BEARGUARD FUNDS, INC.
[LOGO]
INVESTOR CLASS
INSTITUTIONAL CLASS
SEMI-ANNUAL REPORT
APRIL 30, 2000
BEARGUARD FUNDS, INC.
Dear BearGuard Shareholder:
I am pleased to be writing this first semi-annual report of BearGuard Fund, the
first short-only stock mutual fund.
The value of BearGuard as a protection against market declines was shown in the
period from March 9 through April 14. The Nasdaq had a sharp correction and was
down 34%, the S&P 500 declined 3.2% over this five-week period, but BearGuard
gained 33.5%, advancing from $8.14 per share to $10.87. Although this time the
market recovered rapidly, it may not next time.
During its first six months, the Fund declined about 6% in the face of a strong
market, with the S&P 500 gaining 6.6% and the Nasdaq picking up a remarkable
30.1%. The monthly returns for the Investor and Institutional Classes were:
<TABLE>
<CAPTION>
INVESTOR INSTITUTIONAL
TIME PERIOD CLASS CLASS S&P 500 NASDAQ
<S> <C> <C> <C> <C>
NOVEMBER -1.5% -1.5% +1.9% +12.5%
DECEMBER -9.6% -9.5% +5.8% +22.0%
JANUARY, 2000 +2.6% +2.6% -5.1% -3.2%
FEBRUARY -4.7% -4.7% -2.0% +19.2%
MARCH +0.1% +0.1% +9.7% -2.6%
APRIL +8.3% +8.3% -3.1% -15.6%
NOV '99 TO APR '00 -5.7% -5.6% +6.6% +30.1%
</TABLE>
Since BearGuard Fund is different than most stock mutual funds, here are some
key points:
o We short-sell overvalued stocks - attempting to lose less than a negative
index in rising markets and to gain more in falling markets.
o We do not time the market.
o We diversify broadly, generally holding at least seventy stocks.
o We invest our cash in U.S. Government Securities, and receive additional
interest income (called rebate income) from our short positions. Getting rebate
income is an advantage of using a fund to do your short-selling, since most
brokerage companies will not pay you this added interest income in an individual
account.
o We believe that any investor with U. S. stock market exposure can benefit by
allocating 20% to 40% of their assets to BearGuard.
The future will see many market corrections and occasional bear markets.
Currently, the fundamentals of the U. S. market, such as extremely high
price-to-earnings ratios and poor dividend yields, indicate an increased chance
of a substantial market decline. Higher fuel prices and interest rates heighten
this chance.
Please visit our website (WWW.BEARGUARDFUND.COM). If you haven't already done
so, you may enjoy reading an explanation of how hedging with BearGuard can
increase your returns and decrease your risk.
We appreciate your confidence in us and we intend to serve you well in all
markets, but especially in corrections and bear markets -- whenever they occur.
Paul L. McEntire, Ph.D.
Chairman
BEARGUARD FUNDS, INC.
--------------------------------------------------------------------------------
Schedule of Investments
April 30, 2000
UNAUDITED
PRINCIPAL
AMOUNT U.S. TREASURY BILLS - 86.0%* MARKET VALUE
$ 412,000 5.70%, Maturing 05/25/2000 ** $ 410,572
641,000 5.04%, Maturing 06/01/2000 ** 638,217
----------
TOTAL INVESTMENTS (COST $1,048,789) $ 1,048,789
===========
* Calculated as a percentage of net assets
** All or a portion of the securities have been committed
as collateral for open short positions.
See notes to financial statements.
BEARGUARD FUNDS, INC.
