE
==========================================================================================
HEALTH CARE -- 9.9%
4,525 Amgen Inc. (a) $ 321,275
6,525 Medtronic, Inc. 340,148
7,175 Quest Diagnostics Incorporated 381,495
6,615 Stryker Corporation 343,054
7,975 Teva Pharmaceutical Industries Ltd. -- ADR (b) 255,678
5,700 Varian Medical Systems, Inc. (a) 280,554
7,025 Waters Corporation (a) 351,531
5,670 WellPoint Inc. (a) 429,049
- ------------------------------------------------------------------------------------------
2,702,784
- ------------------------------------------------------------------------------------------
INDUSTRIALS -- 8.3%
6,910 Expeditors International of Washington, Inc. 312,608
4,550 FedEx Corporation 525,207
10,325 General Electric Company 364,266
5,325 L-3 Communications Holdings, Inc. 437,981
7,235 Pentair, Inc. 230,507
5,840 United Technologies Corporation 376,855
- ------------------------------------------------------------------------------------------
2,247,424
- ------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 13.3%
5,050 Affiliated Computer Services, Inc.- Class A (a) 255,277
10,000 Amdocs Limited (a) (b) 385,500
3,740 Apple Computer, Inc. (a) 342,883
19,600 Cisco Systems, Inc. (a) 526,848
6,005 Cognizant Technology Solutions Corporation -- Class A (a) 489,768
745 Google, Inc. -- Class A (a) 361,265
8,475 Microsoft Corporation 248,572
7,450 QUALCOMM, Inc. 272,596
14,980 Seagate Technology (b) 385,885
13,590 VeriSign, Inc. (a) 354,835
- ------------------------------------------------------------------------------------------
3,623,429
- ------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
16 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 2006 -- (continued)
[GRAPHIC] BADGLEY BALANCED FUND
SHARES OR
PRINCIPAL
AMOUNT VALUE
==========================================================================================
MATERIALS -- 3.0%
9,290 Ecolab, Inc. $ 412,012
6,850 Praxair, Inc. 427,440
- ------------------------------------------------------------------------------------------
839,452
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $9,877,031) 13,765,427
- ------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 12.1%
U.S. TREASURY NOTES -- 12.1%
$ 250,000 3.25%, 08/15/2008 244,395
805,000 4.25%, 08/15/2013 796,478
175,000 4.75%, 05/15/2014 178,329
650,000 5.50%, 02/15/2008 655,408
250,000 5.75%, 08/15/2010 260,976
750,000 6.00%, 08/15/2009 777,773
355,000 6.50%, 02/15/2010 376,078
- ------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $3,310,825) 3,289,437
- ------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES -- 12.5%
FANNIE MAE -- 4.3%
720,000 5.25%, 04/15/2007 720,093
100,000 5.25%, 01/15/2009 100,853
325,000 6.625%, 09/15/2009 340,676
- ------------------------------------------------------------------------------------------
1,161,622
- ------------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK -- 1.8%
500,000 4.25%, 10/10/2008 495,277
- ------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
BADGLEY FUNDS SEMI-ANNUAL REPORT 17
BADGLEY FUNDS, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 2006 -- (continued)
[GRAPHIC] BADGLEY BALANCED FUND
PRINCIPAL
AMOUNT VALUE
==========================================================================================
FEDERAL HOME LOAN BANK -- 2.9%
$ 330,000 4.50%, 11/14/2014 $ 324,591
450,000 5.75%, 05/15/2012 472,615
- ------------------------------------------------------------------------------------------
797,206
- ------------------------------------------------------------------------------------------
FREDDIE MAC -- 3.5%
500,000 5.125%, 07/15/2012 509,469
425,000 5.75%, 01/15/2012 444,465
- ------------------------------------------------------------------------------------------
953,934
- ------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY ISSUES (COST $3,402,848) 3,408,039
- ------------------------------------------------------------------------------------------
CORPORATE BONDS -- 19.3%
CONSUMER DISCRETIONARY -- 0.9%
250,000 Johnson Controls, Inc.
4.875%, 09/15/2013 241,432
- ------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 2.9%
475,000 The Estee Lauder Companies Inc.
6.00%, 01/15/2012 494,073
300,000 Wal-Mart Stores, Inc.
