BANC STOCK GROUP FUND
SUPPLEMENT DATED MARCH 1, 1999 TO
PROSPECTUS DATED AUGUST 20, 1998
Effective March 1, 1999, Mutual Funds Service Co. (MFS) is the Fund's
Transfer Agent. After that date, please direct all purchase and redemption
requests and all shareholder inquiries to:
MUTUAL FUNDS SERVICE CO.
6000 MEMORIAL DRIVE
DUBLIN, OH 43017
888-BANK-595
(888-226-5595)
On January 20, 1999, the Board of Trustees approved the addition of a
new Class of shares, Class C shares, and renamed the existing shares Class A
shares. On February 26, 1999, the shareholders of Class A shares approved a Rule
12b-1 Distribution Plan for Class A shares and a new Management Agreement for
the Fund. As a result, the expense information for Class A shares has been
restated to reflect the changes in annual operating expenses. The expense
information for Class C shares is based on estimated amounts for the current
fiscal year.
REPLACE THE EXPENSE TABLE ON PAGE 3 WITH THE FOLLOWING:
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES(1) CLASS A CLASS C
------- -------
<S> <C> <C>
Maximum Front End Sales Load Imposed on Purchases...........4.00%..........NONE
Maximum CDSC ...............................................NONE...........2.00%
Sales Load Imposed on Reinvested Dividends..................NONE...........NONE
Redemption Fee..............................................NONE...........NONE
Exchange Fee................................................NONE...........NONE
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)(2)
Management Fees...................................2.25%...........2.25%
12b-1 Charges.....................................0.25%...........1.00%
Other Expenses (after reimbursement)(3)...........0.00%...........0.00%
Total Fund Operating Expenses (after reimbursement(3)..... 2.50%...........3.25%
<FN>
(1) Processing organizations may impose transactional fees on shareholders.
(2) Because the Adviser pays all operating expenses (except brokerage, taxes,
interest, fees and expenses of non-interested person trustees and extraordinary
expenses), the Fund's total operating expenses are equal to the management fee
paid to the Adviser plus the 12b-1 charges.
(3) The Adviser has agreed to reimburse other expenses for the fiscal year
ending February 28, 1999 to the extent necessary to maintain total operating
expenses as indicated. For the period ended February 28, 1998, other expenses
(fees and expenses of the trustees who are not "interested persons" as defined
in the Investment Company Act) were 0.25% of average net assets and total fund
operating expenses were 2.75% of average net assets, absent any waiver or
reimbursement.
</FN>
</TABLE>
<PAGE>
REPLACE THE EXPENSE EXAMPLE ON PAGE 3 WITH THE FOLLOWING:
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>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class A ................................ $ 64 $115 $168 $312
Class C
if you sold your shares
at the end of the period ........... $ 43 $110 $180 $365
if you stayed in the fund ............ $ 33 $110 $180 $365
</TABLE>
READ THE FOLLOWING IN CONJUNCTION WITH THE SECTIONS TITLED "THE FUND" ON PAGE 3
AND "SHAREHOLDER RIGHTS" ON PAGE 13:
On January 20, 1999, the Trustees renamed the existing shares "Class A"
shares and added another class of shares called "Class C" shares. The classes
differ as follows: 1) Class A shares are charged an initial sales charge of
4.00% and Class C shares are charged a contingent deferred sales charge of 2% if
redeemed within one year of the purchase date or 1% if redeemed after one year
but before two years of the purchase date, 2) Class A shares pay 12b-1 expenses
of 0.25% and Class C shares pay 12b-1 expenses of 1.00%, and 3) each class may
bear differing amounts of certain class specific expenses.
