<PAGE>
<PAGE>
[LOGO]
THE BANC STOCK
GROUP FUND
Investing in America through
America's community banks
SEMI-ANNUAL REPORT
August 31, 1998
1105 Schrock Road
Suite 437
Columbus, Ohio 43229
<PAGE>
<PAGE>
THE BANC STOCK GROUP FUND
October 15, 1998
Dear shareholder,
As you know, a series of global shocks has created interesting times in
the stock market. This disruption in the world equity markets since mid
April certainly did not bypass the banks in our portfolio. What is
unfortunate is that independent community banks were painted with the
same broad brush as large banks and national financial service
companies. The banks in our portfolio do not lend to the Pacific Rim,
Latin America, or fancy themselves as derivatives or hedge fund
specialists. The banks in our portfolio do invest in America's
--
businesses and families, they do make loans in their communities
--
according to their business standards, and they do provide personal
--
service.
Warren Buffet once said: "If I'm right about the business, everything
else works out." We believe that independent community banks are the
right business. We will not succumb to the emotions roiling this
market. To take advantage of current price dislocations, we are buying
(dollar cost averaging) stocks whose current Price Earnings and/or Book
Value Ratios have created an historic level of undervaluation relative
to the strong business fundamentals of the banks in our portfolio. We
are conducting phone conferences to other bank research specialists and
bank branch managers around the nation as we continue to search for
additional buying opportunities for banks not yet in our Fund.
The support and confidence you have placed in us is greatly
appreciated. We continue to believe that patience will be rewarded over
the long term.
Sincerely,
THE BSG FUNDS
/s/ Michael E. Guirlinger
Michael E. Guirlinger
Chairman and President
<PAGE>
<PAGE>
<TABLE>
THE BANC STOCK GROUP FUND
SCHEDULE OF INVESTMENTS
August 31, 1998
(Unaudited)
- ------------------------------------------------------------
<CAPTION>
Market
Shares Value
- ------ -----
COMMON STOCKS--98.52%
Commercial Banks--Central U.S.--9.52%
<C> <S> <C>
8,500<F+> BNCCORP Inc........................ $ 127,500
2,500 BancFirst Corp..................... 82,500
8,300 Capitol Bancorp Limited............ 188,825
6,500 Cass Commercial Corp............... 186,875
500 Community Financial Corp........... 7,000
3,000 DCB Financial Corp................. 57,750
850 First Commerce Bancshares, Inc..... 22,100
4,500 First Oak Brook Bancshares, Inc.... 184,500
22,175 Franklin Bank NA................... 232,838
5,333 Mahaska Investment Co.............. 105,327
1,785 MetroBanCorp....................... 16,065
3,300<F+> National City Bancorp.............. 82,912
2,000 Oak Hill Financial Inc............. 33,500
5,500 Peoples Bank Corporation of
Indianapolis..................... 165,000
3,000 Southside Bancshares Corp.......... 104,625
300 UnionBancorp, Inc.................. 4,500
----------
1,601,817
----------
<CAPTION>
Commercial Banks--Eastern U.S.--18.53%
<C> <S> <C>
48,700 Atlantic Bank & Trust Co........... 620,925
500 Banknorth Group, Inc............... 13,688
5,700 Bar Harbor Bancshares.............. 240,112
600 CNB Financial Corp................. 12,975
2,300 Camden National Corp............... 120,175
8,000 Columbia Bancorp................... 114,000
13,600 Commercial Bank of New York........ 268,600
5,500 Community Bank System, Inc......... 137,500
1,050 DNB Financial Corp................. 36,750
3,360 F.N.B. Corp........................ 97,440
1,000 FNB Rochester Corp................. 17,438
4,000 First Financial Corp............... 56,000
5,000 Long Island Commercial Bank........ 60,000
3,000 Mercantile Bankshares Corp......... 84,000
2,800 Second National Financial Corp..... 109,200
23,625 Skylands Community Bank............ 307,125
4,000 Suffolk Bancorp.................... 124,000
4,350 Tompkins County Trustco Inc........ 149,803
5,000 UST Corp........................... 82,500
9,765 Vermont Financial Services Corp.... 197,741
12,900 Webster Financial Corp............. 266,062
----------
3,116,034
----------
<CAPTION>
Commercial Banks--Southern U.S.--10.25%
<C> <S> <C>
8,300 ABC Bancorp........................ 95,450
4,000 American National
Bankshares, Inc.................. 108,000
2,784<F+> C&F Financial Corp................. 54,288
5,150 Capital City Bank Group, Inc....... 128,750
500 Century South Banks, Inc........... 13,000