4.55%, 05/01/2013 292,692
- ------------------------------------------------------------------------------------------
786,765
- ------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
18 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 2006 -- (continued)
[GRAPHIC] BADGLEY BALANCED FUND
PRINCIPAL
AMOUNT VALUE
==========================================================================================
FINANCIALS -- 11.6%
$ 500,000 AFLAC Incorporated
6.50%, 04/15/2009 $ 515,427
170,000 American General Finance Corporation
5.375%, 09/01/2009 171,002
500,000 Citigroup Inc.
6.50%, 01/18/2011 527,915
450,000 General Electric Capital Corporation
7.375%, 01/19/2010 481,421
250,000 JPMorgan Chase & Co.
4.50%, 01/15/2012 243,067
400,000 Merrill Lynch & Co., Inc.
5.00%, 02/03/2014 395,416
400,000 Morgan Stanley
4.75%, 04/01/2014 386,928
300,000 SLM Corporation
5.125%, 08/27/2012 298,335
140,000 Wells Fargo Financial, Inc.
5.50%, 08/01/2012 143,280
- ------------------------------------------------------------------------------------------
3,162,791
- ------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
BADGLEY FUNDS SEMI-ANNUAL REPORT 19
BADGLEY FUNDS, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 2006 -- (continued)
[GRAPHIC] BADGLEY BALANCED FUND
PRINCIPAL
AMOUNT VALUE
==========================================================================================
INDUSTRIALS -- 1.3%
$ 125,000 Cintas Corporation
5.125%, 06/01/2007 $ 124,829
255,000 Emerson Electric Co.
4.50%, 05/01/2013 247,552
- ------------------------------------------------------------------------------------------
372,381
- ------------------------------------------------------------------------------------------
MATERIALS -- 2.6%
400,000 Ecolab Inc.
6.875%, 02/01/2011 424,714
300,000 Praxair, Inc.
3.95%, 06/01/2013 280,981
- ------------------------------------------------------------------------------------------
705,695
- ------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $5,302,602) 5,269,064
- ------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS -- 4.9%
VARIABLE RATE DEMAND NOTES -- 4.9%
281,792 American Family Financial Services, Inc. -- 4.943% 281,792
1,044,813 U.S. Bank, N.A. -- 5.07% 1,044,813
- ------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,326,605) 1,326,605
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.4%
(COST $23,219,911) 27,058,572
- ------------------------------------------------------------------------------------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.6% 167,164
- ------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $ 27,225,736
==========================================================================================
ADR -- American Depository Receipt.
(a) -- Non-income producing security.
(b) -- Foreign security.
* -- Variable rate security. Rate listed is as of November 30, 2006.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
20 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 2006
[GRAPHIC] BADGLEY GROWTH FUND
SHARES VALUE
==========================================================================================
COMMON STOCKS -- 98.8%
CONSUMER DISCRETIONARY -- 2.8%
13,920 Starbucks Corporation (a) $ 491,237
- ------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 10.8%
9,000 Costco Wholesale Corporation 470,340
16,570 CVS Corporation 476,719
8,450 PepsiCo, Inc. 523,646
11,450 Sysco Corporation 410,483
- ------------------------------------------------------------------------------------------
1,881,188
- ------------------------------------------------------------------------------------------
ENERGY -- 7.4%
10,395 BJ Services Company 351,039
13,625 Consol Energy, Inc. 500,174
6,480 Schlumberger Limited (b) 443,750
- ------------------------------------------------------------------------------------------
1,294,963
- ------------------------------------------------------------------------------------------
FINANCIALS -- 10.2%
7,220 American Express Company 423,958
5,575 American International Group, Inc. 392,034
8,150 State Street Corporation 506,360
10,470 T. Rowe Price Group, Inc. 453,665
- ------------------------------------------------------------------------------------------
1,776,017
- ------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
BADGLEY FUNDS SEMI-ANNUAL REPORT 21
BADGLEY FUNDS, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 2006 -- (continued)
[GRAPHIC] BADGLEY GROWTH FUND
SHARES VALUE
==========================================================================================
HEALTH CARE -- 19.5%
5,725 Amgen Inc. (a) $ 406,475
7,950 Medtronic, Inc. 414,433
8,750 Quest Diagnostics Incorporated 465,237
8,275 Stryker Corporation 429,142
9,875 Teva Pharmaceutical Industries Ltd. -- ADR (b) 316,593
7,250 Varian Medical Systems, Inc. (a) 356,845
9,200 Waters Corporation (a) 460,368
7,095 WellPoint Inc. (a) 536,879
- ------------------------------------------------------------------------------------------
3,385,972
- ------------------------------------------------------------------------------------------
INDUSTRIALS -- 16.1%
8,420 Expeditors International of Washington, Inc. 380,921
5,675 FedEx Corporation 655,065
12,900 General Electric Company 455,112
6,675 L-3 Communications Holdings, Inc. 549,019
9,170 Pentair, Inc. 292,156
