THE BANC STOCK GROUP FUND
Investing in America through
America's community banks
PROSPECTUS JUNE 1, 1997
6230 Busch Blvd., Suite 201
Columbus, Ohio 43229
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THE BANC STOCK GROUP FUND
PROSPECTUS JUNE 1, 1997
6230 Busch Blvd., Suite 201
Columbus, Ohio 43229
For Information,
Shareholder Services and Requests: (888) BANK-595
The Banc Stock Group Fund (the "Fund") is a diversified, open-end
mutual fund whose investment objective is to provide long-term capital
appreciation. The Fund seeks to achieve its objective by investing primarily in
equity securities of community banks, lending institutions and financial
services companies believed by the Fund's adviser, Heartland Advisory Group,
Inc. to offer superior prospects for long term growth.
This Prospectus provides the information a prospective investor ought
to know before investing and should be retained for future reference. A
Statement of Additional Information has been filed with the Securities and
Exchange Commission (the "SEC") dated June 1, 1997, which is incorporated herein
by reference and can be obtained without charge by calling the Fund at the phone
number listed above. The SEC maintains a Web Site (http://www.sec.gov) that
contains the Statement of Additional Information, material incorporated by
reference, and other information regarding registrants that file electronically
with the SEC.
Shares of the Fund are not deposits or obligations of any bank, are not
endorsed or guaranteed by any bank, and are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other government
agency, entity, or person. The purchase of fund shares involves investment
risks, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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SUMMARY OF FUND EXPENSES
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The tables below are provided to assist an investor in understanding
the direct and indirect expenses that an investor may incur as a shareholder in
the Fund. The expense information is based on estimated amounts for the current
fiscal year. The expenses are expressed as a percentage of average net assets.
The Example should not be considered a representation of future Fund performance
or expenses, both of which may vary.
Shareholders should be aware that the Fund, unlike most other mutual
funds, does not pay directly for transfer agency, pricing, custodial, auditing
or legal services, nor does it pay directly any general administrative or other
significant operating expenses. The Adviser pays all of the expenses of the Fund
except brokerage, taxes, interest, fees and expenses of non-interested person
trustees and extraordinary expenses.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)......................4.00%
Sales Load Imposed on Reinvested Dividends...............NONE
Redemption Fee...........................................NONE
Exchange Fees............................................NONE
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees..........................................2.50%
12b-1 Charges............................................NONE
Other Expenses(2)........................................0.00%
Total Fund Operating Expenses(3).........................2.50%
<FN>
(1) Processing organizations may impose transactional fees on shareholders.
(2) The Fund estimates that other expenses (fees and expenses of the trustees
who are not "interested persons" as defined in the Investment Company Act) will
be less than 0.01% of average net assets for the first fiscal year.
(3) The Fund's total operating expenses are equal to the management fee paid
to the Adviser because the Adviser pays all operating expenses (except as
described in footnote 2).
</FN>
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C> <C>
1 Year 3 Years
------ -------
$65 $116
</TABLE>
THE FUND
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The Banc Stock Group Fund (the "Fund") was organized as a series of The
BSG Funds, an Ohio business trust (the "Trust") on January 14, 1997, and is
expected to commence operations on August 1, 1997. This prospectus offers shares
of the Fund and each share represents an undivided, proportionate interest in
the Fund. The investment adviser to the Fund is Heartland Advisory Group, Inc.
(the "Adviser").
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INVESTMENT OBJECTIVE AND STRATEGIES AND RISK CONSIDERATIONS
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The investment objective of the Fund is to provide shareholders with
long term capital appreciation. The Fund seeks to achieve its objective by
investing primarily in equity securities of community banks, lending
institutions, and financial services companies believed by the Adviser to offer
superior prospects for long term growth. The Adviser expects to select stocks of
banks with low price to earnings ratios, minimal loan losses and long histories
of profitability located in stable communities with growth potential. Community
banks generally are banks having a county, rural or suburban area focus, rather
than a regional or wider focus.
Under normal circumstances, the Fund will invest at least 65% of its
total assets in equity securities (common stock, preferred stock and securities
convertible into common stock) of banks and other lending institutions,
including community, regional and money center banks, bank holding companies,
savings and loan associations, savings banks and commercial and industrial
banks. The Fund may invest in banks that are not members of the Federal Reserve
System or whose deposits are not insured by the Federal Deposit Insurance
Corporation. Although the Adviser primarily seeks opportunities for capital
appreciation, some of the banks in which the Fund may invest pay regular
dividends. Accordingly, the Fund expects to receive moderate income in the form
of cash or stock dividends.
Although the Fund will invest primarily in equity securities of banks
and other lending institutions, the Fund may invest in equity securities of
companies outside the banking industry and, for temporary defensive purposes
under abnormal market or economic conditions, may hold all or a portion of its
assets in money market instruments (high quality income securities with
maturities of less than one year), securities of money market funds or U.S.
government repurchase agreements. The Fund may also invest in such investments
at any time to maintain liquidity or pending selection of investments in
accordance with its policies. If the Fund acquires securities of money market
funds, the shareholders of the Fund will be subject to duplicative management
fees.
The concentration of the Fund's investments in the banking industry
will subject the Fund to risks in addition to those that apply to the general
equity market. Economic, legislative or regulatory developments may occur which
significantly affect the entire banking industry and thus may subject the Fund
to greater market fluctuations than a fund that does not concentrate in a
particular industry. Banks and other lending institutions are subject to
extensive governmental regulation which may limit both the amounts and types of
loans and other financial commitments they can make, and the interest rates and
fees they can charge. Profitability is largely dependent on the availability and
cost of capital funds, and can fluctuate significantly when interest rates
change. Credit losses resulting from financial difficulties of borrowers can
negatively impact the industry. Thus, a number of factors, in addition to
general economic conditions, can adversely affect the financial performance and
condition of the institutions in which the Fund invests.
In addition, as many community banks and other lending institutions
are smaller capitalization companies, the Fund may be subject to the risks
associated with such companies. The trading volume of securities of smaller
capitalization companies is normally less than that of larger capitalization
companies and, therefore, may disproportionately affect their market price,
tending to make them rise more in response to buying demand and fall more in
response to selling pressure than is the case with larger capitalization
companies.
As all investment securities are subject to inherent market risks and
fluctuations in value due to earnings, economic and political conditions and
other factors, the Fund cannot give any assurance that its investment objective
will be achieved. In addition, you should be aware that the Fund has no
operating history and the Adviser has no prior experience in acting as an
investment adviser to a mutual fund. Rates of total return quoted by the Fund
may be higher or lower than past quotations,
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and there can be no assurance that any rate of total return will be maintained.
See "Investment Policies and Techniques" for a more detailed discussion of the
Fund's investment practices.
HOW TO INVEST IN THE FUND
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Shares of the Fund are sold on a continuous basis, and you may invest
any amount you choose, as often as you wish, subject to a minimum initial
investment of $2,500 and minimum subsequent investments of $500. There are no
minimums for qualified retirement accounts and medical savings accounts. For
shareholders participating in the Fund's continuing automatic transfer ("CAT")
program, which is described below, the minimum initial investment is $1,000 and
the minimum subsequent investment is $100.
You may open an account and make an initial investment through
securities dealers having a sales agreement with Banc Stock Financial Services,
Inc., the Fund's distributor (the "Distributor"). You may also make a direct
initial investment by completing and signing the investment application form
which accompanies this Prospectus and mailing it, in proper form, together with
a check made payable to The Banc Stock Group Fund to the P.O. Box listed
below. If you prefer overnight delivery, use the overnight address listed below.