READ THE FOLLOWING IN CONJUNCTION WITH THE SECTIONS TITLED "HOW TO INVEST IN THE
FUND" ON PAGE 6, "HOW TO REDEEM SHARES" ON PAGE 9 AND "SHAREHOLDER RIGHTS" ON
PAGE 13:
Class C shares are offered at net asset value, without initial sales
charge, subject to an annual distribution fee of 1% (of which 0.75% is an asset
based sales charge and 0.25% is a service fee). Class C shares are subject to a
contingent deferred sales charge ("CDSC"), based on the lower of the shares'
cost and current net asset value, of 2% if redeemed within one year of the
purchase date or 1% if redeemed after one year but before two years of the
purchase date. The CDSC will be waived (i) on redemption of shares following the
death of the shareholder and (ii) on certain redemptions in connection with IRAs
and other qualified retirement plans.
When purchasing shares, specify whether the order is for Class A or
Class C shares. All purchase orders that fail to specify a class will
automatically be invested in Class A shares.
The differing sales charges and other expenses applicable to the
different classes of the Fund's shares may affect the performance of those
classes. Broker/dealers and others entitled to receive compensation for selling
or servicing Fund shares may receive more with respect to one class than
another. The Board of Trustees of the Trust does not anticipate that there will
be any conflicts among the interests of the holders of the different classes of
Fund shares. On an ongoing basis, the Board will consider whether any such
conflict exists and, if so, take appropriate action.
ADD THE FOLLOWING SECTION:
DISTRIBUTION PLANS
Each class has adopted a plan, pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which permits the Fund to pay for certain
distribution and promotion expenses related to marketing its shares. The amount
payable by Class A shares is 0.25% of average daily net assets for the year and
by Class C shares is 1.00% of its average daily net assets for the year (of
which 0.75% is an asset based sales charge and 0.25% is a service fee).
Expenditures pursuant to the Plans and related agreements may reduce current
yield after expenses.
2
<PAGE>
Under the Plans, the Trust may engage in any activities related to the
distribution of Fund shares, including without limitation the following: (a)
payments, including incentive compensation, to securities dealers or other
financial intermediaries, financial institutions, investment advisors and others
that are engaged in the sale of Shares, or that may be advising shareholders of
the Trust regarding the purchase, sale or retention of Shares, or that hold
Shares for shareholders in omnibus accounts or as shareholders of record or
provide shareholder support or administrative services to the Fund and its
shareholders, or for rendering shareholder support services, including allocated
overhead, office space and equipment, telephone facilities and expenses,
answering routine inquiries regarding the Trust, processing shareholder
transactions, and providing such other shareholder services as the Trust may
request; (b) expenses of maintaining personnel (including personnel of
organizations with which the Trust has entered into agreements related to this
Plan) who engage in or support distribution of Shares; (c) costs of preparing,
printing and distributing Fund prospectuses and statements of additional
information and reports for recipients other than existing Fund shareholders;
(d) costs of formulating and implementing marketing and promotional activities,
including sales seminars, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising; (e) costs of preparing,
printing and distributing sales literature; (f) costs of obtaining such
information, analyses and reports with respect to marketing and promotional
activities as the Trust may deem advisable; and (g) costs of implementing and
operating the Plans.
REPLACE THE FOURTH AND FIFTH PARAGRAPHS OF THE SECTION TITLED "OPERATION OF THE
FUND" ON PAGE 12 WITH THE FOLLOWING:
The Fund is authorized to pay the Adviser a fee equal to an annual
average rate of 2.25% of its average daily net assets. The Adviser pays all of
the operating expenses of the Fund except brokerage, taxes, interest, expenses
which the Fund is authorized to pay pursuant to the Distribution Plans, fees and
expenses of 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.
Effective March 1, 1999, MFS is the Fund's Administrator. As
Administrator, MFS manages the Fund's business affairs and provides the Fund
with administrative services, including all regulatory reporting and necessary
office equipment. For these services, MFS receives a monthly fee from the
Adviser equal to 0.05% of the Fund's average monthly net assets (subject to a
minimum annual payment of $30,000).