7,320 United Technologies Corporation 472,360
- ------------------------------------------------------------------------------------------
2,804,633
- ------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 26.0%
6,175 Affiliated Computer Services, Inc.- Class A (a) 312,146
12,525 Amdocs Limited (a) (b) 482,839
4,590 Apple Computer, Inc. (a) 420,811
24,525 Cisco Systems, Inc. (a) 659,232
7,510 Cognizant Technology Solutions Corporation -- Class A (a) 612,516
950 Google, Inc. -- Class A (a) 460,674
10,350 Microsoft Corporation 303,565
9,080 QUALCOMM, Inc. 332,237
18,980 Seagate Technology (b) 488,925
16,980 VeriSign, Inc. (a) 443,348
- ------------------------------------------------------------------------------------------
4,516,293
- ------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
22 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 2006 -- (continued)
[GRAPHIC] BADGLEY GROWTH FUND
SHARES OR
PRINCIPAL
AMOUNT VALUE
==========================================================================================
MATERIALS -6.0%
11,755 Ecolab Inc. $ 521,334
8,375 Praxair, Inc. 522,600
- ------------------------------------------------------------------------------------------
1,043,934
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $12,453,756) 17,194,237
- ------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS -- 1.2%
VARIABLE RATE DEMAND NOTE* -- 1.2%
$ 210,147 U.S. Bank, N.A. -- 5.07% 210,147
- ------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $210,147) 210,147
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(COST $12,663,903) 17,404,384
- ------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS -- 0.00% (6,719)
- ------------------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $ 17,397,665
==========================================================================================
ADR -- American Depository Receipt.
(a) -- Non-income producing security.
(b) -- Foreign security.
* -- Variable rate security. Rate listed is as of November 30, 2006.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
BADGLEY FUNDS SEMI-ANNUAL REPORT 23
BADGLEY FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 2006
1. ORGANIZATION
Badgley Funds, Inc. (the "Corporation") was incorporated on April 28,
1998, as a Maryland Corporation and is registered as an open-end management
investment company under the Investment Company Act of 1940. The Badgley
Balanced Fund (the "Balanced Fund") and the Badgley Growth Fund (the "Growth
Fund") (collectively referred to as the "Funds") are separate, diversified
investment portfolios of the Corporation. The principal investment objective of
the Balanced Fund is to seek long-term capital appreciation and income. The
principal investment objective of the Growth Fund is to seek long-term capital
appreciation. The Funds commenced operations on June 25, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with accounting principles generally accepted in the
United States of America.
a) INVESTMENT VALUATION -- Securities listed on the NASDAQ National
Market are valued at the NASDAQ Official Closing Price ("NOCP").
Other securities traded on a national securities exchange (including
options on indices so traded) are valued at the last sales price at
the close of that exchange where primarily traded. Exchange-traded
securities for which there were no transactions and NASDAQ-traded
securities for which there is no NOCP are valued at the mean of the
bid and ask prices. Securities for which market quotations are not
readily available are valued at fair value as determined in good
faith by the Board of Directors. The Board has adopted specific
procedures for valuing portfolio securities and delegated the
implementation of these procedures to Badgley, Phelps and Bell, Inc.
(the "Adviser"). The procedures authorize the Adviser to make all
necessary determinations regarding the fair value of a portfolio
security and to report such determination to the Board of Directors.
Debt securities maturing in 60 days or less are valued at amortized
cost, which approximates fair value. Debt securities having
maturities over 60 days or for which amortized cost is not deemed to
reflect fair value may be priced by independent pricing services
that use prices provided by market makers or estimates of market
values obtained from yield data relating to instruments or
securities with similar characteristics.
b) FEDERAL INCOME TAXES -- No provision for federal income taxes has
been made since the Funds have complied to date with the provisions
of the Internal Revenue Code applicable to regulated investment
companies and intend to continue to so comply in future years and to
distribute substantially all of the Funds' investment company net
taxable income and net realized gains to shareholders.
c) INCOME AND EXPENSES -- The Funds are charged for those expenses that
are directly attributable to each portfolio, such as advisory,
administration and certain shareholder service fees. Expenses that
are not directly attributable to a portfolio may be allocated among
the Funds in proportion to their respective net assets, number of
shareholder accounts or net sales, etc., where applicable.
d) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income of the Balanced Fund are declared and paid quarterly.