--------------------------------------------------------------------------------
Schedule of Securities Sold Short
April 30, 2000
UNAUDITED
SHARES SECURITY DESCRIPTION MARKET VALUE
300 Amazon.com, Inc. $ 16,556
250 Amgen Inc. 14,000
100 Applied Micro Circuits Corporation 12,887
250 ARM Holdings - ADR 7,937
300 Art Technology Group, Inc. 18,225
300 Autodesk, Inc. 11,512
50 Broadcom Corporation - Class A 8,619
350 BroadVision, Inc. 15,378
3,100 CDnow, Inc. 13,369
450 Cintas Corporation 17,831
300 Clear Channel Communications, Inc. 21,600
650 Compaq Computer Corporation 19,012
6,000 CopyTele, Inc. 10,875
2,000 Drugstore.com, Inc. 15,625
1,300 EarthWeb Inc. 23,400
50 eBay Inc. 7,959
2,000 EDGAR Online, Inc. 13,125
500 Edison Schools Inc. 11,437
250 Emulex Corporation 11,344
1,500 eToys Inc. 12,000
250 Exodus Communications, Inc. 22,109
3,400 garden.com, Inc. 20,825
250 Gemstar International Group Limited 11,563
250 Glaxo Wellcome - ADR 15,703
350 Go2Net, Inc. 20,825
1,700 HEALTHSOUTH Corporation 13,706
400 Hillenbrand Industries, Inc. 12,050
150 The Home Depot, Inc. 8,409
150 i2 Technologies, Inc. 19,387
350 IDT Corporation 11,069
1,250 IMC Global Inc. 19,297
150 Immunex Corporation 5,906
375 Infinity Broadcasting Corporation - Class A 12,727
200 InfoSpace, Inc. 14,362
290 International Speedway Corporation - Class A 12,470
50 ISS Group, Inc. 4,522
1,200 iVillage Inc. 12,075
300 Kana Communications, Inc. 12,769
400 Kohl's Corporation 19,200
400 Lamar Advertising Company 17,625
1,000 Manor Care, Inc. 11,937
1,550 Mattel, Inc. $ 18,987
700 McKesson HBOC, Inc. 11,812
150 Micromuse Inc. 14,719
350 MicroStrategy Incorporated 9,056
150 Microvision, Inc. 4,959
200 Mylan Laboratories Inc. 5,675
50 Net.B@nk, Inc. 519
300 Net2Phone, Inc. 13,238
1,250 Netcentives Inc. 12,734
100 Nextel Communications, Inc. - Class A 10,944
2,000 1-800- FLOWERS.COM, Inc. 11,750
650 Peregrine Systems, Inc. 15,641
250 Power Integrations, Inc. 5,688
300 Priceline.com Incorporated 18,975
50 QLogic Corporation 5,016
300 Quintiles Transnational Corp. 4,294
1,100 Razorfish, Inc. 20,831
450 Red Hat, Inc. 11,278
200 Sapient Corporation 15,838
50 SDL, Inc. 9,750
1,700 Silicon Graphics, Inc. 12,219
2,400 SmarterKids.com, Inc. 6,900
550 Snyder Communications, Inc. 13,063
600 SportsLine.com, Inc. 11,513
600 StarMedia Network, Inc. 13,125
200 Sycamore Networks, Inc. 15,700
5,100 theglobe.com, inc. 18,169
50 TriQuint Semiconductor, Inc. 5,141
450 TV Guide, Inc. - Class A 13,416
450 US Airways Group, Inc. 12,516
4,000 VarsityBooks.com Inc. 10,125
300 VerticalNet, Inc. 16,200
250 Vignette Corporation 12,047
100 Vodafone AirTouch - ADR 4,700
850 Waste Management, Inc. 13,494
650 Winn-Dixie Stores, Inc. 10,766
------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $983,809) $ 992,025
=========
ADR - American Depository Receipt
See notes to the financial statements.
BEARGUARD FUNDS, INC.
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
April 30, 2000
UNAUDITED
ASSETS:
Investments, at value (cost $1,048,162) $ 1,048,789
Cash 71,651
Receivable from broker for proceeds on securities sold short 1,041,240
Receivable for investments sold 18,280
Interest receivable 12,163
Receivable from Adviser 100,005
Other assets 30,700
------
Total assets 2,322,828
---------
LIABILITIES:
Securities sold short, at value (proceeds of $983,809) 992,025
Payable for Investments bought 59,092
Dividends payable on short positions 374
Accrued expenses and other liabilities 51,294
------
Total liabilities 1,102,785
---------
NET ASSETS $ 1,220,043
===========
NET ASSETS CONSIST OF:
Capital Stock $ 1,244,181
Accumulated undistributed net
investment income 20,472
Accumulated net realized loss
on investments sold (36,394)
Net unrealized appreciation
on short positions (8,216)
------
NET ASSETS $ 1,220,043
===========
INSTITUTIONAL CLASS
Net Assets $ 976,439
Shares outstanding
(50,000,000 shares of $0.01 par value authorized) 103,477
-------
Net asset value, offering and
redemption price per share $ 9.44
======
INVESTOR CLASS
Net Assets $ 243,604
Shares outstanding
(50,000,000 shares of $0.01 par value authorized) 25,844
------
Net asset value, offering and
redemption price per share $ 9.43
======
See notes to financial statements.