5,000 Colony Bankcorp Inc................ 126,250
3,400 Community Bankshares Inc........... 85,000
400 First Citizens Bancorp............. 160,000
9,850 First Community Banking Services... 201,925
2,000 First National Corp................ 50,000
1,500 First Virginia Banks, Inc.......... 64,500
4,300 ISB Financial Corp................. 90,300
6,000 Republic Bancshares, Inc........... 117,000
7,000<F+> Southeast Commerce Holding Co...... 73,500
4,300 Southern Financial Bancorp, Inc.... 108,575
11,700 Summit Bank Corp................... 207,675
1,000 Union Planters Corp................ 40,250
----------
1,724,463
----------
<PAGE>
<CAPTION>
Commercial Banks--Western U.S.--33.97%
<C> <S> <C>
28,100 BYL Bancorp........................ 495,263
30,200 Bank of Commerce................... 347,300
5,628 Bank Petaluma...................... 97,786
9,568 Bay Area Bancshares................ 279,864
8,036 California Independent Bancorp..... 160,720
3,150<F+> Capital Corp of the West........... 33,863
<CAPTION>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
<PAGE>
THE BANC STOCK GROUP FUND
SCHEDULE OF INVESTMENTS (continued)
August 31, 1998
(Unaudited)
- ------------------------------------------------------------
Market
Shares Value
- ------ -----
<C> <S> <C>
500 Cathay Bancorp, Inc................ $ 14,125
7,535 Coast Bancorp...................... 320,238
51,350<F+> Comstock Bancorp................... 404,381
18,273 Fallbrook National Bank............ 118,775
10,000 First State Bancorp................ 180,000
6,500 GBC Bancorp........................ 136,500
7,412<F+> Hanmi Bank......................... 118,592
2,850 Heritage Oaks Bancorp.............. 48,450
9,369<F+> Nara Bank National Assoc........... 103,059
24,319<F+> Northern Empire Bancshares......... 662,693
9,450 Northrim Bank...................... 114,581
5,500 Orange National Bancorp............ 118,250
32,120<F+> PNB Financial Group................ 967,615
4,400 Pacific Bank, N.A.................. 184,800
3,487 Saratoga Bancorp................... 57,535
10,912 SierraWest Bancorp................. 290,532
13,000<F+> Union Bankshares Ltd............... 143,000
4,400<F+> United Security Bancorp............ 73,700
16,077<F+> Wilshire State Bank................ 241,155
----------
5,712,777
----------
<CAPTION>
Savings & Loan/Thrift--Central U.S.--1.96%
<C> <S> <C>
4,000 Coastal Bancorp, Inc............... 60,000
391 Commercial Federal Corp............ 8,602
2,900 D&N Financial Corp................. 47,488
6,100<F+> Hallmark Capital Corp.............. 70,531
250 Home Federal Bancorp............... 6,000
2,000 MFB Corp........................... 40,500
4,500<F+> PVF Capital Corp................... 54,000
2,200<F+> West Bancorporation................ 43,450
----------
330,571
----------
<CAPTION>
Savings & Loan/Thrift--Eastern U.S.--6.54%
<C> <S> <C>
4,200 Albion Banc Corp................... 36,487
11,700 Alliance Bancorp of New England,
Inc.............................. 124,312
6,250 Andover Bancorp, Inc............... 175,000
4,000 BostonFed Bancorp, Inc............. 72,500
4,500<F+> First Coastal Corp................. 54,000
6,000 GA Financial, Inc.................. 81,750
3,000 Hingham Institution for Savings.... 69,000
3,000 Home Port Bancorp, Inc............. 67,125
12,200 Ipswich Savings Bank............... 141,825
2,000 Iroquois Bancorp, Inc.............. 39,000
3,000<F+> MECH Financial, Inc................ 65,625
4,600 Prestige Bancorp, Inc.............. 58,650
5,000 Roslyn Bancorp, Inc................ 68,750
3,000 Skaneateles Bancorp, Inc........... 45,375
----------
1,099,399
----------
<CAPTION>
Savings & Loan/Thrift--Southern U.S.--3.46%
<C> <S> <C>
8,900<F+> BankUnited Financial Corp.......... 76,763
6,000 Community Financial Corp........... 72,000
16,000 Eagle Bancshares, Inc.............. 280,000
700 First Liberty Financial Corp....... 12,950
4,700 First Savings Bancorp, Inc......... 98,700
4,200 Piedmont Bancorp, Inc.............. 41,475
----------
581,888
----------
<PAGE>
<CAPTION>
Savings & Loan/Thrift--Western U.S.--13.98%
<C> <S> <C>
14,660<F+> Access Anytime Bancorp............. 106,285
4,000 FirstFed Financial Corp............ 59,000
4,000<F+> First Republic Bank................ 104,000
16,000<F+> Golden State Bancorp, Inc.......... 254,000
48,700<F+> ITLA Capital Corp.................. 852,250
2,000 Klamath First Bancorp, Inc......... 28,000
33,500<F+> MCB Financial Corp................. 267,996
11,500<F+> Pacific Crest Capital, Inc......... 163,875