Dividends from net investment income of the Growth Fund are declared
and paid annually. The Funds' net realized capital gains, if any,
are distributed at least annually.
24 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 2006 -- (continued)
e) USE OF ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those estimates.
f) GUARANTEES AND INDEMNIFICATIONS -- In the normal course of business
the Funds enter into contracts with service providers that contain
general indemnification clauses. The Funds' maximum exposure under
these arrangements is unknown as this would involve future claims
that may be made against the Funds that have not yet occurred. Based
on experience, however, the Funds expect the risk of loss to be
remote.
g) OTHER -- Investment and shareholder transactions are recorded on
trade date. The Funds determine the gain or loss realized from the
investment transactions by comparing the original cost of the
security lot sold with the net sales proceeds. Dividend income is
recognized on the ex-dividend date, and interest income is
recognized on an accrual basis. All discounts and premiums are
accreted and amortized, as appropriate, on the effective interest
method for tax and financial reporting purposes.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds for the six months ended November 30, 2006,
were as follows:
BALANCED FUND GROWTH FUND
- -----------------------------------------------------------------------------------------
Shares sold 43,651 30,188
Shares issued to holders in reinvestment of dividends 15,262 --
Shares redeemed (175,104) (79,476)
- -----------------------------------------------------------------------------------------
Net decrease (116,191) (49,288)
=========================================================================================
Transactions in shares of the Funds for the year ended May 31, 2006, were as
follows:
BALANCED FUND GROWTH FUND
- -----------------------------------------------------------------------------------------
Shares sold 268,986 231,832
Shares issued to holders in reinvestment of dividends 35,708 --
Shares redeemed (1,125,035) (404,035)
- -----------------------------------------------------------------------------------------
Net decrease (820,341) (172,203)
- -----------------------------------------------------------------------------------------
BADGLEY FUNDS SEMI-ANNUAL REPORT 25
BADGLEY FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 2006 -- (continued)
4. INVESTMENT TRANSACTIONS AND INCOME TAX INFORMATION
The aggregate purchases and sales of investments, excluding short-term
investments, by the Funds for the six months ended November 30, 2006, were as
follows:
BALANCED FUND GROWTH FUND
- -----------------------------------------------------------------------------------------
Purchases
U.S. Government $ -- $ --
Other 1,775,094 2,161,586
Sales
U.S. Government -- --
Other 3,476,054 2,572,941
As of May 31, 2006 the components of accumulated earnings (losses) on a tax
basis were as follows:
BALANCED FUND GROWTH FUND
- -----------------------------------------------------------------------------------------
Cost of Investments (a) $24,231,381 $13,049,536
=========================================================================================
Gross Unrealized appreciation 3,416,556 3,839,793
Gross unrealized depreciation (752,921) (329,999)
- -----------------------------------------------------------------------------------------
Net unrealized appreciation 2,663,635 3,509,794
- -----------------------------------------------------------------------------------------
Undistributed ordinary income 69,360 --
Undistributed long-term capital gain -- --
- -----------------------------------------------------------------------------------------
Total distributable earnings 69,360 --
- -----------------------------------------------------------------------------------------
Other accumulated losses (1,345,315) (3,585,502)
- -----------------------------------------------------------------------------------------
Total accumulated earnings (losses) $ 1,387,680 $ (75,708)
=========================================================================================
(a) Represents cost for federal income tax purposes and differs from the
cost for financial reporting purposes due to wash sales.
For the year ended May 31, 2006, capital loss carryforwards of $1,484,555
and $911,851 were utilized by the Balanced and Growth Funds, respectively. At
May 31, 2006, the Balanced and the Growth Fund had accumulated net realized
capital loss carryovers of $1,345,315 and $3,585,502, respectively. The capital
loss carryovers for the Balanced Fund of $798,052, and $547,263 expire in 2011
and 2012, respectively. The capital loss carryovers for the Growth Fund of
$95,072, $2,533,832, and $956,598 expire in 2010, 2011, and 2012, respectively.
The above losses will be offset by any future realized capital gains.
26 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 2006 -- (continued)
On the Statement of Assets and Liabilities, the following adjustments were made
for permanent tax adjustments.
UNDISTRIBUTED NET
UNDISTRIBUTED NET REALIZED LOSS
CAPITAL STOCK INVESTMENT INCOME ON INVESTMENTS
- --------------------------------------------------------------------------------
Balanced Fund (1) -- 1
Growth Fund (106,146) 106,149 (3)
The permanent differences primarily relate to net operating losses.