ADD THE FOLLOWING SECTION:
YEAR 2000 ISSUE
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser, Administrator or other service providers
to the Fund do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Issue." The Adviser and Administrator have taken steps that they believe are
reasonably designed to address the Year 2000 Issue with respect to computer
systems that are used and to obtain reasonable assurances that comparable steps
are being taken by the Fund's major service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Fund. In addition, the Adviser cannot make assurances that
the Year 2000 Issue will not affect the banks and other companies in the Fund's
portfolio or worldwide markets and economies. However, a critical part of the
Adviser's Year 2000 Compliance Program is devoted to determining the extent to
which the Fund is at risk because of the failure of the companies in its
portfolio to address the Year 2000 Issue. The Adviser is communicating with
these portfolio companies to ascertain whether they are addressing their Year
2000 Issues and are either Year 2000 compliant or expect to be compliant on a
timely basis. To the extent any company in the portfolio does not provide
satisfactory responses, the Fund will sell the corresponding securities from the
portfolio.
3
<PAGE>
BANC STOCK GROUP FUND
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of Banc Stock Group Fund dated August
20, 1998 and the Supplement to the Prospectus dated March 1, 1999. A copy of the
Prospectus can be obtained by writing the Transfer Agent at 6000 Memorial Drive,
Dublin, Ohio 43017, 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
SHARES OF THE FUND.......................................................... 3
THE INVESTMENT ADVISER...................................................... 5
TRUSTEES AND OFFICERS....................................................... 6
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 7
DISTRIBUTION PLANS ......................................................... 7
DETERMINATION OF SHARE PRICE................................................ 9
INVESTMENT PERFORMANCE...................................................... 9
CUSTODIAN................................................................... 10
TRANSFER AGENT.............................................................. 10
ACCOUNTANTS................................................................. 11
DISTRIBUTOR................................................................. 11
FINANCIAL STATEMENTS........................................................ 11
2
<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 "Shares"). The Fund is the only series currently
authorized by the Trustees. There are currently two classes of Shares: Class A
and Class C.
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.
As of February 8, 1999, the officers and trustees as a group
beneficially owned less than 1% of the Fund.
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 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.
3
<PAGE>
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 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.
4
<PAGE>
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 the 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).
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.
5
<PAGE>
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 .d 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 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 the Statement of
Additional Information.
5. LOANS. The Fund will not loan its portfolio securities.
-----
6. REVERSE REPURCHASE AGREEMENTS. The Fund will not enter into reverse
------------------------------
repurchase agreements.
SHARES OF THE FUND
Two classes of Shares, Class A shares and Class C shares, are
authorized for the Fund. Both classes of shares represent an interest in the
same portfolio of investments of the Fund and have the same rights, except that
each class has exclusive voting rights with respect to its Rule 12b-1
distribution plan. The net asset value per share of both classes is expected to
differ from time to time.
A contingent deferred sales charge ("CDSC"), based on the lower of the
shares' cost and current net asset value, of 2% will be charged if the shares
are redeemed within one year of the purchase date or 1% if redeemed after one
year but before two years of the purchase date. The holding period for the CDSC
begins on the day you buy your shares. Your shares will age one month on that
same date the next month and each following month. For example: if you buy
6
<PAGE>
shares on the 18th of the month, they will age one month on the 18th day of the
next month and each following month. In determining whether the CDSC applies to
a redemption of CDSC Shares, CDSC Shares not subject to a CDSC are redeemed
first.
The CDSC imposed on Class C shares will be waived (i) on redemption of
shares following the death of the shareholder and (ii) on certain redemptions in
connection with IRAs and other qualified retirement plans.
THE INVESTMENT ADVISER
The Fund's investment adviser is Heartland Advisory Group, Inc., 1105
Schrock Road, Suite 427, Columbus, Ohio 43229 (the "Adviser"). The Adviser is a
wholly owned subsidiary of The Banc Stock Group, Inc.
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 2.25% 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. For the period from August
1, 1997 (commencement of operations) through February 28, 1998, the Fund paid
fees to the Adviser of $110,653.
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.