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<S> <C>
U.S. mail: The Banc Stock Group Fund Overnight: The Banc Stock Group Fund
- --------- P.O. Box 640484 --------- c/o Star Bank, N.A
Cincinnati, Ohio 45264-0484 Mutual Fund Custody Dept. .
425 Walnut St. M.L. 6118
Cincinnati, Ohio 45202
</TABLE>
Shares of the Fund are purchased at the public offering price. The
public offering price is the next determined net asset value per share plus a
sales load as shown in the following table.
<TABLE>
<S> <C> <C> <C>
Sales Load as of % of:
Public Net
Offering Amount Dealer Reallowance as % of
Amount of Investment Price Invested Public Offering Price
-------------------- -------- -------- --------------------------
Less than $50,000 4.00% 4.38% 3.75%
$50,000 but less than $100,000 3.50% 3.73% 3.25%
$100,000 but less than $250,000 2.75% 2.88% 2.50%
$250,000 but less than $500,000 2.00% 2.04% 1.75%
$500,000 but less than $1,000,000 1.00 1.01% .75
$1,000,000 or more None None None
</TABLE>
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Under certain circumstances, the Distributor may change the
reallowance to dealers and may also compensate dealers out of its own assets.
Dealers engaged in the sale of shares of the Fund may be deemed to be
underwriters under the Securities Act of 1933. The Distributor retains the
entire sales load on all direct initial investments in the Fund and on all
investments in accounts with no designated dealer of record.
For purposes of determining the applicable sales load, a purchaser
includes an individual, his spouse and their children under the age of 21,
purchasing shares for his or their own account; or a trustee or other fiduciary
purchasing shares for a single fiduciary account although more than one
beneficiary may be involved; or employees of a common employer, provided that
economies of scale are realized through remittances from a single source and
quarterly confirmation of such purchases; or an organized group, provided that
the purchases are made through a central administration, or a single dealer, or
by other means which result in economy of sales effort or expense.
Shares of the Fund are sold on a continuous basis at the public
offering price next determined after receipt of a purchase order by the Trust.
Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on any
business day and transmitted to the Distributor by 5:00 p.m., Eastern time, that
day are confirmed at the public offering price determined as of the close of the
regular session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Distributor by 5:00 p.m., Eastern time. Dealers may
charge a fee for effecting purchase orders. Direct purchase orders received by
4:00 p.m., Eastern time, are confirmed at that day's public offering price.
Direct investments received after 4:00 p.m. and others received from dealers
after 5:00 p.m. are confirmed at the public offering price next determined on
the following business day.
CAT PROGRAM
When making your initial investment, you may choose to participate in
the Fund's continuing automatic transfer ("CAT") program by completing the
separate CAT Investment Application Form. The CAT Program offers reduced
investment minimums and helps investors make additional purchases of the Fund
over a period of years. Purchase amounts are automatically debited each month
from the shareholder's bank account through ACH (automated clearing house).
SUBSEQUENT PURCHASES
You may purchase additional shares of the Fund at any time (subject to
minimum investment requirements) through your securities dealer, or directly
from the Fund by mail or wire. If your securities dealer received concessions
for selling shares of the Fund to you, such securities dealer will receive the
concessions described above with respect to additional investments. Each
additional mail purchase request must contain the name of your account and your
account number. Checks should be made payable to The Banc Stock Group Fund
and should be sent to the Custodian, as instructed above. To purchase shares of
the Fund by wire, call the Transfer Agent at (888) BANK-595 for instructions.
Then, you should provide your bank with the following information for purposes
of wiring your investment:
Star Bank, N.A. Cinti/Trust
ABA #0420-0001-3
Attn: The Banc Stock Group Fund
D.D.A. # 486448004
Account Name _________________ (write in shareholder name)
For Account # ______________ (write in account number)
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Wire orders will be accepted only on a day on which the Fund and the
Custodian and Transfer Agent are open for business. A wire purchase will not be
considered made until the wired money is received and the purchase is accepted
by the Fund. Any delays which may occur in wiring money, including delays which
may occur in processing by the banks, are not the responsibility of the Fund or
the Transfer Agent. There is presently no fee for the receipt of wired funds,
but the right to charge shareholders for this service is reserved by the Fund.
PURCHASES AT NET ASSET VALUE
Community banks and savings and loan associations (defined for this
purpose as those banks and savings and loan associations with assets of less
than $25 billion), in their fiduciary capacity or for their own accounts, may
purchase and redeem shares of the Fund without paying a sales charge. To the
extent permitted by regulatory authorities, a bank trust department may charge
fees to clients for whose account it purchases shares at net asset value.
Employees, officers and directors of these financial institutions, including
members of the immediate family, may also purchase and redeem shares without
paying a sales charge.
Trustees, directors, officers and employees of the Trust, the Adviser,
service providers of the Trust, including members of the immediate family of
such individuals and employee benefit plans established by such entities, may
also purchase and redeem shares of the Fund without paying a sales charge.
Broker Dealers with selling agreements with the Distributor and employee benefit
plans established by same, may purchase and redeem shares of the Fund without
paying a sales charge. In addition, shares of the Fund may be purchased at net
asset value through processing organizations (broker-dealers, banks or other
financial institutions) that have a sales agreement with the Distributor. When
shares are purchased this way, the processing organization, rather than its
customer, may be the shareholder of record of the shares. The minimum initial
and subsequent investments in the Fund for shareholders who invest through a
processing organization generally will be set by the processing organization.
Processing organizations may also impose other charges and restrictions in
addition to or different from those applicable to investors who remain the
shareholder of record of their shares. Thus, an investor contemplating investing
with the Fund through a processing organization should read materials provided
by the processing organization in conjunction with this Prospectus.
TAX SHELTERED RETIREMENT PLANS
Since the Fund is oriented to longer term investments, shares of the
Fund may be an appropriate investment medium for tax sheltered retirement plans,
including: individual retirement plans (IRAs); simplified employee pensions
(SEPs); 401(k) plans; qualified corporate pension and profit sharing plans (for
employees); tax deferred investment plans (for employees of public school
systems and certain types of charitable organizations); and other qualified
retirement plans. You should contact American Data Services, Inc. the Fund's
transfer agent ( the "Transfer Agent") at 888-BANK-595 for the procedure to
open an IRA or SEP plan, as well as more specific information regarding these
retirement plan options. Consultation with an attorney or tax adviser regarding
these plans is advisable. Custodial fees for an IRA will be paid by the
shareholder by redemption of sufficient shares of the Fund from the IRA unless
the fees are paid directly to the IRA custodian. You can obtain information
about the IRA custodial fees from the Transfer Agent.
OTHER PURCHASE INFORMATION
Dividends begin to accrue after you become a shareholder. The Fund
does not issue share certificates. All shares are held in non-certificate form
registered on the books of the Fund and the Fund's Transfer Agent for the
account of the shareholder. The rights to limit the amount of purchases and to
refuse to sell to any person are reserved by the Fund. If your check or wire
does not clear, you will be responsible for any loss incurred by the Fund. If
you are already a shareholder, the Fund can redeem shares from any identically
registered account in the Fund as reimbursement for any loss incurred. You may
be prohibited or restricted from making future purchases in the Fund.
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HOW TO REDEEM SHARES
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All redemptions will be made at the net asset value determined after
the redemption request has been received by the Transfer Agent in proper order.
Shareholders may receive redemption payments in the form of a check or federal
wire transfer. The proceeds of the redemption may be more or less than the
purchase price of your shares, depending on the market value of the Fund's
securities at the time of your redemption. A broker may charge a transaction fee
for the redemption. Presently, there is no charge for wire redemptions; however,
the Fund reserves the right to charge for this service. Any charges for wire
redemptions will be deducted from the shareholder's Fund account by redemption
of shares.