BEARGUARD FUNDS, INC.
--------------------------------------------------------------------------------
Statement of Operations
November 1, 1999 (1) to April 30, 2000
UNAUDITED
INVESTMENT INCOME:
Interest income $ 33,630
--------
Total investment income 33,630
------
EXPENSES:
Investment advisory fee 5,343
Administration fee 27,482
Shareholder servicing and accounting costs 46,046
Custody fees 4,550
Federal and state registration 17,654
Professional fees 14,742
Reports to shareholders 2,730
Directors' fees and expenses 2,548
Amortization of organizational expenses 56,051
Other 8,918
Distribution expense - Investor Class shares 127
---
Total operating expenses before expense reimbursement
and dividends on short positions 186,191
Less: Expense reimbursement from Adviser (175,377)
Dividends on short positions (net of
foreign taxes withheld of $35) 2,344
-----
Total expenses 13,158
------
NET INVESTMENT INCOME 20,472
------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized loss on:
Long transactions (39)
Short transactions (36,355)
-------
Net realized loss (36,394)
Change in unrealized appreciation (depreciation)
on short positions (8,216)
------
Net realized and unrealized loss on investments (44,610)
-------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (24,138)
=========
(1) Commencement of operations.
See notes to financial statements.
BEARGUARD FUNDS, INC.
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
November 1, 1999 (1)
through
April 30, 2000
---------------------
(unaudited)
OPERATIONS:
Net investment income $ 20,472
Net realized loss on:
Long positions (39)
Short transactions (36,355)
Change in unrealized appreciation
(depreciation) on short positions (8,216)
------
Net decrease in net assets resulting from operations (24,138)
-------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 1,447,781
Cost of shares redeemed (203,600)
--------
Net increase in net assets resulting from
capital share transactions 1,244,181
---------
TOTAL INCREASE IN NET ASSETS 1,220,043
NET ASSETS:
Beginning of period 0
--------
End of period (including undistributed net
investment income of $20,472) $ 1,220,043
===========
(1) Commencement of operations.
See notes to financial statements.
BEARGUARD FUNDS, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Institutional Class Investor Class
November 1, 1999 (1) November 1, 1999 (1)
through through
April 30, 2000 April 30, 2000
-------------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Per Share Data:
Net asset value, beginning of period $ 10.00 $ 10.00
------- -------
Income from investment operations:
Net investment income (2) 0.21 (3) 0.20 (3)
Net realized and unrealized (losses) on investments (0.77) (0.77)
----- -----
Total from investment operations (0.56) (0.57)
----- -----
Net asset value, end of period $ 9.44 $ 9.43
====== ======
Total return (4) -5.60% -5.70%
Supplemental data and ratios:
Net assets, end of period $ 976,439 $ 243,604
Ratio of operating expenses to average net assets (5) (6) (7) 2.50% 2.75%
Ratio of dividends on short positions to average net assets (5) 0.55% 0.55%
Ratio of net investment income to average net assets (5) (7) 4.82% 4.57%
</TABLE>
(1) Commencement of operations.
(2) Net investment income before dividends on short positions for the
Institutional and Investor Class shares for the period ended April 30, 2000 was
$0.23 and $0.22, respectively.
(3) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
(4) Not annualized.
(5) Annualized.
(6) The operating expense ratio excludes dividends on short positions. The ratio
including dividends on short positions for the period ended April 30, 2000 was
3.05% for the Institutional Class and 3.30% for the Investor Class.