25,787<F+> Quaker City Bancorp, Inc........... 412,592
3,500 Sterling Financial Corp............ 51,625
3,000 WesterFed Financial Corp........... 51,000
-----------
2,350,623
-----------
<CAPTION>
Super-Regional Banks--U.S.--0.31%
<C> <S> <C>
1,000 Mellon Bank Corp................... 52,000
-----------
<CAPTION>
TOTAL COMMON STOCK
<S> <C>
(Cost $18,813,513)........................... 16,569,572
-----------
<CAPTION>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
<PAGE>
THE BANC STOCK GROUP FUND
SCHEDULE OF INVESTMENTS (continued)
August 31, 1998
(Unaudited)
- ----------------------------------------------------
SHORT-TERM INVESTMENTS--1.99%
<C> <S> <C>
334,070 Star Bank Treasury Fund
(Cost $334,070).......... $334,070
--------
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $19,147,583)...... 100.51% 16,903,642
LIABILITIES LESS OTHER
ASSETS.................. (0.51%) (85,151)
------ -----------
TOTAL NET ASSETS.......... 100.00% $16,818,491
====== ===========
<CAPTION>
(1) Federal Tax Information: At August 31, 1998
the net unrealized depreciation based on cost
for Federal Income tax purposes of
$19,147,583 was as follows:
<S> <C>
Aggregate gross unrealized
appreciation for all
investments for which there was
an excess of value over cost... $ 491,427
Aggregate gross unrealized
depreciation for all
investments for which there was
an excess of cost over value... (2,735,368)
-----------
Net unrealized depreciation..... $(2,243,941)
===========
<FN>
<F+> Non-income producing security
</TABLE>
THE BANC STOCK GROUP FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
(Unaudited)
- ----------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at
value (cost $19,147,583)
(Note 2)....................... $16,903,642
Receivable for securities sold... 54,492
Receivable for fund shares
sold........................... 21,804
Receivable from interest and
dividends...................... 9,646
Other assets..................... 260
-----------
Total Assets..................... 16,989,844
-----------
<S> <C> <C>
LIABILITIES:
Payables:
Fund shares
redeemed.......... $107,772
Investment
securities
purchased......... 22,725
Advisory fees
(Note 4).......... 40,856
--------
Total Liabilities 171,353
-----------
Net Assets............ $16,818,491
===========
<PAGE>
<S> <C>
NET ASSETS CONSIST OF:
Additional paid in capital..... $18,064,357
Accumulated net investment
loss......................... (124,420)
Accumulated net realized gain
from investment transactions
(Note 6)..................... 1,122,495
Net unrealized depreciation
on investments............... (2,243,941)
-----------
Net Assets....................... $16,818,491
===========
NET ASSET VALUE AND
REDEMPTION PRICE PER SHARE
($16,818,491/1,516,725 shares
of capital stock outstanding)
(Note 6)....................... $ 11.09
===========
MAXIMUM OFFERING PRICE
PER SHARE
(Net asset value plus sales
charge of 4.00%)............... $ 11.55
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
<PAGE>
<TABLE>
THE BANC STOCK GROUP FUND
STATEMENT OF OPERATIONS
For the six months ended August 31, 1998
(Unaudited)
- ------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividend.......................... $ 100,083
Interest.......................... 6,952
-----------
107,035
Expenses:
Operating expenses............ $ 231,455
-----------
Total expenses................ 231,455
-----------
Net investment loss........... (124,420)
-----------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
(Note 2)
Net realized gain from investment
transactions.................... 740,612
Net change in unrealized
depreciation of investments..... (3,659,147)
-----------
Net realized and unrealized loss
on investments.................. (2,918,535)
-----------
Net decrease in net assets
resulting from operations....... $(3,042,955)
===========
</TABLE>
<TABLE>
THE BANC STOCK GROUP FUND
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------
<CAPTION>
For the period
For the August 1, 1998
six months (Commencement
ended of Operations)
August 31, through
1998 February 28,
(Unaudited) 1998
----------- --------------
<S> <C> <C>
Net investment
loss............ $ (124,420) $ (47,249)
Net realized gain
from investment
transactions.... 740,612 429,132
Net change in
unrealized
appreciation
(depreciation)
of investments.. (3,659,147) 1,415,206
----------- -----------
Net increase
(decrease) in
net assets
resulting from
operations...... (3,042,955) 1,797,089
Net capital share
transactions
(Note 5 )....... 6,159,470 11,804,887