BY MAIL - You may redeem any part of your account in the Fund by mail. Your
request should be addressed to:
The Banc Stock Group Fund
c/o American Data Services, Inc.
24 W. Carver Street
Huntington, New York 11743
"Proper order" means your request for a redemption must include your
letter of instruction, including the Fund name, account number, account name(s),
the address and the dollar amount or number of shares you wish to redeem. This
request must be signed by all registered share owner(s) in the exact name(s) and
any special capacity in which they are registered. For all redemptions, the Fund
requires that signatures be guaranteed by an "eligible guarantor institution."
An eligible guarantor institution is defined as an institution that is a member
of a Medallion Program, located in or having a correspondent in New York City.
Such institutions generally include national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
credit unions and members of a recognized stock exchange. Signature guarantees
are for the protection of shareholders. At the discretion of the Fund or the
Transfer Agent, a shareholder, prior to redemption, may be required to furnish
additional legal documents to insure proper authorization.
BY TELEPHONE - You may redeem any part of your account in the Fund by
calling the Transfer Agent at (888) BANK-595. You must first complete the
Optional Telephone Redemption and Exchange section of the investment application
to institute this option. The Fund, the Transfer Agent and the Custodian are not
liable for following redemption or exchange instructions communicated by
telephone that they reasonably believe to be genuine. However, if they do not
employ reasonable procedures to confirm that telephone instructions are genuine,
they may be liable for any losses due to unauthorized or fraudulent
instructions. Procedures employed may include recording telephone instructions
and requiring a form of personal identification from the caller.
The telephone redemption and exchange procedures may be terminated at
any time by the Fund or the Transfer Agent. During periods of extreme market
activity it is possible that shareholders may encounter some difficulty in
telephoning the Fund, although neither the Fund nor the Transfer Agent has ever
experienced difficulties in receiving or in a timely fashion responding to
telephone requests for redemptions or exchanges. If you are unable to reach the
Fund by telephone, you may request a redemption or exchange by mail.
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ADDITIONAL INFORMATION - If you are not certain of the requirements
for a redemption please call the Transfer Agent at (888) BANK-595. Redemptions
specifying a certain date or share price cannot be accepted and will be
returned. You will be mailed the proceeds on or before the fifth business day
following the redemption. However, payment for redemption made against shares
purchased by check will be made only after the check has been collected, which
normally may take up to fifteen days. Also, when the New York Stock Exchange is
closed (or when trading is restricted) for any reason other than its customary
weekend or holiday closing or under any emergency circumstances, as determined
by the Securities and Exchange Commission, the Fund may suspend redemptions or
postpone payment dates.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to require any shareholder to redeem all
of his or her shares in the Fund on 30 days' written notice if the value of his
or her shares in the Fund is less than $2,500 due to redemption, or such other
minimum amount as the Fund may determine from time to time. An involuntary
redemption constitutes a sale. You should consult your tax adviser concerning
the tax consequences of involuntary redemptions. A shareholder may increase the
value of his or her shares in the Fund to the minimum amount within the 30 day
period. Each share of the Fund is subject to redemption at any time if the Board
of Trustees determines in its sole discretion that failure to so redeem may have
materially adverse consequences to all or any of the shareholders of the Fund.
SHARE PRICE CALCULATION
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The value of an individual share in the Fund (the net asset value) is
calculated by dividing the total value of the Fund's investments and other
assets (including accrued income), less any liabilities (including estimated
accrued expenses), by the number of shares outstanding, rounded to the nearest
cent. Net asset value per share is determined as of the close of the New York
Stock Exchange (4:00 p.m., Eastern time) on each day that the exchange is open
for business, and on any other day on which there is sufficient trading in the
Fund's securities to materially affect the net asset value. The net asset value
per share of the Fund will fluctuate.
Securities which are traded on any exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price. Lacking a last
sale price, a security is valued at its last bid price except when, in the
Adviser's opinion, the last bid price does not accurately reflect the current
value of the security. All other securities for which over-the-counter market
quotations are readily available are valued at their last bid price. When market
quotations are not readily available, when the Adviser determines the last bid
price does not accurately reflect the current value or when restricted
securities are being valued, such securities are valued as determined in good
faith by the Adviser, subject to review of the Board of Trustees of the Trust.
Fixed income securities generally are valued by using market
quotations, but may be valued on the basis of prices furnished by a pricing
service when the Adviser believes such prices accurately reflect the fair market
value of such securities. A pricing service utilizes electronic data processing
techniques based on yield spreads relating to securities with similar
characteristics to determine prices for normal institutional-size trading units
of debt securities without regard to sale or bid prices. When prices are not
readily available from a pricing service, or when restricted or illiquid
securities are being valued, securities are valued at fair value as determined
in good faith by the Adviser, subject to review of the Board of Trustees. Short
term investments in fixed income securities with maturities of less than 60 days
when acquired, or which subsequently are within 60 days of maturity, are valued
by using the amortized cost method of valuation, which the Board has determined
will represent fair value.
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DIVIDENDS AND DISTRIBUTIONS
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The Fund intends to distribute substantially all of its net investment
income as dividends to its shareholders on an annual basis, and intends to
distribute its net long term capital gains and its net short term capital gains
at least once a year.
Income dividends and capital gain distributions are automatically
reinvested in additional shares at the net asset value per share on the
distribution date. An election to receive a cash payment of dividends and/or
capital gain distributions may be made in the application to purchase shares or
by separate written notice to the Transfer Agent. Shareholders will receive a
confirmation statement reflecting the payment and reinvestment of dividends and
summarizing all other transactions. If cash payment is requested, a check
normally will be mailed within five business days after the payable date. If you
withdraw your entire account, all dividends accrued to the time of withdrawal,
including the day of withdrawal, will be paid at that time. You may elect to
have distributions on shares held in IRAs and 403(b) plans paid in cash only if
you are 59 1/2 years old or permanently and totally disabled or if you otherwise
qualify under the applicable plan.
TAXES
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The Fund intends to qualify each year as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended. By so qualifying,
the Fund will not be subject to federal income taxes to the extent that it
distributes substantially all of its net investment income and any realized
capital gains.
For federal income tax purposes, dividends paid by the Fund from
ordinary income are taxable to shareholders as ordinary income, but may be
eligible in part for the dividends received deduction for corporations. Pursuant
to the Tax Reform Act of 1986 (the "Tax Reform Act"), all distributions of net
capital gains to individuals are taxed at the same rate as ordinary income. All
distributions of net capital gains to corporations are taxed at regular
corporate rates. Any distributions designated as being made from net realized
long term capital gains are taxable to shareholders as long term capital gains
regardless of the holding period of the shareholder.
The Fund will mail to each shareholder after the close of the calendar
year a statement setting forth the federal income tax status of distributions
made during the year. Dividends and capital gains distributions may also be
subject to state and local taxes. Shareholders are urged to consult their own
tax advisers regarding specific questions as to federal, state or local taxes
and the tax effect of distributions and withdrawals from the Fund.
On the application or other appropriate form, the Fund will request
the shareholder's certified taxpayer identification number (social security
number for individuals) and a certification that the shareholder is not subject
to backup withholding. Unless the shareholder provides this information, the
Fund will be required to withhold and remit to the U.S. Treasury 31% of the
dividends, distributions and redemption proceeds payable to the shareholder.
Shareholders should be aware that, under regulations promulgated by the Internal
Revenue Service, the Fund may be fined $50 annually for each account for which a
certified taxpayer identification number is not provided. In the event that such
a fine is imposed with respect to a specific account in any year, the Fund may
make a corresponding charge against the account.