For the six months ended November 30, 2006, the components of distributions on a
tax basis were as follows:
BALANCED FUND GROWTH FUND
- -----------------------------------------------------------------------------------------
Ordinary income $ 202,840 $ --
Long-term capital gains -- --
Total distributions paid $ 202,840 $ --
For the year ended May 31, 2006, the components of distributions on a tax basis
were as follows:
BALANCED FUND GROWTH FUND
- -----------------------------------------------------------------------------------------
Ordinary income $ 450,778 $ --
Long-term capital gains -- --
Total distributions paid $ 450,778 $ --
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released FASB International No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Funds' tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as tax benefit or expense in the current year. Adoption of FIN
48 is required for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. At this time, management
is evaluating the implications of FIN 48 and its impact in the financial
statements has not yet been determined.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Corporation has an Investment Advisory Agreement (the "Agreement")
with the Adviser, with whom certain Officers and Directors of the Corporation
are affiliated, to furnish investment advisory services to the Funds. Under the
terms of the Agreement, the Corporation, on behalf of the Funds, compensates the
Adviser for its management services at the annual rate of 0.90% of the Balanced
Fund's average daily net assets and 1.00% of the Growth Fund's average daily net
assets. The advisory fee is accrued daily and paid monthly.
BADGLEY FUNDS SEMI-ANNUAL REPORT 27
BADGLEY FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 2006 -- (continued)
The Adviser has agreed to waive its management fee and/or reimburse the
Funds' other expenses to the extent necessary to ensure that the Balanced Fund's
total operating expenses do not exceed 1.30% of its average daily net assets and
that the Growth Fund's total operating expenses do not exceed 1.50% of its
average daily net assets. Any such waiver or reimbursement is subject to later
adjustment during the term of the Agreement to allow the Adviser to recoup
amounts waived or reimbursed to the extent actual fees and expenses for a period
are less than the expense limitation caps, provided, however, that the Adviser
shall only be entitled to recoup such amounts for the period of three years from
the date such amount was waived or reimbursed. For the six months ended November
30, 2006, the Adviser waived/reimbursed expenses of $76,794 and $71,101 for the
Balanced Fund and Growth Fund, respectively. Waived/reimbursed expenses subject
to potential recovery by year of expiration are as follows:
YEAR OF EXPIRATION BALANCED FUND GROWTH FUND
- --------------------------------------------------------------------------------
5/31/2007 $170,562 $172,985
5/31/2008 109,115 150,881
5/31/2009 132,457 127,895
5/31/2010* 76,794 71,101
- --------------------------------------------------------------------------------
* Represents waived expenses for the six months ended November 30, 2006.
The Funds have adopted an amended and restated plan of distribution under
Rule 12b-1 under the 1940 Act (the "12b-1 Plan") allowing for the reimbursement
or payment of distribution and marketing expenses in any amount not to exceed an
annual rate of 0.25% of each Fund's average daily net assets. An amended and
restated plan of distribution became effective in July 2004. The 12b-1 Plan
authorizes the Funds to pay Rafferty Capital Markets, LLC, an unaffiliated
distributor, (the "Distributor") a maximum allowable distribution and
shareholder servicing fee of 0.25% of each Fund's average daily net assets
(computed on an annual basis) subject to a minimum of $18,000 for the
Corporation, which is allocated to the Funds based on each of their net assets.
All or a portion of the fee may be used by the Distributor to pay costs of
printing reports and prospectuses for potential investors and the costs of other
distribution and shareholder servicing expenses. Currently, the Adviser has a
Related Party Agreement with Rafferty Capital Markets, LLC, which allows the
Adviser to be reimbursed for the cost of marketing the Funds. During the six
months ended November 30, 2006, the Adviser was reimbursed for marketing related
expenses for the Balanced Fund and the Growth Fund in the amount of $11,951 and
$8,156, respectively. During the six months ended November 30, 2006, total
expenses incurred by the Balanced Fund and Growth Fund pursuant to the 12b-1
Plan were $16,897 and $10,518, respectively.
U.S. Bank, N.A., a subsidiary of U.S. Bancorp, a publicly held bank
holding company, serves as custodian for the Funds. U.S. Bancorp Fund Services,
LLC, a wholly-owned limited liability company of U.S. Bank, N.A., serves as
transfer agent, administrator and accounting services agent for the Funds.