----------- -----------
Net increase in
net assets...... 3,116,515 13,601,976
NET ASSETS:
Beginning of
period.......... 13,701,976 100,000
----------- -----------
End of period..... $16,818,491 $13,701,976
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
<PAGE>
<TABLE>
THE BANC STOCK GROUP FUND
FINANCIAL HIGHLIGHTS
(For a fund share outstanding throughout the period)
- ----------------------------------------------------
<CAPTION>
For the period
For the August 1, 1997
six months (commencement
ended of operations)
August 31, through
1998 February 28,
(Unaudited) 1998
----------- --------------
<S> <C> <C>
Net asset value,
beginning of
period............. $ 12.75 $10.00
------- ------
Income (loss) from
investment
operations
Net investment
loss................. (0.08) (0.07)
Net realized and
unrealized gain
(loss) on
investments........ (1.58) 2.82
------- ------
Total from investment
operations......... (1.66) 2.75
------- ------
Less distributions
Dividends from net
investment
income............. 0.00 0.00
Distribution from
realized gains
from security
transactions....... 0.00 0.00
------- ------
Total
distributions...... 0.00 0.00
------- ------
Net asset value, end
of period.......... $ 11.09 $12.75
======= ======
Total return<F**>.... (13.02%) 52.24%
Ratios/supplemental
data
Net assets end of
period (in 000's).. 16,818 13,702
Ratio of expenses to
average net assets. 2.50%<F*> 2.50%
Ratio of net
investment income
(loss) to average
net assets......... (1.34%)<F*> (1.07%)
Portfolio turnover
rate............... 19.92% 26.65%
<FN>
<F*> Annualized
<F**> Based on net asset value per share
</TABLE>
The accompanying notes are an integral part
of these financial statements
<PAGE>
THE BANC STOCK GROUP FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
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 commenced
operations on August 1, 1997. The Fund is an open-end, diversified management
investment company under the Investment Company Act of 1940, authorized to
issue an unlimited number of shares of capital stock in separate series, with
each series representing interests in a separate portfolio of securities and
other assets, each with its own investment objectives and policies. The Fund's
investment objective 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 Fund is the only current series of the BSG Funds.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Fund in the preparation of its financial statements. These policies are
in conformity with generally accepted accounting principles for investment
companies. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the period. Actual results could differ from these estimates.
Security Valuation--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 on such
exchanges, or at the last bid price in the over-the-counter market except when,
in the Adviser's opinion, the last bid price does not accurately reflect the
current value of the security. Securities for which market quotations are not
readily available, or when the Adviser determines the last bid price does not
accurately reflect the current value, or when restricted securities are
6
<PAGE>
<PAGE>
THE BANC STOCK GROUP FUND
NOTES TO FINANCIAL STATEMENTS (continued)
August 31, 1998
(Unaudited)
- -------------------------------------------------------------------------------
being valued, are valued as determined in good faith by the Adviser, subject to
review by 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 an independent pricing
service which uses prices based upon yields or prices of comparable securities,
indications as to values from dealers, and general market conditions, when the
Adviser believes such prices accurately reflect the fair market value of the
security.
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.
Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its net investment income and any realized
capital gain. Therefore, no federal income tax provision is required.
Dividends and Distributions--The Fund intends to distribute substantially
all of its net investment income as dividends to its shareholders on an annual
basis. The Fund intends to distribute its net long term capital gains and its
net short term capital gains at least once a year. Income and capital gain
distributions to shareholders are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
Those differences are primarily due to differing treatments for net operating
losses and deferral of wash sale losses.