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OPERATION OF THE FUND
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The Fund is a diversified series of The BSG Funds, an open-end
management investment company organized as an Ohio business trust on January 14,
1997. The Board of Trustees supervises the business activities of the Fund. Like
other mutual funds, the Fund retains various organizations to perform
specialized services.
The Fund retains Heartland Advisory Group, Inc., 6230 Busch Blvd.,
Suite 201, Columbus, Ohio 43229 (the "Adviser") to manage the Fund's
investments. The Adviser has been engaged in the business of researching,
buying, holding, and selling the shares of community and regional banks for
almost two decades. Since 1990, it has recommended more than 200 community banks
to its clients for their portfolios. The Adviser's clients come from all walks
of life. Professionals such as CPA's, physicians, attorneys, pharmacists, and
academics are one group of investors. Significant numbers of investors also come
from the world of entrepreneurs: people who own funeral homes, machine shops,
lumber yards, quarry miners, and the like as well as members of the agricultural
grain and livestock community.
The Adviser typically follows from 150 to 400 banks at any one time as
candidates for investment. The Adviser researches these equity securities on the
basis of the fundamentals of return on equity, return on assets, low loan loss
experience, prosperous market conditions, special niche services,
consumer-oriented staff, and experienced and seasoned management. The Adviser
also gives consideration to the portion of insider ownership as it believes this
is a potential indicator of the care and concern a bank's management and board
of directors bring to the institution and it shareholders. The investment
decisions of the Fund are made by a committee of the Adviser, which is primarily
responsible for the day-to-day management of the Fund's portfolio.
The Fund is authorized to pay the Adviser a fee equal to an annual
average rate of 2.50% of its average daily net assets. The Adviser pays all of
the operating expenses of the Fund except brokerage, taxes, interest, fees and
expenses on non-interested person trustees and extraordinary expenses. It should
be noted that most investment companies pay their own operating expenses
directly, while the Fund's expenses, except those specified above, are paid by
the Adviser.
The Fund retains American Data Services, Inc., 24 West Carver Street,
Huntington, New York 11743 (the "Administrator") to manage the Fund's business
affairs and provide the Fund with administrative services, including all
regulatory reporting and necessary office equipment, personnel and facilities.
The Fund also retains American Data Services, Inc., (the "Transfer Agent") to
serve as transfer agent, dividend paying agent and shareholder service agent.
For its services as Administrator and Transfer Agent, American Data Services,
Inc. receives a monthly fee from the Adviser equal to an annual average rate of
0.25% of the Fund's average daily net assets.
The Fund retains Banc Stock Financial Services, Inc., 6230 Busch
Blvd., Suite 201, Columbus, Ohio 43229 (the "Distributor") to act as the
principal distributor of the Fund's shares. The services of the Administrator,
Transfer Agent and Distributor are operating expenses paid by the Adviser.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its obligation of seeking best
qualitative execution, the Adviser may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions. The Adviser (not the Fund) may pay certain financial
institutions (which may include banks, brokers, dealers and other industry
professionals) a "servicing fee" for performing certain administrative functions
for the Fund shareholders to the extent these institutions are allowed to do so
by applicable statute, rule or regulation. The Distributor is a registered
broker-dealer and it is anticipated that it will receive brokerage commissions
from the Fund. Both the Adviser and the Distributor are wholly owned by
Heartland Group of Companies, Inc. (d/b/a The Banc Stock Group)(the "Banc Stock
Group"), a corporation which invests in financial services companies.
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INVESTMENT POLICIES AND TECHNIQUES
- --------------------------------------------------------------------------------
This section contains general information about various types of
securities and investment techniques that the Fund may purchase or employ.
EQUITY SECURITIES
The Fund may invest in common stock, preferred stock and common stock
equivalents (such as convertible preferred stock and convertible debentures).
Convertible preferred stock is preferred stock that can be converted into common
stock pursuant to its terms. Convertible debentures are debt instruments that
can be converted into common stock pursuant to their terms. The Adviser intends
to invest only in convertible debentures rated A or higher by Standard & Poor's
Corporation ("S&P") or by Moody's Investors Services, Inc. ("Moody's"). The Fund
may hold warrants and rights issued in conjunction with common stock, but in
general will sell any such warrants or rights as soon as practicable after they
are received. Warrants are options to purchase equity securities at a specified
price valid for a specific time period. Rights are similar to warrants, but
normally have a short duration and are distributed by the issuer to its
shareholders.
GENERAL
The Fund may utilize the following investment techniques, provided the
Fund's investment in each does not exceed 5% of its net assets: engaging in
short sales; purchasing call options; purchasing put options; writing (selling)
covered call options; and, if the Fund is selling an equivalent amount of the
same security short, writing (selling) put options. See "Additional Information
About Fund Investments and Risk Considerations" in the Statement of Additional
Information. Up to 15% of the Fund's portfolio may consist of illiquid
securities. Illiquid securities generally include securities which cannot be
disposed of promptly and in the ordinary course of business without taking a
reduced price. The Fund will not purchase any securities while borrowings
representing more than 5% of its total assets are outstanding.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
FUNDAMENTAL POLICIES. The investment limitations set forth in the
Statement of Additional Information as fundamental policies may not be changed
without the affirmative vote of the majority of the outstanding shares of the
Fund. The investment objective of the Fund may be changed without the
affirmative vote of a majority of the outstanding shares of the Fund. Any such
change may result in the Fund having an investment objective different from the
objective which the shareholders considered appropriate at the time of
investment in the Fund.
PORTFOLIO TURNOVER. The Fund does not intend to purchase or sell
securities for short term trading purposes. The Fund will, however, sell any
portfolio security (without regard to the length of time it has been held) when
the Adviser believes that market conditions, creditworthiness factors or general
economic conditions warrant such action. It is anticipated that the Fund will
have a portfolio turnover rate of less than 100%.
SHAREHOLDER RIGHTS. Any Trustee of the Trust may be removed by vote of
the shareholders holding not less than two-thirds of the outstanding shares of
the Trust. The Trust does not hold an annual meeting of shareholders. When
matters are submitted to shareholders for a vote, each shareholder is entitled
to one vote for each whole share he owns and fractional votes for fractional
shares he owns. All shares of the Fund have equal voting rights and liquidation
rights. The Declaration of Trust can be amended by the Trustees, except that any
amendment that adversely effects the rights of shareholders must be approved by
the shareholders affected. Prior to the offering made by this Prospectus, the
Adviser purchased for investment all of the outstanding shares of the Fund. As a
result, the Adviser and the Banc Stock Group (an Ohio corporation and the
controlling shareholder of the Adviser) may be deemed to control the Fund.
- 12 -
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The Fund may periodically advertise "average annual total return." The
"average annual total return" of the Fund refers to the average annual
compounded rate of return over the stated period that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment. The calculation of "average annual total return"
assumes the reinvestment of all dividends and distributions.
The Fund may also periodically advertise its total return over various
periods in addition to the value of a $10,000 investment (made on the date of
the initial public offering of the Fund's shares) as of the end of a specified
period. The "total return" for the Fund refers to the percentage change in the
value of an account between the beginning and end of the stated period, assuming
no activity in the account other than reinvestment of dividends and capital
gains distributions.
The Fund may also include in advertisements data comparing
performance with other mutual funds as reported in non-related investment media,
published editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc., Fortune or
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to the NASDAQ Combined Bank Index (the "Bank Index"), and the
performance of the Bank Index as well as the Fund may be compared to other
well-known indices of market performance including the Standard & Poor's (S&P)
500 Index or the Dow Jones Industrial Average. With respect to the Bank Index,
shareholders should be aware that the Fund invests in banks and other securities
that are not included in the Bank Index. The performance of the Bank Index
should not be considered indicative of future performance of the Fund.