7
<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>
<CAPTION>
===================================== ========================== ===========================================================
NAME, AGE POSITION PRINCIPAL OCCUPATIONS
AND ADDRESS DURING PAST 5 YEARS
===================================== ========================== ===========================================================
<S> <C> <C>
Michael E. Guirlinger * Trustee, President and Director, president and treasurer of Heartland Advisory
Age: 50 Treasurer Group, Inc.; director, president and treasurer of The
1105 Schrock Road, Suite 437 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, 1105 Schrock Road, Suite 427, Columbus,
Ohio.
===================================== ========================== ===========================================================
Lisa R. Hunter * Trustee and Secretary Vice president of Banc Stock Financial Services, Inc.**
Age: 44 Prior to 1995, compliance administrator of VESTAX
1105 Schrock Road, Suite 437 Securities Corp, 1932 Georgetown Rd., Hudson, Ohio 44256.
Columbus, Ohio 43229
===================================== ========================== ===========================================================
Jeffrey C. Barton Chief Financial Officer Vice President and Chief Financial Officer of The Banc
Age: 52 Stock Group, Inc. and subsidiaries,** Chief Financial
1105 Schrock Road, Suite 437 Officer of Saunders Pearson Company, a contract financial
Columbus, Ohio 43229 management company, 1807 Riverhill Road, Columbus, Ohio.
===================================== ========================== ===========================================================
John M. Bobb Trustee Director of Headwater Group, 8200 Clonse Road, New
Age: 57 Albany, Ohio, a fine arts consulting agency, 1994 to
8200 Clonse Road present. Prior to 1994, sales and marketing director
New Albany, Ohio 43054 with Bush Brothers, a food company in Knoxville,
Tennessee.
===================================== ========================== ===========================================================
Virginia H. Rader Trustee Retired.
Age: 52
600 Fairway Blvd.
Columbus, Ohio 43215
===================================== ========================== ===========================================================
Gary A. Radville Trustee Chief Financial Officer of Peer Foods, Inc., 4631 S.
Age: 41 McDowell St., Chicago, Illinois. Prior to 1996,
4631 S. McDowell St. Partner, Price Waterhouse, 200 E. Randolph St., Chicago,
Chicago, Illinois 60609 Illinois.
===================================== ========================== ===========================================================
</TABLE>
Trustee fees are Trust expenses. The compensation paid to the Trustees
for the first full year of the Trust ended February 28, 1998 is set forth in the
following table:
<TABLE>
<CAPTION>
================================ ==============================
TOTAL COMPENSATION
FROM TRUST (THE TRUST IS
NAME NOT IN A FUND COMPLEX)
================================ ==============================
<S> <C>
Michael E. Guirlinger 0
================================ ==============================
Lisa R. Hunter 0
================================ ==============================
John M. Bobb $3,000
================================ ==============================
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>
8
<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 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.
9
<PAGE>
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 (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.
For the period from August 1, 1997 (commencement of operations) through
February 28, 1998, the Fund paid total brokerage commissions of $197,647. Banc
Stock Financial Services, Inc. was paid $196,987 (99.67% of all brokerage
commissions) for effecting 98.66% of the Fund's brokerage transactions.
DISTRIBUTION PLANS
With respect to the Fund, the Trust has adopted a separate Distribution
Plan for each class of shares, pursuant to Rule 12b-1 which was promulgated by
the Securities and Exchange Commission pursuant to the Investment Company Act of
1940 (the "Plans"). Each Plan provides for payment of fees to the Adviser to
finance any activity which is principally intended to result in the sale of the
Fund's shares subject to the Plans. Such activities are described in the
Prospectus. Pursuant to the Plans, the Adviser may pay fees to brokers and
10
<PAGE>
others for such services. The Trustees expect that the adoption of the Plans
will significantly enhance the Fund's ability to expand distribution. It is also
anticipated that an increase in the size of the Fund will facilitate more
efficient portfolio management and assist the Fund in seeking to achieve its
investment objective. The maximum amount payable with respect to each class
under the Plans is described in the Prospectus. The Plans have been approved by
the Fund's Board of Trustees, including a majority of the Trustees who are not
"interested persons" of the Fund and who have no direct or indirect financial
interest in the Plans or any related agreement, by a vote cast in person.