28 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
EXPENSE EXAMPLE
NOVEMBER 30, 2006
As a shareholder of the Funds you incur two types of costs: (1)
transaction costs, and (2) ongoing costs, including advisory fees and other Fund
expenses. This example is intended to help you understand your ongoing costs (in
dollars) of investing in the Funds and to compare these costs with the 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 period
(6/1/06 - 11/30/06).
ACTUAL EXPENSES
The first line of each table below provides information about actual
account values and actual expenses. Although the Funds charge no sales load or
transaction fees, you will be assessed fees for outgoing wire transfers,
returned checks and stop payment orders at prevailing rates charged by U.S.
Bancorp Fund Services, LLC, the Funds' transfer agent. If you request that a
redemption be made by wire transfer, currently a $15.00 fee is charged by the
Funds' transfer agent. IRA accounts will be charged a $15.00 annual maintenance
fee and a $25.00 distribution fee. These expenses are not included in the
following example below. The example includes, but is not limited to, advisory
fees, shareholder servicing fees, fund accounting and custody fees. However, the
example does not include portfolio trading commissions and related expenses, and
other extraordinary expenses as determined under generally accepted accounting
principles. You may use the information in this line, 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 first
line under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of each of the following tables provides information about
hypothetical account values and hypothetical expenses based on the Funds' actual
expense ratios and an assumed rate of return of 5% per year before expenses,
which are not the Funds' actual returns. 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 the information to compare the
ongoing costs of investing in the Funds and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of other funds. Please note that the expenses shown in the
table are meant to highlight your ongoing costs only and do not reflect any
transactional costs, such as redemption fees. Therefore, the second line of the
table is useful in comparing ongoing costs only, and will not help you determine
the relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
BADGLEY FUNDS SEMI-ANNUAL REPORT 29
BADGLEY FUNDS, INC.
EXPENSE EXAMPLE (continued)
NOVEMBER 30, 2006
BADGLEY BALANCED FUND
-----------------------------------------------------
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD
6/1/06 11/30/06 6/1/06 - 11/30/06(1)
-----------------------------------------------------
Actual $1,000.00 $1,065.60 $6.73
Hypothetical (5% return
before expenses) 1,000.00 1,018.55 6.58
(1) Expenses are equal to the Fund's annualized expense ratio which was capped
at 1.30%, multiplied by the account valueover the period, multiplied by
average 183/365 to reflect the one-half year period.
BADGLEY GROWTH FUND
-----------------------------------------------------
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD
6/1/06 11/30/06 6/1/06 - 11/30/06(1)
-----------------------------------------------------
Actual $1,000.00 $1,088.30 $7.85
Hypothetical (5% return
before expenses) 1,000.00 1,017.55 7.59
(1) Expenses are equal to the Fund's annualized expense ratio which was capped
at 1.50%, multiplied by the average account value over the period,
multiplied by 183/365 to reflect the one-half year period.
30 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
ADDITIONAL INFORMATION
NOVEMBER 30, 2006
PROXY VOTING
The Badgley Funds have adopted proxy voting policies and procedures that
delegate to Badgley, Phelps and Bell, Inc., the Funds' investment adviser, the
authority to vote proxies. A description of the Badgley Funds proxy voting
policies and procedures is available without charge, upon request, by calling
the Funds toll free at 1-877-BADGLEY or by e-mail at
ProxyVotes@badgleyfunds.com. A description of these policies and procedures is
also included in the Funds' Statement of Additional Information, which is
available on the SEC's website at www.sec.gov and the Funds' website at
www.badgleyfunds.com.
The actual voting records relating to portfolio securities during the
twelve month periods ended June 30 (as filed with the SEC on Form N-PX) are
available without charge, upon request, by calling the Funds toll free at
1-877-BADGLEY or by accessing the SEC's website at www.sec.gov.
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
On July 19, 2006, at an in person meeting of the Board of Directors of the
Company, the directors, including a majority of the disinterested directors,
approved the continuation of the Advisory Agreement between the Company and the
Adviser. In approving the Advisory Agreement, the Board reviewed materials
provided by the Adviser, including a memorandum noting that the directors,
particularly the disinterested directors, bear the principal responsibility for
evaluating the renewal of the investment advisory agreement and summarized the
factors that should be considered in approving the investment advisory agreement
with respect to the Funds, including (i) the nature and extent of services to be
provided by the Adviser, (ii) the Adviser's prior performance, (iii) any other
revenue the Adviser receives, (iv) economies of scale attained by the Adviser
due to growth in Fund assets, (v) fees and expenses of comparable funds, (vi)
control of Fund operating expenses, (vii) the existence of "fall out" benefits
and (viii) costs to the Adviser for performing its services.