The advertised performance data of the Fund is based on historical
performance and is not intended to indicate future performance. Rates of total
return quoted by the Fund may be higher or lower than past quotations, and there
can be no assurance that any rate of total return will be maintained. The
principal value of an investment in the Fund will fluctuate so that a
shareholder's shares, when redeemed, may be worth more or less than the
shareholder's original investment.
INVESTMENT ADVISER TRANSFER AGENT AND ADMINISTRATOR
Heartland Advisory Group, Inc. (all redemption requests)
6230 Busch Blvd., Suite 201 American Data Services, Inc.
Columbus, Ohio 43229 24 West Carver Street
Huntington, New York 11743
CUSTODIAN (ALL INITIAL AND AUDITORS
SUBSEQUENT PURCHASES) McCurdy & Associates CPA's, Inc.
Star Bank, N.A. 27955 Clemens Road
P.O. Box 640484 Westlake, Ohio 44145
Cincinnati, Ohio 45264-0484
DISTRIBUTOR
Banc Stock Financial Services, Inc.
6230 Busch Blvd., Suite 201
Columbus, Ohio 43229
- 13 -
<PAGE>
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Fund. This Prospectus does not constitute an offer by the Fund to sell its
shares in any state to any person to whom it is unlawful to make such offer in
such state.
- 14 -
<PAGE>
TABLE OF CONTENTS PAGE
SUMMARY OF FUND EXPENSES.............................................. 3
Shareholder Transaction Expenses................................. 3
Annual Fund Operating Expenses................................... 3
THE FUND ............................................................ 3
INVESTMENT OBJECTIVE AND STRATEGIES AND RISK CONSIDERATIONS........... 4
HOW TO INVEST IN THE FUND............................................. 5
CAT Program...................................................... 6
Subsequent Purchases............................................. 6
Purchases at Net Asset Value .................................... 7
Tax Sheltered Retirement Plans................................... 7
Other Purchase Information....................................... 7
HOW TO REDEEM SHARES.................................................. 8
By Mail ........................................................ 8
By Telephone..................................................... 8
Additional Information........................................... 9
SHARE PRICE CALCULATION............................................... 9
DIVIDENDS AND DISTRIBUTIONS........................................... 10
TAXES ............................................................ 10
OPERATION OF THE FUND................................................. 11
INVESTMENT POLICIES AND TECHNIQUES ................................... 12
Equity Securities................................................ 12
General ........................................................ 12
GENERAL INFORMATION................................................... 12
Fundamental Policies............................................. 12
Portfolio Turnover............................................... 12
Shareholder Rights............................................... 12
PERFORMANCE INFORMATION............................................... 13
<PAGE>
BANC STOCK GROUP FUND
SUPPLEMENT DATED JUNE 1, 1997
TO PROSPECTUS DATED JUNE 1, 1997
SPECIAL OFFERING PERIOD: Investors may purchase shares of The Banc
Stock Group Fund (the "Fund") without incurring any initial sales load by
subscribing for the purchase on or before August 1, 1997. To arrange for the
subscription and purchase, contact the Fund's distributor, Banc Stock Financial
Services, Inc. at 1-800-347-BANK. All subscriptions for shares of the Fund will
be deposited in an interest-bearing escrow account. On August 1, 1997, each
subscriber's subscription amount, plus the pro rata share of the interest earned
in the escrow account, will be used to purchase full or fractional shares of the
Fund. The escrow account will be maintained with Star Bank, N.A., the Fund's
custodian. Shares purchased by subscription will be subject to the Fund's
minimum initial investment requirement and will carry the same rights and
privileges as shares purchased subsequent to the special offering period.
This Supplement and the Prospectus dated June 1, 1997 provide the
information a prospective investor ought to know before investing and should be
retained for future reference. A Statement of Additional Information has been
filed with the Securities and Exchange Commission (the "SEC") dated June 1,
1997, which is incorporated herein by reference and can be obtained without
charge by calling the distributor at the phone number listed above.
<PAGE>
BANC STOCK GROUP FUND
STATEMENT OF ADDITIONAL INFORMATION
June 1, 1997
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of Banc Stock Group Fund dated June
1, 1997. A copy of the Prospectus can be obtained by writing the Transfer Agent
at 24 W. Carver Street, Huntington, New York 11743, or by calling
1-888-BANK-595.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
TABLE OF CONTENTS
-----------------
PAGE
----
DESCRIPTION OF THE TRUST.......................................... 1
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
AND RISK CONSIDERATIONS........................................... 1
INVESTMENT LIMITATIONS............................................ 3
THE INVESTMENT ADVISER............................................ 5
TRUSTEES AND OFFICERS............................................. 6
PORTFOLIO TRANSACTIONS AND BROKERAGE.............................. 7
DETERMINATION OF SHARE PRICE...................................... 9
INVESTMENT PERFORMANCE............................................ 9
CUSTODIAN.........................................................10
TRANSFER AGENT....................................................10
ACCOUNTANTS.......................................................10
DISTRIBUTOR.......................................................10
FINANCIAL STATEMENTS..............................................10
- i -
<PAGE>
DESCRIPTION OF THE TRUST
Banc Stock Group Fund (the "Fund") was organized as a series of The BSG
Funds (the "Trust"). The Trust is an open-end investment company established
under the laws of Ohio by an Agreement and Declaration of Trust dated January
14, 1997 (the "Trust Agreement"). The Trust Agreement permits the Trustees to
issue an unlimited number of shares of beneficial interest of separate series
without par value. The Fund is the only series currently authorized by the
Trustees.
Each share of a series represents an equal proportionate interest in
the assets and liabilities belonging to that series with each other share of
that series and is entitled to such dividends and distributions out of income
belonging to the series as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
any series into a greater or lesser number of shares of that series so long as
the proportionate beneficial interest in the assets belonging to that series and
the rights of shares of any other series are in no way affected. In case of any
liquidation of a series, the holders of shares of the series being liquidated
will be entitled to receive as a class a distribution out of the assets, net of
the liabilities, belonging to that series. Expenses attributable to any series
are borne by that series. Any general expenses of the Trust not readily
identifiable as belonging to a particular series are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. No shareholder is liable to further calls or to assessment by the
Trust without his or her express consent.
Upon sixty days prior written notice to shareholders, the Fund may make
redemption payments in whole or in part in securities or other property if the
Trustees determine that existing conditions make cash payments undesirable. For
other information concerning the purchase and redemption of shares of the Fund,
see "How to Invest in the Fund" and "How to Redeem Shares" in the Fund's
Prospectus. For a description of the methods used to determine the share price
and value of the Fund's assets, see "Share Price Calculation" in the Fund's
Prospectus.
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK
CONSIDERATIONS
This section contains a more detailed discussion of some of the
investments the Fund may make and some of the techniques it may use, as
described in the Prospectus (see "Investment Objective and Strategies and Risk
Considerations" and "Investment Policies and Techniques").
A. Short Sales. The Fund may sell a security short in anticipation of a
decline in the market value of the security. When the Fund engages in a short
sale, it sells a security which it does not own. To complete the transaction,
the Fund must borrow the security by purchasing it at the market price at the
time of replacement, which may be more or less than the price at which the Fund
sold the security. The Fund will incur a loss as a result of the short sale if
the price of the security increases between the date of the short sale and the
date on which the Fund replaces the borrowed security. The Fund will realize a
profit if the security declines in price between those dates.