continuation of the Plans and the related agreements must be approved by the
Trustees annually, in the same manner, and a Plan or any related agreement may
be terminated at any time without penalty by a majority of such independent
Trustees or by a majority of the outstanding shares of the applicable class. Any
amendment increasing the maximum percentage payable under a Plan or other
material change must be approved by a majority of the outstanding shares of the
applicable class, and all other material amendments to a Plan or any related
agreement must be approved by a majority of the independent Trustees. Michael M.
Guirlinger and Lisa R. Hunter, trustees of the Trust, may benefit indirectly
from payments received by the Adviser under the Plans because of their
relationships with the Adviser and its affiliates. Mr. Guirlinger is an
executive officer of the Adviser and Ms. Hunter is an executive officer of an
affiliate of the Adviser.
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, Martin
Luther King, Jr. 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, five and ten year periods) 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, that the maximum sales load is
deducted from the initial $1,000 and that a complete redemption occurs at the
end of the applicable period. If the Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated. The average annual total
return of the Fund for the period August 1, 1997 (commencement of operations)
through February 28, 1998 was 41.78%.
11
<PAGE>
The Fund may also advertise performance information (a
"non-standardized quotation") which is calculated differently from average
annual total return. A non-standardized quotation of total return may be a
cumulative return which measures the percentage change in the value of an
account between the beginning and end of a period, assuming no activity in the
account other than reinvestment of dividends and capital gains distributions.
The total return of the Fund as calculated in this manner for the period August
1, 1997 (commencement of operations) through February 28, 1998 was 27.50%. A
non-standardized quotation may also be an average annual compounded rate of
return over a specified period, which may be a period different from those
specified for average annual total return. The average annual compounded rate of
return of the Fund for the period August 1, 1997 (commencement of operations)
through February 28, 1998 was 52.24%. In addition, a non-standardized quotation
may be an indication of 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. This value, for the period ended February 28, 1998, was $12,750. These
non-standardized quotations do not include the effect of the applicable sales
load which, if included, would reduce the quoted performance. A non-standardized
quotation of total return will always be accompanied by the Fund's average
annual total return as described above.
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.
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
Effective March 1, 1999, Mutual Funds Service Co. (MFS), 6000 Memorial
Drive, Dublin, Ohio 43017 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
12
<PAGE>
agent and performs other accounting and shareholder service functions. MFS also
acts as the Fund's administrator and, in such capacity, manages the Fund's
business affairs. In addition, MFS, in its capacity as fund accountant, provides
the Fund with certain monthly reports, record-keeping and other
management-related services. For its services as fund accountant, MFS receives
an annual fee from the Adviser equal to 0.05% of the Fund's assets up to $100
million (subject to a minimum annual fee of $20,000, which increases as
additional classes are added). Prior to March 1, 1999, American Data Services,
Inc. ("ADS"), P.O. Box 5536, Hauppauge, New York 11788-0132 served as fund
accountant and administrator. For the period from August 1, 1997 (commencement
of operations) through February 28, 1998 and for the fiscal year ended February
28, 1999, ADS received $8,566 and $46,315, respectively, from the Adviser
(not the Fund) for its services to the Fund.
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, 1999. 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. ("BSFS"), 1105 Schrock Road, Suite
437, 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. The aggregate commissions paid
for the period from August 1, 1997 (commencement of operations) through February
28, 1998 was $212,007, of which BSFS earned $14,661 for acting as distributor
and an additional $49,158 for acting as broker-dealer for the Fund.
FINANCIAL STATEMENTS
The financial statements and independent accountants' report required
to be included in this Statement of Additional Information are incorporated
herein by reference to the Trust's Annual Report to Shareholders for the fiscal
year ended February 28, 1998. The Fund will provide the Annual Report without
charge at written request or request by telephone.
13