It was noted that, as described in the Adviser's memorandum, the Adviser
has significant experience providing investment advice, is qualified to provide
investment advisory services to the Funds and has devoted significant time,
personnel and resources to the Funds. In addition, it was noted that the Adviser
has been disciplined and consistent in its adherence to its investment strategy
as stated in the Funds' prospectus. The Board then considered the prior
performance of the Adviser, including the investment results achieved by the
Adviser for each Fund and the Adviser's other representative clients. The Board
reviewed each Fund's performance against Lipper comparative data ranking each
Fund's performance against comparable investment companies and various indices.
The Board noted that the performance of the Funds' equity portfolios was
improving and positive as compared to the Russell 1000 Growth Index, which the
Funds' equity portfolios outperformed during the last year. The Adviser has
continued to invest the Funds' equity portfolios in accordance with the Funds'
stated investment guidelines. The Board noted that the fixed income portion of
the Balanced Fund was performing in accordance with expectations. The Board
further noted that performance of the Growth Fund remained competitive over
longer periods and the Balanced Fund performance over the long-term was
acceptable. The Board considered information relating to each Fund's fees, costs
and expense ratios and compared such fees, costs and expense ratios to
competitive industry fee structures and expense ratios. Specifically, the Board
reviewed charts prepared by the administrator based on data compiled by a
nationally recognized third party comparative data provider. In addition, the
Board reviewed the Adviser's fee structure with respect to its other separate
account clients. In connection with this, the Board also considered the control
of
BADGLEY FUNDS SEMI-ANNUAL REPORT 31
BADGLEY FUNDS, INC.
ADDITIONAL INFORMATION (continued)
NOVEMBER 30, 2006
each Fund's operating expenses through the expense cap agreement, and noted that
the current expense cap agreement is favorable in comparison to similar funds as
evidenced by the comparative data presented at the meeting. The Board considered
whether the Adviser would receive any fall-out benefits through its relationship
with the Company, and it was noted that because none of the other service
providers to the Company are affiliated with the Adviser, there are no
identifiable material fall-out benefits accruing to the Adviser. The Board
considered the Adviser's cost of providing services to the Company and the
profitability of its relationship to the Company. Specifically the Board
reviewed certain financial and profitability information provided by the Adviser
with respect to its services to the Funds. It was noted that the Adviser has
been substantially subsidizing the Fund's operations since inception with the
Adviser's profitability moving to a break even point over the past several
years. Accordingly, the Board noted that the Adviser's profit, if any, in
connection with its services to the Company appeared reasonable. The Board
considered whether economies of scale were being realized that could justify
reduced expenses for the Funds. The Board noted that current asset levels had
not significantly changed from prior years and that the Funds had not yet
realized any economies of scale that could be passed along to shareholders
through reduced expenses.
It was noted that the disinterested directors did not identify any single
consideration or particular piece of information that was all important or
controlling in determining whether to approve the advisory agreement. The
disinterested directors evaluated all information presented to them and
determined that the compensation paid to the Adviser under the advisory
agreement was fair and reasonable in light of the services to be performed.
After a brief discussion, continuance of the Advisory Agreement was approved by
both a unanimous vote of the disinterested directors and thereafter by all the
directors.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Funds are required to file complete schedules of portfolio holdings
with the SEC for the first and third fiscal quarters on Form N-Q. Once filed,
the Funds' Form N-Q is available without charge, upon request on the SEC's
website (http://www.sec.gov) and may be available by calling 1-877-BADGLEY. You
can also obtain copies of Form N-Q by (i) visiting the SEC's Public Reference
Room in Washington, DC (information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330); (ii) sending your request and a
duplicating fee to the SEC's Public Reference Room, Washington, DC 20549-0102;
or (iii) sending your request electronically to publicinfosec.gov.
For the fiscal year ended May 31, 2006 certain dividends paid by the Funds
may be subject to a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. The percentage of dividends
declared from net investment income designated as qualified dividend income were
as follows:
Balanced Fund ......................... 31%
Growth Fund ........................... 0%
For corporate shareholders, the percent of ordinary income distributions
qualifying for the corporate dividends received deduction for the fiscal year
ended May 31, 2006 were as follows:
Balanced Fund ......................... 30%
Growth Fund ........................... 0%
32 BADGLEY FUNDS SEMI-ANNUAL REPORT
BADGLEY FUNDS, INC.