In connection with its short sales, the Fund will be required to
maintain a segregated account with its Custodian of cash or high grade liquid
assets equal to the market value of the securities sold
- 1 -
<PAGE>
less any collateral deposited with its broker. The Fund will limit its short
sales so that no more than 5% of its net assets (less all its liabilities other
than obligations under the short sales) will be deposited as collateral and
allocated to the segregated account. However, the segregated account and
deposits will not necessarily limit the Fund's potential loss on a short sale,
which is unlimited.
B. Option Transactions. The Fund may engage in option transactions
involving individual securities and market indexes. An option involves either
(a) the right or the obligation to buy or sell a specific instrument at a
specific price until the expiration date of the option, or (b) the right to
receive payments or the obligation to make payments representing the difference
between the closing price of a market index and the exercise price of the option
expressed in dollars times a specified multiple until the expiration date of the
option. Options are sold (written) on securities and market indexes. The
purchaser of an option on a security pays the seller (the writer) a premium for
the right granted but is not obligated to buy or sell the underlying security.
The purchaser of an option on a market index pays the seller a premium for the
right granted, and in return the seller of such an option is obligated to make
the payment. A writer of an option may terminate the obligation prior to
expiration of the option by making an offsetting purchase of an identical
option. Options are traded on organized exchanges and in the over-the-counter
market. Call options on securities which the Fund sells (writes) will be covered
or secured, which means that it will own the underlying security in the case of
a call option. The Fund will sell (write) put options only if the Fund is
selling an equivalent amount of the same security short. When the Fund writes
options, it may be required to maintain a margin account, to pledge the
underlying securities or U.S.
government obligations or to deposit assets in escrow with the Custodian.
The purchase and writing of options involves certain risks. The
purchase of options limits the Fund's potential loss to the amount of the
premium paid and can afford the Fund the opportunity to profit from favorable
movements in the price of an underlying security to a greater extent than if
transactions were effected in the security directly. However, the purchase of an
option could result in the Fund losing a greater percentage of its investment
than if the transaction were effected directly. When the Fund writes a covered
call option, it will receive a premium, but it will give up the opportunity to
profit from a price increase in the underlying security above the exercise price
as long as its obligation as a writer continues, and it will retain the risk of
loss should the price of the security decline. When the Fund writes a put
option, it will assume the risk that the price of the underlying security or
instrument will fall below the exercise price, in which case the Fund may be
required to purchase the security or instrument at a higher price than the
market price of the security or instrument. In addition, there can be no
assurance that the Fund can effect a closing transaction on a particular option
it has written. Further, the total premium paid for any option may be lost if
the Fund does not exercise the option or, in the case of over-the-counter
options, the writer does not perform its obligations.
C. Illiquid Securities. The portfolio of the Fund may contain illiquid
securities. Illiquid securities generally include securities which cannot be
disposed of promptly and in the ordinary course of business without taking a
reduced price. Securities may be illiquid due to contractual or legal
restrictions on resale or lack of a ready market. The following securities are
considered to be illiquid: repurchase agreements maturing in more than seven
days, nonpublicly offered securities and restricted securities. Restricted
securities are securities the resale of which is subject to legal or contractual
restrictions. Restricted securities may be sold only in privately negotiated
transactions, in a public offering with respect to which a registration
statement is in effect under the Securities
- 2 -
<PAGE>
Act of 1933 or pursuant to Rule 144 or Rule 144A promulgated under such Act.
Where registration is required, the Fund may be obligated to pay all or part of
the registration expense, and a considerable period may elapse between the time
of the decision to sell and the time such security may be sold under an
effective registration statement. If during such a period adverse market
conditions were to develop, the Fund might obtain a less favorable price than
the price it could have obtained when it decided to sell. The Fund will not
invest more than 15% of its net assets in illiquid securities.
INVESTMENT LIMITATIONS
Fundamental. The investment limitations described below have been
adopted by the Trust with respect to the Fund and are fundamental
("Fundamental"), i.e., they may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. As used in the Prospectus and
this Statement of Additional Information, the term "majority" of the outstanding
shares of the Fund means the lesser of (1) 67% or more of the outstanding shares
of the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented at such meeting; or
(2) more than 50% of the outstanding shares of the Fund. Other investment
practices which may be changed by the Board of Trustees without the approval of
shareholders to the extent permitted by applicable law, regulation or regulatory
policy are considered non-fundamental ("Non-Fundamental").
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is an asset coverage
of 300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
2. Senior Securities. The Fund will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is (a) consistent with or permitted by the
Investment Company Act of 1940, as amended, the rules and regulations
promulgated thereunder or interpretations of the Securities and Exchange
Commission or its staff and (b) as described in the Prospectus and this
Statement of Additional Information.
3. Underwriting. The Fund will not act as underwriter of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. Real Estate. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
- 3 -
<PAGE>
5. Commodities. The Fund will not purchase or sell commodities unless
acquired as a result of ownership of securities or other investments. This
limitation does not preclude the Fund from purchasing or selling options or
futures contracts, from investing in securities or other instruments backed by
commodities or from investing in companies which are engaged in a commodities
business or have a significant portion of their assets in commodities.
6. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. Concentration. The Fund will not invest 25% or more of its total
assets in any particular industry other than the banking and financial
institutions industry. This limitation is not applicable to investments in
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities or repurchase agreements with respect thereto.
With respect to the percentages adopted by the Trust as maximum
limitations on its investment policies and limitations, an excess above the
fixed percentage will not be a violation of the policy or limitation unless the
excess results immediately and directly from the acquisition of any security or
the action taken. This paragraph does not apply to the borrowing policy set
forth in paragraph 1 above.
Notwithstanding any of the foregoing limitations, any investment
company, whether organized as a trust, association or corporation, or a personal
holding company, may be merged or consolidated with or acquired by the Trust,
provided that if such merger, consolidation or acquisition results in an
investment in the securities of any issuer prohibited by said paragraphs, the
Trust shall, within ninety days after the consummation of such merger,
consolidation or acquisition, dispose of all of the securities of such issuer so
acquired or such portion thereof as shall bring the total investment therein
within the limitations imposed by said paragraphs above as of the date of
consummation.
Non-Fundamental. The following limitations have been adopted by the
Trust with respect to the Fund and are Non-Fundamental (see "Investment
Restrictions" above).
1. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. Borrowing. The Fund will not purchase any security while borrowings
(including reverse repurchase agreements) representing more than 5% of its total
assets are outstanding.
3. Margin Purchases.The Fund will not purchase securities or evidences
of interest thereon on "margin." This limitation is not applicable to short term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to
- 4 -
<PAGE>
transactions involving options, futures contracts, short sales and other
permitted investments and techniques.
4. Options. The Fund will not purchase or sell puts, calls, options or
straddles, except as described in the Prospectus and this Statement of
Additional Information.
5. Loans. The Fund will not loan its portfolio securities.
6. Reverse Purchase Agreements. The Fund will not enter into reverse
repurchase agreements.
THE INVESTMENT ADVISER
The Fund's investment adviser is Heartland Advisory Group, Inc., 6230
Busch Blvd., Suite 201, Columbus, Ohio 43229 (the "Adviser"). The Adviser is a
wholly owned subsidiary of Heartland Group of Companies, Inc. (d/b/a The Banc
Stock Group).
Under the terms of the management agreement (the "Agreement"), the
Adviser manages the Fund's investments subject to approval of the Board of
Trustees and pays all of the expenses of the Fund except brokerage, taxes,
interest, fees and expenses of the non-interested person trustees and
extraordinary expenses. As compensation for its management services and
agreement to pay the Fund's expenses, the Fund is obligated to pay the Adviser a
fee computed and accrued daily and paid monthly at an annual rate of 2.50% of
the average daily net assets of the Fund. The Adviser may waive all or part of
its fee, at any time, and at its sole discretion, but such action shall not
obligate the Adviser to waive any fees in the future.