(7) Without expense reimbursements for the period ended April 30, 2000, of
$154,399 for the Institutional Class and $20,978 for the Investor Class, the
ratio of operating expense to average net assets would have been 43.53% for the
Institutional Class and 43.78% for the Investor Class and the ratio of net
investment income to average net assets would have been (36.21%) and (36.46%),
respectively.
See notes to financial statements.
BEARGUARD FUNDS, INC.
--------------------------------------------------------------------------------
Notes to the Financial Statements
April 30, 2000
UNAUDITED
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Bearguard Funds, Inc. (the "Corporation") was incorporated on April 9, 1999, as
a Maryland Corporation and is registered as a diversified open-end management
investment company under the Investment Company Act of 1940 ("1940 Act"). The
Corporation currently consists of one series: the Bearguard Fund (the "Fund").
The investment objective of the Fund is to seek capital appreciation. The Fund
attempts to achieve its goal by engaging in short sales of securities that the
Adviser believes will decrease in value. The Fund will primarily engage in short
sales of mid- to large-cap domestic common stocks. The Fund also invests in U.S.
government and investment grade corporate notes, bonds and other investment
grade money market instruments to collateralize its short positions.
The Fund has issued two classes of shares: Institutional Class and Investor
Class. The Institutional Class is not subject to a distribution and service
(12b-1) fee, while the Investor Class is subject to a distribution and service
(12b-1) fee of 0.25%.
The following is a summary of significant accounting policies consistently
followed by the Fund.
A) INVESTMENT VALUATION - Common stocks and securities sold short that are
listed on a security exchange or quoted on the NASDAQ Stock Market are
valued at the last quoted sales price on the day the valuation is made.
Price information on listed stocks is taken from the exchange where the
security is primarily traded. If such securities were not traded on the
valuation date they are valued at the average of the current bid and asked
price. Unlisted equity securities for which market quotations are readily
available are valued at the latest quoted bid price. Debt securities are
valued at the latest bid price. Investments in open-end mutual funds are
valued at the net asset value on the day the valuation is made. Short-term
instruments (those with remaining maturities of 60 days or less) are valued
at amortized cost, which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by management in accordance with
procedures approved by the Board of Directors.
B) SHORT POSITIONS - For financial statement purposes, an amount equal to the
settlement amount is included in the Statement of Assets and Liabilities as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current value of the short
position. Subsequent fluctuations in the market prices of securities sold,
but not yet purchased, may require purchasing the securities at prices
which may differ from the market value reflected on the Statement of Assets
and Liabilities. The Fund is liable for any dividends payable on securities
while those securities are in a short position.
C) COLLATERAL ON SHORT SALES - As collateral for short positions the Fund is
required under the 1940 Act to maintain assets consisting of cash or liquid
securities. For short positions, this collateral must equal the market
value of the securities sold short. All collateral is required to be
adjusted daily. U.S. Treasury Bills in the amount of $1,048,789 have been
committed as collateral for short sales as of April 30, 2000.
D) FOREIGN SECURITIES - Investing in securities of foreign companies and
foreign governments involves special risks and consideration not typically
associated with investing in U.S. companies and the U.S. government. These
risks include revaluation of currencies and future adverse political and
economic developments. Moreover, securities of many foreign companies and
foreign governments and their markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companeis and the
U.S. government.
E) FEDERAL INCOME TAXES - No provision for federal income taxes has been made
since the Fund has complied to date with the provisions of the Internal
Revenue Code applicable to regulated investment companies and intends to
continue to so comply in future years and to distribute investment company
net taxable income and net capital gains to shareholders. Additionally, the
Fund intends to make all required distributions to avoid being liable for
federal excise taxes.
F) DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income are
declared and paid annually. Distributions of net realized capital gains, if
any, will be declared and paid at least annually.
G) USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
H) OTHER - Investment and shareholder transactions are recorded on trade date.
The Fund determines the gain or loss realized from 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 or as soon
as information is available to the Fund, and interest income is recognized
on an accrual basis. Investment income includes $12,698 of interest earned
on receivables from brokers for proceeds on securities sold short.
Generally accepted accounting principles require that permanent financial
reporting and tax differences be reclassified in the capital accounts.
