Aegis High Yield Fund
Semi-Annual Report
June 30, 2004
Shareholders? Letter
August 9, 2004
To the shareholders of the Aegis High Yield Fund:
We are pleased to present the Aegis High Yield Fund?s inaugural
semi-annual report, for the six-month period ended June 30, 2004.
We want to take this opportunity to welcome all of our
shareholders to the Fund. We are quite excited about this new
offering and greatly appreciate your support. At any time, if
you would like further information about the Fund, please go to
our website at www.aegisfunds.com for a more detailed look at
the high-yield bond market and the Fund?s investment approach.
For your benefit, we will review the objectives and strategy of
the Aegis High Yield Fund:
The Aegis High Yield Fund seeks to earn consistent total returns
in the market that exceed our benchmark over periods of three to
five years, with below-average risk compared to our peers. Our
long-term investment strategy is based on our 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. Often these situations occur
among bond issues of smaller companies. The bonds we purchase
are not necessarily the highest yielding issues in the
market. Our goal is to maximize risk-adjusted long-term
total return.
The Fund commenced investment operations as of January 1, 2004.
For its initial six month operating period ended June 30, 2004,
the Aegis High Yield Fund posted a total return of 0.30 percent,
versus a total return of 1.36 percent for its benchmark, the
Lehman U.S. Corporate High Yield Index. The Fund?s closing net
asset value at the end of the period was $9.95 per share, and
income distributions totaling eight cents per share were paid
during the period.
The Fund was in a very cautious position and maintained high
liquidity at June 30, with a weighted average portfolio
maturity of less than 3 years and cash equivalents equaling
close to 48% of portfolio value.
Financial statements for the Fund?s most recent operating period
are included in this report.
A more in-depth review of the Fund?s performance and outlook
can be found in the Advisor?s report that is provided to you
separately. Our decision to use this particular format is a
result of the Sarbanes-Oxley Act of 2002. Under the Act,
mutual fund officers are required to certify the entirety of
each Annual and Semi-Annual report. After some deliberation,
we reached the conclusion that we are not in a position to
certify data provided by third parties, nor will we certify
any analysis and subjective conclusions drawn from such data.
Nonetheless, we strongly feel that a thoughtful and detailed
discussion of current market conditions is important to our
shareholders. Therefore, please continue to anticipate reading
this more subjective kind of commentary and analysis in
the Advisor?s Report.
Again, thank you for your support of this new Fund. We are
pleased to have you with us.
Aegis Financial Corporation
William S. Berno, CFA
Managing Director, Portfolio Manager
Note: All historical performance returns shown in this
shareholders? letter for the Aegis High Yield Fund are
presented on a pre-tax basis. Returns include reinvestment
of income and capital gains. Past performance is no
guarantee of future results. Share prices will fluctuate,
so that shares may be worth more or less than their original
cost when redeemed.
Aegis High Yield Fund
Schedule of Portfolio Investments
June 30, 2004
(Unaudited)
Corporate Bonds - 51.5% Principal Amount Market Value
- ----------------------- ---------------- ------------
Industrial Cyclicals - 14.2%
Lyondell Chem. Sr. Sec. Deb. 9.875% 5/1/07 100,000 105,000
Resolution Perfrmnce Sr. Sub. Nt. 13.50% 11/15/10 100,000 93,750
Union Carbide Deb. 6.79% 6/1/25 (put date 6/1/05) 100,000 101,500
-------
300,250
Retail and Wholesale - 7.1%
Marsh Supermkts Inc. Sr. Sub. Notes 8.875% 8/1/07 50,000 50,250
Nash Finch Co. Sr. Sub. Notes 8.50% 5/1/08 100,000 100,125
-------
150,375
Transportation and Services - 7.0%
Williams Scotsman Inc. Sr. Notes 9.875% 6/1/07 100,000 99,750
Sea Containers Ltd. Sr. Notes 7.875% 2/15/08 50,000 49,250
-------
149,000
Energy & Natural Resources - 9.2%
Parker Drilling Co. Cv. Deb. 5.50% 8/1/04 28,000 28,000
USEC Inc. Sr. Notes 6.625% 1/20/06 100,000 99,500
Trico Marine Svcs Inc. Sr. Notes 8.875% 5/15/12* 125,000 66,875
-------
194,375
Consumer Products - 6.9%
North Atl. Trading Inc. Sr. Notes 9.25% 3/1/12 150,000 145,875
-------
145,875
Technology and Communications - 7.1%
Nortel Networks Ltd. Notes 6.125% 2/15/06 100,000 101,000