The Adviser retains the right to use the names "BSG" and "Banc Stock
Group" in connection with another investment company or business enterprise with
which the Adviser is or may become associated. The Trust's right to use the
names "BSG" and "Banc Stock Group" automatically ceases ninety days after
termination of the Agreement and may be withdrawn by the Adviser on ninety days
written notice.
The Adviser may make payments to banks or other financial institutions
that provide shareholder services and administer shareholder accounts. The
Glass-Steagall Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of this
prohibition under the Glass-Steagall Act has not been clearly defined by the
courts or appropriate regulatory agencies, management of the Fund believes that
the Glass-Steagall Act should not preclude a bank from providing such services.
However, state securities laws on this issue may differ from the interpretations
of federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law. If a bank were prohibited
from continuing to perform all or a part of such services, management of the
Fund believes that there would be no material impact on the Fund or its
shareholders. Banks may charge their customers fees for offering these services
to the extent permitted by applicable regulatory authorities, and the overall
return to those shareholders availing themselves of the bank services will be
lower than to those shareholders who do not. The Fund may from time to time
purchase securities issued by banks which provide such services; however, in
selecting investments for the Fund, no preference will be shown for such
securities.
- 5 -
<PAGE>
TRUSTEES AND OFFICERS
The names of the Trustees and executive officers of the Trust are shown
below. Each Trustee who is an "interested person" of the Trust, as defined in
the Investment Company Act of 1940, is indicated by an asterisk.
<TABLE>
<S> <C> <C>
Name, Age Position Principal Occupations
and Address During Past 5 Years
- ----------- -------- ---------------------
Michael E. Guirlinger * Trustee, President and Director, president and treasurer of Heartland Advisory
Age: 49 Treasurer Group, Inc.; director, president and treasurer of The
6230 Busch Blvd., Suite 201 Banc Stock Group; director, vice president and treasurer
Columbus, Ohio 43229 of Banc Stock Financial Services, Inc.**; president and
treasurer of Buckeye Banc Stocks, Inc., an intra-state
broker-dealer, 6230 Busch Blvd., Suite 201, Columbus,
Ohio.
Lisa R. Hunter * Secretary Vice president of Banc Stock Financial Services, Inc.**
Age: 43 Prior to 1995, compliance administrator of VESTAX
6230 Busch Blvd., Suite 201 Securities Corp, 1932 Georgetown Rd., Hudson, Ohio
Columbus, Ohio 43229 44256.
Robert W. Klockars Trustee President and CEO of The Vasa Group, Inc., a bank
Age: 50 consulting organization, 6364 Briarcliff Lane, Middleton,
6364 Briarcliff Lane Wisconsin, from 1990 to the present. From 1989 to
Middleton, Wisconsin 53562 1997, Vice president and director of Graduate School of
Banking, 5315 Wall St., Madison, Wisconsin.
Virginia H. Rader Trustee Retired.
Age: 50
600 Fairway Blvd.
Columbus, Ohio 43215
Gary A. Radville Trustee Chief Financial Officer of Peer Foods, Inc., 4631 S.
Age: 39 McDowell St., Chicago, Illinois. Prior to 1996,
4631 S. McDowell St. Partner, Price Waterhouse, 200 E. Randolph St.,
Chicago, Illinois 60609 Chicago, Illinois.
</TABLE>
Trustee fees are Trust expenses. The following table estimates the
Trustees' compensation for the first full year of the Trust ending February 28,
1998.
<TABLE>
<S> <C>
Total Compensation
from Trust (the Trust is
Name not in a Fund Complex)
---- ------------------------
Michael E. Guirlinger 0
Lisa R. Hunter 0
Robert W. Klockars $4,000
Virginia H. Rader $4,000
Gary A. Radville $4,000
<FN>
** Banc Stock Financial Services, Inc. is the Trust's principal underwriter
(the "Distributor"). The Adviser and The Banc Stock Group are affiliates of the
Distributor.
</FN>
</TABLE>
- 6 -
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust,
the Adviser is responsible for the Fund's portfolio decisions and the placing of
the Fund's portfolio transactions. In placing portfolio transactions, the
Adviser seeks the best qualitative execution for the Fund, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Adviser generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received.
The Adviser is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Adviser exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Adviser determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Adviser's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
Research services include supplemental research, securities and
economic analyses, statistical services and information with respect to the
availability of securities or purchasers or sellers of securities and analyses
of reports concerning performance of accounts. The research services and other
information furnished by brokers through whom the Fund effects securities
transactions may also be used by the Adviser in servicing all of its accounts.
Similarly, research and information provided by brokers or dealers serving other
clients may be useful to the Adviser in connection with its services to the
Fund. Although research services and other information are useful to the Fund
and the Adviser, it is not possible to place a dollar value on the research and
other information received. It is the opinion of the Board of Trustees and the
Adviser that the review and study of the research and other information will not
reduce the overall cost to the Adviser of performing its duties to the Fund
under the Agreement.
While the Fund does not deem it practicable and in its best interests
to solicit competitive bids for commission rates on each transaction,
consideration is regularly given to posted commission rates as well as other
information concerning the level of commissions charged on comparable
transactions by qualified brokers.
The Fund has no obligation to deal with any broker or dealer in the
execution of its transactions. However, it is contemplated that Banc Stock
Financial Services, Inc. ("BSFS"), in its capacity as a registered
broker-dealer, will effect substantially all securities transactions which are
executed on a national securities exchange and over-the-counter transactions
conducted on an agency
- 7 -
<PAGE>
basis. Such transactions will be executed at competitive commission rates
through Mesirow Financial, Inc.
Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers, if the same or a better price,
including commissions and executions, is available. Fixed income securities are
normally purchased directly from the issuer, an underwriter or a market maker.
Purchases include a concession paid by the issuer to the underwriter and the
purchase price paid to a market maker may include the spread between the bid and
asked prices.
Under the Investment Company Act of 1940, persons affiliated with an
affiliate of the Adviser (such as BSFS) may be prohibited from dealing with the
Fund as a principal in the purchase and sale of securities. Therefore, BSFS will
not serve as the Fund's dealer in connection with over-the-counter transactions.
However, BSFS may serve as the Fund's broker in over-the-counter transactions
conducted on an agency basis and will receive brokerage commissions in
connection with such transactions. Such agency transactions will be executed
through Mesirow Financial, Inc.
The Fund will not effect any brokerage transactions in its portfolio
securities with BSFS if such transactions would be unfair or unreasonable to
Fund shareholders, and the commissions will be paid solely for the execution of
trades and not for any other services. The Agreement provides that affiliates,
or any affiliates of affiliates, of the Adviser may receive brokerage
commissions in connection with effecting such transactions for the Fund. In
determining the commissions to be paid to BSFS, it is the policy of the Fund
that such commissions will, in the judgment of the Trust's Board of Trustees, be
(a) at least as favorable to the Fund as those which would be charged by other
qualified brokers having comparable execution capability and (b) at least as
favorable to the Fund as commissions contemporaneously charged by BSFS on
comparable transactions for its most favored unaffiliated customers, except for
customers of BSFS considered by a majority of the Trust's disinterested Trustees
not to be comparable to the Fund. The disinterested Trustees from time to time
review, among other things, information relating to the commissions charged by
BSFS to the Fund and its other customers, and rates and other information
concerning the commissions charged by other qualified brokers.