HIGHLIGHTED STOCKS
PERCENTAGE OF FUNDS' NET ASSETS AS OF NOVEMBER 30, 2006
COMMON STOCK BALANCED FUND GROWTH FUND
- --------------------------------------------------------------------------------
Apple Computer, Inc. 1.26% 2.42%
BJ Services Company 1.04% 2.02%
Cisco Systems, Inc. 1.94% 3.79%
Cognizant Technology Solutions Corporation 1.80% 3.52%
Expeditors International of Washington, Inc. 1.15% 2.19%
Google, Inc. 1.33% 2.65%
Praxair, Inc. 1.57% 3.00%
Teva Pharmaceutical Industries Ltd. 0.94% 1.82%
- --------------------------------------------------------------------------------
BADGLEY FUNDS SEMI-ANNUAL REPORT 33
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DIRECTORS CUSTODIAN
Graham S. Anderson U.S. BANK, N.A.
Frank S. Bayley 1555 North RiverCenter Drive, Suite 302
J. Kevin Callaghan Milwaukee, Wisconsin 53202
Victor E. Parker
Steven C. Phelps ADMINISTRATOR, TRANSFER AGENT
Madelyn B. Smith AND DIVIDEND-DISBURSING AGENT
PRINCIPAL OFFICERS U.S. BANCORP FUND SERVICES, LLC
Third Floor
J. Kevin Callaghan, PRESIDENT 615 East Michigan Street
Lisa P. Guzman, CHIEF COMPLIANCE Milwaukee, Wisconsin 53202
OFFICER, TREASURER AND SECRETARY
LEGAL COUNSEL
INVESTMENT ADVISER
KIRKLAND & ELLIS LLP
BADGLEY, PHELPS AND BELL, INC. 200 East Randolph Drive
1420 Fifth Avenue Chicago, Illinois 60601
Seattle, Washington 98101
DISTRIBUTOR
RAFFERTY CAPITAL MARKETS, LLC
59 Hilton Avenue, Suite 101
Garden City, New York 11530
SEMI-ANNUAL REPORT
NOVEMBER 30, 2006
BADGLEY
FUNDS,
INC.
[GRAPHIC] Badgley Balanced Fund
[GRAPHIC] Badgley Growth Fund
[LOGO]
www.badgleyfunds.com
ITEM 2. CODE OF ETHICS.
Not applicable for semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to registrants who are not listed issuers (as defined in Rule
10A-3 under the Securities Exchange Act of 1934).
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments is included as part of the report to shareholders filed
under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end investment companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end investment companies.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to open-end investment companies.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's President/Chief Executive Officer and Treasurer/Chief
Financial Officer have reviewed the Registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act
of 1940 (the "Act")) as of a date within 90 days of the filing of this
report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934. Based on their
review, such officers have concluded that the disclosure controls and
procedures are effective in ensuring that information required to be
disclosed in this report is appropriately recorded, processed, summarized
and reported and made known to them by others within the Registrant and by
the Registrant's service provider.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 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.
ITEM 12. EXHIBITS.
(a) (1) ANY CODE OF ETHICS OR AMENDMENT THERETO, THAT IS SUBJECT OF THE
DISCLOSURE REQUIRED BY ITEM 2, TO THE EXTENT THAT THE REGISTRANT INTENDS
TO SATISFY ITEM 2 REQUIREMENTS THROUGH FILING AN EXHIBIT. Not Applicable
(2) CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002. Filed herewith.
(3) ANY WRITTEN SOLICITATION TO PURCHASE SECURITIES UNDER RULE 23C-1 UNDER
THE ACT SENT OR GIVEN DURING THE PERIOD COVERED BY THE REPORT BY OR ON
BEHALF OF THE REGISTRANT TO 10 OR MORE PERSONS. Not applicable to open-end
investment companies.
(B) CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
Furnished 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.
(Registrant) Badgley Funds, Inc.
By (Signature and Title) /s/ J. Kevin Callaghan
-----------------------------
J. Kevin Callaghan, President
Date 02/07/07
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 (Signature and Title) /s/ J. Kevin Callaghan
-----------------------------
J. Kevin Callaghan, President
Date 02/07/07
By (Signature and Title) /s/ Lisa P. Guzman
-----------------------------
Lisa P. Guzman, Treasurer
Date 02/07/07