Mediacom LLC Sr. Notes 8.50% 4/15/08 50,000 50,500
-------
151,500
---------
Total Corporate Bonds - (Cost $1,090,289) 1,091,375
Short-Term Investments - 47.1%
U.S. Treasury Bill due 7/29/04 1,000,000 999,263
---------
Total Short-Term Investments - (Cost $999,263) 999,263
---------
Total Investments - 98.6% (Cost $2,089,552) 2,090,638
Other Assets and Liabilities - 1.4% 30,221
---------
Net Assets - 100.0% 2,120,859
=========
* Non-income producing security due to default
Aegis High Yield Fund
Statement of Assets and Liabilities
June 30, 2004
(Unaudited)
Assets
Investments at market value (cost $2,089,552) $2,090,638
Cash 9,440
Receivable for investment securities sold 0
Receivable for fund shares sold 0
Interest and dividends receivable 21,307
Other assets 0
---------
Total assets 2,121,385
Liabilities
Payable for investment securities purchased 0
Payable for fund shares redeemed 0
Accrued expenses 526
-----
Total liabilities 526
Net assets (213,086.544 shares of beneficial
interest outstanding) $2,120,859
==========
Net assets consist of:
Paid-in capital $2,127,004
Accumulated net investment income (6,785)
Accumulated net realized gain (446)
Net unrealized appreciation 1,086
----------
Net assets $2,120,859
Net asset value per share $9.95
Aegis High Yield Fund
Statement of Operations
For the Period January 1, 2004
to June 30, 2004
(Unaudited)
Investment Income
Dividends $0
Interest 20,702
------
Total income 20,702
Expenses
Investment advisory fees 7,894
Transfer agency and administration fees 2,193
Registration fees 3,600
Custody fees 3,420
Printing and postage costs 1,410
Legal and accounting fees 5,000
Directors fees 3,000
Insurance and other 1,900
-------
Gross expenses 28,417
Less: fees paid indirectly (739)
Less: fees reimbursed by investment advisor (17,152)
-------
Net expenses 10,526
------
Net investment income 10,176
------
Realized and unrealized gain (loss) on investments
Net realized gain on investments (446)
Change in unrealized appreciation (depreciation) of
investments for the period 1,086
------
Net realized and unrealized gain (loss) on investments 640
------
Net increase in net assets resulting from operations $10,816
=======
Aegis High Yield Fund
Statement of Changes in Net Assets
For the Period January 1, 2004
to June 30, 2004
(Unaudited)
Increase in net assets from operations
Investment income net $10,176
Net realized gain on investments (446)
Change in unrealized appreciation 1,086
-------
Net increase (decrease) in net assets
resulting from operations 10,816
Distributions
Investment income net (16,961)
Realized capital gains 0
-------
Total distributions (16,961)
Capital share transactions*
Subscriptions 2,010,043
Distributions reinvested 16,961
Redemptions 0
----------
Total capital share transactions 2,027,004
Total increase in net assets 2,020,859
----------
Net assets at beginning of period 100,000
Net assets at end of period $2,120,859
==========
*Share information
Subscriptions 201,375
Distributions reinvested 1,711
Redemptions 0
Aegis High Yield Fund
Financial Highlights
For Six Months Ending June 30, 2004
(Unaudited)
For the period ended June 30, 2004
Per share data:
Net asset value - beginning of period $10.00
Income from investment operations-
Net investment income 0.03
Net realized and unrealized gain (loss) on investments 0.00
------
Total from investment operations 0.03
Less distributions declared to shareholders
Net investment income (0.08)
Net realized capital gains 0.00
------
Total distributions (0.08)
Net asset value - end of period $9.95
------
Total investment return 0.30%
Ratios (to average net assets)/supplemental data:
Expenses after reimbursement and 1.20%
fees paid indirectly
Expenses before reimbursement and 3.24%
fees paid indirectly(1)
Net investment income 1.16%
Portfolio turnover 4%
Net assets at end of period (000's) $2,121
(1) Ratio after expense reimbursement, before fees paid
indirectly, is 1.24%
Aegis High Yield Fund
Notes to Financial Statements
June 30, 2004
1. The Organization
Aegis High Yield Fund (the Fund) is registered under the Investment
Company Act of 1940 (the 1940 Act) as a diversified open-end
management company. The Fund is a series of The Aegis
Funds, a Delaware business trust established July 11, 2003. The
Fund commenced operations January 1, 2004. The Fund?s principal
investment goal is to seek maximum total return with an emphasis
on high current income by investing primarily in a portfolio of
corporate bonds rated less than investment grade.