The Agreement does not provide for a reduction of the Adviser's fee by
the amount of any profits earned by BSFS from brokerage commissions generated
from portfolio transactions of the Fund.
While the Fund contemplates no ongoing arrangements with any other
brokerage firms, brokerage business may be given from time to time to other
firms. BSFS will not receive reciprocal brokerage business as a result of the
brokerage business placed by the Fund with others.
When the Fund and another of the Adviser's clients seek to purchase or
sell the same security at or about the same time, the Adviser may execute the
transaction on a combined ("blocked") basis. Blocked transactions can produce
better execution for the Fund because of the increased volume of the
transaction. If the entire blocked order is not filled, the Fund may not be able
to acquire as large a position in such security as it desires or it may have to
pay a higher price for the security. Similarly, the Fund may not be able to
obtain as large an execution of an order to sell or as high a price for any
particular portfolio security if the other client desires to sell the same
portfolio security at the same time. In the event that the entire blocked order
is not filled, the purchase or sale will normally be allocated on a pro rata
basis. Transactions of advisory clients
- 8 -
<PAGE>
(including the Fund) may also be blocked with those of the Adviser, the
Distributor or any of their affiliates. The Adviser, the Distributor and their
affiliates will be permitted to participate in the blocked transaction only
after all orders of advisory clients (including the Fund) are filled.
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of the Fund is determined as
of 4:00 p.m., Eastern time on each day the Trust is open for business and on any
other day on which there is sufficient trading in the Fund's securities to
materially affect the net asset value. The Trust is open for business on every
day except Saturdays, Sundays and the following holidays: New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. For a description of the methods used to determine
the net asset value (share price), see "Share Price Calculation" in the
Prospectus.
The Fund's Prospectus, in the section "How to Invest in the Fund,"
describes certain types of investors for whom sales charges will be waived. The
Trustees have determined that the Fund incurs no appreciable distribution
expenses in connection with sales to these investors and that it is therefore
appropriate to waive sales charges for these investors.
INVESTMENT PERFORMANCE
"Average annual total return," as defined by the Securities and
Exchange Commission, is computed by finding the average annual compounded rates
of return (over the one and five year periods and the period from initial public
offering through the end of the Fund's most recent fiscal year) that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1+T)n=ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
applicable period of the hypothetical $1,000
investment made at the beginning of the
applicable period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with the Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue.
- 9 -
<PAGE>
From time to time, in advertisements, sales literature and information
furnished to present or to prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Fund or
considered to be representative of the stock market in general. The Fund may use
the Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average.
In addition, the performance of the Fund may be compared to other
groups of mutual funds tracked by any widely used independent research firm
which ranks mutual funds by overall performance, investment objectives and
assets, such as Lipper Analytical Services, Inc. or Morningstar, Inc. The
objectives, policies, limitations and expenses of other mutual funds in a group
may not be the same as those of the Fund. Performance rankings and ratings
reported periodically in national financial publications such as Barron's and
Fortune also may be used.
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is
Custodian of the Fund's investments. The Custodian acts as the Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Fund's request and
maintains records in connection with its duties.
TRANSFER AGENT
American Data Services, Inc., 24 W. Carver Street, Huntington, New York
11743, acts as the Fund's transfer agent and, in such capacity, maintains the
records of each shareholder's account, answers shareholders' inquiries
concerning their accounts, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent and performs other
accounting and shareholder service functions. In addition, American Data
Services, Inc., in its capacity as Fund Administrator, provides the Fund with
certain monthly reports, record-keeping and other management-related services.
For a description of the fees paid by the Adviser on behalf of the Fund for
these administrative services, see "Operation of the Fund" in the Fund's
Prospectus.
ACCOUNTANTS
The firm of McCurdy & Associates, CPA's, 27955 Clemens Road, Westlake,
Ohio 44145, has been selected as independent public accountants for the Trust
for the fiscal year ending February 28, 1998. McCurdy & Associates performs an
annual audit of the Fund's financial statements and provides financial, tax and
accounting consulting services as requested.
DISTRIBUTOR
Banc Stock Financial Services, Inc., 6230 Busch Blvd., Suite 201,
Columbus, Ohio 43229, is the exclusive agent for distribution of shares of the
Fund. The Distributor is obligated to sell shares of the Fund on a best efforts
basis only against purchase orders for the shares. Shares of the Fund are
offered to the public on a continuous basis.
FINANCIAL STATEMENTS
- 10 -
<PAGE>
To The Shareholders and Trustees
The BSG Funds
We have audited the accompanying statement of assets and liabilities of The BSG
Funds (comprising, respectively, the Banc Stock Group Fund), as of April 22,
1997. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. Our procedures included
confirmation of cash held by the custodian as of April 22, 1997, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the Banc
Stock Group Fund constituting The BSG Funds as of April 22, 1997, in conformity
with generally accepted accounting principles.
/s/ McCurdy & Associates CPA's, Inc.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
April 22, 1997
<PAGE>
<TABLE>
<CAPTION>
THE BSG FUNDS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 22, 1997
<S> <C>
Banc Stock
Group Fund
----------
ASSETS: $100,000
--------
Cash in Bank
Total Assets $100,000
--------
NET ASSETS $100,000
--------
NET ASSETS CONSIST OF:
Capital Paid In $100,000
OUTSTANDING SHARES
Unlimited Number of Shares
Authorized Without Par Value 10,000
NET ASSET VALUE PER SHARE $10
OFFERING PRICE PER SHARE $10
</TABLE>
See Accountants' Audit Report
<PAGE>
THE BSG FUNDS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The BSG Funds is an open-end investment company established under the laws
of Ohio by an Agreement and Declaration of Trust dated January 14, 1997. The
Trust Agreement permits the Trustees to issue an unlimited number of shares
of beneficial interest of separate series without par value. Shares of one
series have been authorized, which shares constitute the interests in Banc
Stock Group Fund.
The Fund uses an independent administrator, transfer agent, custodian, and
dividend paying agent. No transactions other than those relating to
organizational matters and the sale of 10,000 shares of Banc Stock Group
Fund have taken place to date.
2. RELATED PARTY TRANSACTIONS
The initial purchase of registrant's shares was made by Heartland Advisory
Group, Inc., the Fund's adviser (the "Adviser"). As a result of this
purchase, the registrant may be controlled by the Adviser, and the
registrant and the Adviser may be deemed to be under the common control of
Heartland Group of Companies, Inc.
The Adviser is a wholly owned subsidiary of Heartland Group of Companies,
Inc. (d/b/a/ The Banc Stock Group).
Under the terms of the management agreement (the "Agreement"), the Adviser
manages the Fund's investments subject to approval of the Board of Trustees
and pays all of the expenses of the Fund except brokerage, taxes, interest,
fees and expenses of the non-interested person trustees and extraordinary
expenses. As compensation for its management services and agreement to pay
the Fund's expenses, the Fund is obligated to pay the Adviser a fee computed
and accrued daily and paid monthly at an annual rate of 2.50% of the average
daily net assets of the Fund. The Adviser may waive all or part of its fee,
at any time, and at its sole discretion, but such action shall not obligate
the Adviser to waive any fees in the future.
3. CAPITAL STOCK AND DISTRIBUTION
At April 22, 1997, an unlimited number of shares were authorized and paid in
capital amounted to $100,000 for Banc Stock Group Fund. Transactions in
capital stock were as follows:
<TABLE>
<S> <C>
Banc Stock
Group Fund
----------
Shares Sold 10,000
Shares Redeemed 0
Net Increase 10,000
Share Outstanding:
Beginning of Period 0
End of Period 10,000
</TABLE>