Organization expenses--During its organization and initial registration
with the Securities and Exchange Commission (the "SEC"), the Fund incurred
organization expenses. The Adviser was obligated to incur these expenses.
Security Transactions--The Fund follows industry practice and records
security transactions on the trade date. The specific identification method is
used for determining gains or losses for financial statements and income tax
purposes. Dividend income is recorded on the ex-dividend date and interest
income is recorded on an accrual basis. Discount and premium on securities
purchased are amortized over the life of the respective securities.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Investment transactions (other than short term investments) for the six
months ended August 31, 1998 were as follows:
<TABLE>
<S> <C>
Purchases.......................................................... $9,253,654
Sales.............................................................. 3,502,333
</TABLE>
NOTE 4. INVESTMENT ADVISORY AGREEMENT AND OTHER RELATED PARTY TRANSACTIONS
The Trust has an agreement with Heartland Advisory Group, Inc. (the
"Adviser"), with whom certain officers and trustees of the Trust are affiliated,
to serve as investment adviser to the Fund. Under the terms of the agreement, a
monthly fee is paid to the Adviser at an annual rate of 2.50% of the average
daily net assets of the Fund. The Adviser pays all of the operating expenses of
the Fund except brokerage, taxes, interest, fees and expenses of non-interested
person trustees and extraordinary expenses. After the initial two years, this
advisory agreement is subject to an annual approval by the Trustees of the
Trust.
For the six months ended August 31, 1998, the Adviser earned advisory fees
of $231,455. For this same time period, the Adviser paid all fees and expenses
relating to non-interested person trustees, and will not seek reimbursement
from the Fund.
The Trust has agreements with American Data Services, Inc. (the
"Administrator") to provide shareholder servicing, fund accounting and
administrative services to the Fund. The services to be provided under the
agreements include day-to-day administration of matters related to the
corporate existence of the Fund (other
7
<PAGE>
<PAGE>
THE BANC STOCK GROUP FUND
NOTES TO FINANCIAL STATEMENTS (continued)
August 31, 1998
(Unaudited)
- -------------------------------------------------------------------------------
than rendering investment advice), maintenance of its records, preparation of
reports, supervision of the Fund's arrangement with its custodian and
assistance in the preparation of the Fund's registration statement under
federal and state laws. The Administrator, 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 Trust has an agreement with Banc Stock Financial Services, Inc. (the
"Distributor"), with whom certain officers and trustees of the Trust are
affiliated, to act as the principal underwriter of the Fund's shares. The
Distributor also receives brokerage commissions from the Fund for executing
portfolio purchase and sale transactions. Both the Adviser and the Distributor
are wholly owned by The Banc Stock Group, Inc. For the six months ended August
31, 1998, the Distributor earned underwriter fees and brokerage commissions in
the amount of $16,164 and $58,377, respectively. In addition, Banc Stock
Financial Services, Inc. received brokerage commissions for the execution of
portfolio purchase and sale transactions in the amount of $115,562.
NOTE 5. FUND SHARE TRANSACTIONS
At August 31, 1998 there were an unlimited number of shares of capital
stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
For the six
months ended
August 31,1998
(Unaudited)
------------------
Shares Amount
------ ------
<S> <C> <C>
Shares sold............. 512,377 $7,089,778
Shares issued for
reinvestment dividends
and distribution from
realized gains........ 0 0
Shares redeemed......... (70,661) (930,308)
------- ----------
Net increase............ 441,716 $6,159,470
======= ==========
<CAPTION>
For the period
August 1, 1997<F1>
(commencement of
operations)
through February 28,
1998
--------------------
Shares Amount
------ ------
<S> <C> <C>
Shares sold.......... 1,105,271 $12,287,553
Shares issued for
reinvestment
dividends and
distribution from
realized gains..... 0 0
Shares redeemed...... (40,262) (482,666)
--------- -----------
Net increase......... 1,065,009 $11,804,887
========= ===========
<FN>
- --------
<F1> The only transaction prior to August 1, 1997 occurred on April 22, 1997
when the Adviser purchased 10,000 shares of the Fund at $10.00 per share
to establish the Trust.
</TABLE>
8
<PAGE>
<PAGE>
THE BANC STOCK
GROUP FUND
1105 Schrock Road
Suite 437
Columbus, Ohio 43229