2. Summary of Significant Accounting Policies
Security valuation. Investments in securities are valued based on
market quotations or on data furnished by an independent pricing
service. Short-term notes are stated at amortized cost, which is
equivalent to value. Restricted securities and other securities
for which market quotations are not readily available are valued at
fair value as determined by the Board of Trustees. In determining
fair value, the Board procedures consider all relevant qualitative
and quantitative factors available. These factors are subject to
change over time and are reviewed periodically. The values assigned
to fair value investments are based on available information and do
not necessarily represent amounts that might ultimately be realized,
since such amounts depend on future developments inherent in long-term
investments. Further, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from the
values that would have been used had a ready market for the investments
existed, and the differences could be material. At June 30, 2004, none
of the Fund?s net assets were fair valued in accordance with the
procedures adopted by the Board. Where a security is traded in more
than one market, which may include foreign markets, the securities are
generally valued on the market considered by the Fund?s advisor to be
the primary market. The Fund will value its foreign securities in
U.S. dollars on the basis of the then-prevailing currency exchange
rates.
Cash. Cash includes deposits held at the Fund?s custodian in a
variable rate account at the applicable interest rate.
Federal income taxes. The Fund?s policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all its taxable
income to shareholders. Therefore, no federal income tax provision
is required.
Expenses paid indirectly. Credits earned on temporarily uninvested
cash balances at the custodian are used to reduce the Fund?s
custody charges.
Custody expense in the statement of operations is presented before
the reduction for credits, which were $739 for the period
ended June 30, 2004.
Distributions to shareholders. Distributions to Fund shareholders,
which are determined in accordance with income tax regulations, are
recorded on the ex-dividend date. Distributions of net investment
income, if any, are made monthly. Net realized gains from investment
transactions, in excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed, and, therefore,
will be distributed to shareholders at least annually.
Use of estimates. The Fund?s financial statements are prepared in
accordance with accounting principles generally accepted in the
United States of America which require the use of management
estimates. Actual results could differ from those estimates.
Other. The Fund records security transactions based on the trade
date. Dividend income is recognized on the ex-dividend date, and
interest income is recognized on the accrual basis and includes
accretion of discounts and amortization of premiums. Withholding
taxes on foreign dividends and interest have been provided for in
accordance with the Fund?s understanding of the applicable country?s
tax rules and rates.
In the normal course of business, the Fund enters into contracts
That contain a variety of representations, which provide general
indemnifications. The Fund?s maximum exposure under these
arrangements is unknown as this would involve future claims that
may be made against the Fund that have not yet occurred. However,
based on experience, the Fund expects the risk of loss to be remote.
3. Affiliated Entities
The Fund entered into an investment management and advisory services
agreement (the Agreement) with Aegis Financial Corporation (the
Advisor) that provides for fees to be computed at an annual rate
of 0.90% of the Fund?s average daily net assets. The Agreement
provides for an expense reimbursement from the Advisor if the Fund?s
expenses, exclusive of taxes, interest, fees incurred in acquiring or
disposing of portfolio securities, and extraordinary expenses, exceed
1.20% of the Fund?s average daily net assets. The Agreement shall
remain in force through December 31, 2005 and may be renewed for
additional two-year periods thereafter. Either party may terminate
the Agreement anytime upon sixty (60) days written notice to the
other party. During the period ended June 30, 2004, the Advisor
reimbursed the Fund $17,152.
The Fund has agreed to repay the Advisor for amounts waived or
reimbursed by the Advisor pursuant to the expense limitation
agreement provided that such repayment does not cause the Fund's
expenses, exclusive of taxes, interest, fees incurred in acquiring
or disposing of portfolio securities and extraordinary expenses, to
exceed 1.20% and the repayment is made within three years after the
year in which the Advisor incurred the expense. The fees reimbursed
by the Advisor subject to recapture in varying amounts under this
agreement at June 30, 2004 are $17,152.
The Fund entered into an agreement with BGB Fund Services, Inc.
effective January 1, 2004 to provide fund accounting, administration,
transfer agency and shareholder services to the Fund at an annual
rate of 0.25% of the Fund?s average daily net assets.
Certain officers and trustees of the Fund are also officers and
trustees of the Advisor. The Fund pays each trustee not affiliated
with the Advisor fees in cash or Fund shares for attended board and
committee meetings.
4. Investment Transactions
Purchases and sales of investment securities, excluding accrued
interest, were $1,124,938 and $37,094, respectively, for the period
ended June 30, 2004. The specific identification method is used to
determine tax cost basis when calculating realized gains and losses.