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
Period Ended
APRIL 30, 2000
--------------
INSTITUTIONAL CLASS $ Shares
-------------- ----------
Shares sold $1,012,360 105,350
Shares redeemed (18,280) (1,903)
-------------- ----------
Net Increase $994,080 103,447
--------------
Shares Outstanding:
Beginning of period -
----------
End of period 103,447
==========
Period Ended
APRIL 30, 2000
--------------
INVESTOR CLASS $ Shares
------------- ------------
Shares sold $435,421 45,712
Shares redeemed (185,320) (19,868)
------------- ------------
Net Increase $250,101 25,844
-------------
Shares Outstanding:
Beginning of period -
------------
End of period 25,844
============
3. INVESTMENT TRANSACTIONS
At April 30, 2000, the cost of investments for federal income tax purposes was
$1,048,162, there was no gross unrealized appreciation and depreciation of
investments for tax purposes.
4. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Skye Investment
Advisors LLC. Pursuant to its advisory agreement with the Fund, the Investment
Adviser is entitled to receive a fee, calculated daily and payable monthly, at
the annual rate of 1.25% as applied to the Fund's daily net assets. Certain
officers of the Adviser are also officers of the Fund. For the fiscal period
ending October 31, 2000, the Adviser agreed to waive its investment advisory fee
and/or reimburse the Fund's operating expenses (exclusive of brokerage,
interest, taxes, short dividends and extraordinary expenses) to the extent
necessary to ensure that the Fund's total operating expenses do not exceed 2.50%
of the average net assets of the Institutional Class and 2.75% of the average
net assets of the Investor Class. During the period ended April 30, 2000, the
Adviser reimbursed the Fund $175,377.
Firstar Mutual Fund Services, LLC serves as transfer agent, administrator, and
accounting services agent for the Fund. Firstar Bank, N.A. serves as custodian
for the Fund. Rafferty Capital Markets, Inc. (the Distributor), is the sole
distributor of the Investor Class shares pursuant to a Distribution Agreement
with the Fund.
5. DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
The Fund has adopted a distribution and shareholder service plan (the "Plan")
pursuant to Rule 12b-1 of the Investment Company Act of 1940. The Plan allows
the Fund to reimburse the Distributor for a portion of the costs incurred in
distributing the Fund's Investor Class shares, including amounts paid to brokers
or dealers, at an annual rate not to exceed 0.25% of the average daily net
assets of the Fund's Investor Class shares. The Fund incurred $127 for the
Investor Class shares pursuant to the Plans for the period ended April 30, 2000.
--------------------------------------------------------------------------------
BEARGUARD FUNDS, INC.
BEARGUARD * FUND
P.O. BOX 701
MILWAUKEE, WISCONSIN 53201-0701
1-888-288-2880
WWW.BEARGUARDFUND.COM
--------------------------------------------------------------------------------
BOARD OF DIRECTORS CUSTODIAN
Paul L. McEntire, CHAIRMAN Firstar Bank, N.A.
425 Walnut Street
Robert E. Larson Cincinnati, OH 45202
----------------------------------------
Robert W. Lishman, Jr.
LEGAL COUNSEL
Thomas M. Cover
Godfrey & Kahn, S.C.
Charles D. Feinstein 780 North Water Street
Milwaukee, Wisconsin 53202
David G. Luenberger ----------------------------------------
Edward C. Murphy INDEPENDENT AUDITORS
------------------------------------
PricewaterhouseCoopers LLP
INVESTMENT ADVISER 100 East Wisconsin Avenue, Suite 1500
Milwaukee, Wisconsin 53202
Skye Investment Advisors LLC ----------------------------------------
985 University Avenue, Suite 26
Los Gatos, California 95032 DISTRIBUTOR
------------------------------------
Rafferty Capital Markets, Inc.
ADMINISTRATOR, TRANSFER AGENT 1311 Mamaroneck Avenue
AND DIVIDEND - White Plains, New York 10605
DISBURSING AGENT ----------------------------------------
Firstar Mutual Fund Services, LLC This report has been prepared for
P.O. Box 701 shareholders and may be distributed to
615 East Michigan Street others only if preceded or accompanied
Milwaukee, WI 53202 by a current prospectus.