The Fund may invest in certain securities that are considered
affiliated companies. As defined by the 1940 Act, an affiliated
company is one in which the Fund owns 5% or more of the outstanding
voting securities. For the period ended June 30, 2004, no dividend
income, no interest income, and no net realized gain reflected in
the accompanying financial statements resulted from transactions
with affiliated companies.
5. Distributions to Shareholders
Distributions of net investment income, if any, are made monthly.
Net realized gains from investment transactions, in excess of
available capital loss carryforwards, would be taxable to the
Fund if not distributed, and, therefore, will be distributed to
shareholders at least annually. The timing and characterization
of certain income and capital gains distributions are determined
annually in accordance with federal tax regulations, which may
differ from accounting principles generally accepted in the United
States of America. As a result, net investment income (loss) and
net realized gain (loss) on investment transactions for a reporting
period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications
among certain of its capital accounts to reflect the tax character of
permanent book/tax differences without impacting the net asset value
of the Fund.
For the period ending February 29, 2004, the Fund made no distributions
to shareholders. For the period commencing March 1, 2004 and ending
June 30, 2004, the Fund paid monthly distributions of its net
investment income at a rate of two cents per share, for a total of
eight cents per share.
Fund Trustees
Business Experience
and Trusteeships
Name, Age and Address Position During the Past 5 Years
William S. Berno* (50) President, President and Managing
1100 North Glebe Road Trustee Director of Aegis Financial
Suite 1040 Corporation since 1994;
Arlington, Virginia 22201 President and Director of
the Aegis Value Fund, Inc.
since 1997. Trustee of
the Fund since 2003.
Scott L. Barbee* (33) Treasurer, Treasurer and Managing
1100 North Glebe Road Trustee Director of Aegis Financial
Suite 1040 Corporation since 1997;
Arlington, Virginia 22201 Treasurer and Director of
the Aegis Value Fund,
Inc. since 1997. Trustee
of the Fund since 2003.
Edward P. Faberman (58) Trustee Attorney with the firm of
Ungaretti & Harris Ungaretti & Harris since
1500 K Street N.W. 1996; Director of the
Suite 250 Aegis Value Fund, Inc.
Washington, DC 20005 since 1997. Trustee of
the Fund since 2003.
Eskander Matta (34) Trustee VP of Enterprise Internet
Wells Fargo & Co. Services, Wells Fargo & Co.
550 California Street since 2002; Director of
2nd Floor Strategic Consulting with
San Francisco, California 94111 Cordiant Communications,
2001-2002; Director of
Strategic Consulting,
Organic, Inc. 1999-2001;
Director of the Aegis Value
Fund, Inc. since 1997;
Trustee of the Fund
since 2003.
Albert P. Lindemann III (42) Trustee Director, Faison
121 West Trade Street Enterprises, since 2000;
Suite 2550 Real estate development,
Charlotte, North Carolina 28202 Trammell Crow Co., 1995-
2000; Director of the
Aegis Value Fund, Inc.
since 2000; Trustee of
the Fund since 2003.
Paul Gambal* (45) Secretary Chairman, Secretary and
1100 North Glebe Road Managing Director of
Suite 1040 Aegis Financial Corporation
Arlington, VA 22201 since 1994; Secretary of the
Aegis Value Fund, Inc.
since 1997; Secretary of
the Fund since 2003.
* indicates persons who are affiliated with Aegis Financial Corporation,
the Fund?s investment advisor, and are therefore considered interested
persons under the Investment Company Act of 1940, Section (2)(a).
The Fund?s Statement of Additional Information includes additional
information about Fund trustees and is available, without charge, by
calling the Fund?s toll-free phone number, (800)528-3780.
Proxy Voting
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is
available by request, without charge, by calling the Fund?s
toll-free telephone number 800-528-3780.
Aegis High Yield Fund
1100 North Glebe Road, Suite 1040
Arlington, Virginia 22201
Phone: (800) 528-3780
Fax: (703) 528-1395
Internet: www.aegisfunds.com
Board of Trustees
Scott L. Barbee
William S. Berno
Edward P. Faberman
Albert P. Lindemann III
Eskander Matta
Officers
William S. Berno, President
Scott L. Barbee, Treasurer
Paul Gambal, Secretary
Investment Advisor
Aegis Financial Corporation
1100 North Glebe Road, Suite 1040
Arlington, Virginia 22201
Custodian
UMB Bank, n.a.
928 Grand Boulevard
Kansas City, Missouri 64106
Independent Auditors
Briggs Bunting & Dougherty, LLP
Two Penn Center Plaza, Suite 820
Philadelphia, Pennsylvania 19102
Counsel
Dechert Price and Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006