SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
---
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 5
/ X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 6
/ X /
(Check appropriate box or boxes.)
THE BSG FUNDS - FILE NOS. 333-22075 AND 811-8061
(Exact Name of Registrant as Specified in Charter)
1105 SCHROCK ROAD, SUITE 437, COLUMBUS, OHIO 43229
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (614) 848-3400
CPM STATUTORY AGENT CORPORATION, 366 EAST BROAD STREET, COLUMBUS, OHIO 43215
(Name and Address of Agent for Service)
With copy to:
Donald S. Mendelsohn, Brown, Cummins & Brown Co., L.P.A.
3500 Carew Tower, Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/ / on ____________________ pursuant to paragraph (b)
/ X / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a) (2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
BANC STOCK GROUP FUND
PROSPECTUS JULY 1, 2000
1105 Schrock Road, Suite 437
Columbus, Ohio 43229
For Information, Shareholder Services and Requests:
(888) BANK-595
Banc Stock Group Fund seeks to provide long-term capital appreciation.
AS WITH ALL MUTUAL FUND SHARES AND PROSPECTUSES, THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SHARES OR THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
ABOUT THE FUND
COSTS OF INVESTING IN THE FUND
ADDITIONAL INFORMATION ABOUT INVESTMENT
STRATEGIES AND RELATED RISKS
HOW TO BUY SHARES
HOW TO SELL SHARES
HOW TO EXCHANGE SHARES
DIVIDENDS AND DISTRIBUTIONS
TAXES
OPERATION OF THE FUND
FINANCIAL HIGHLIGHTS
<PAGE>
ABOUT THE FUND
INVESTMENT OBJECTIVE
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The investment objective of the Fund is to provide long-term capital
appreciation.
HOW THE FUND PURSUES ITS OBJECTIVE
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The Fund pursues its objective by normally investing at least 65% of its
total assets in equity securities of community banks, lending institutions and
financial services companies believed to offer superior prospects for long term
growth. The Fund's adviser selects stocks of banks with low price to earnings
ratios, minimal loan losses and long histories of profitability, located in
stable communities with growth potential.
PRINCIPAL RISKS OF INVESTING IN THE FUND
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All investments carry risks to some degree. The Fund's portfolio is subject
to the risks associated with common stock investing, such as selecting
individual companies that do not perform as anticipated. Overall stock market
risks may also affect the value of the Fund. Factors such as domestic economic
growth and market conditions, interest rate levels, and political events affect
the securities markets. As with any mutual fund investment, the Fund's returns
may vary and you could lose money.
Because the Fund's portfolio is concentrated in the banking industry, it is
subject 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. This may cause the Fund's net asset value to
fluctuate more than that of a fund that does not concentrate in a particular
industry. For example:
o Extensive governmental regulation may limit both the amounts and types
of loans and other financial commitments banks and other lending
institutions can make, and the interest rates and fees they can
charge.
o Profitability is largely dependent on the availability and cost of
capital funds, and can fluctuate significantly when interest rates
change.
o Credit losses resulting from financial difficulties of borrowers can
negatively impact the industry.
As you can see, 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, because many community banks and other lending institutions
are smaller capitalization companies, the Fund may be subject to the risks
associated with such companies. For example, less frequent trading, with smaller
volume than larger capitalization companies, may make it difficult for the Fund
to buy and sell shares. Also, the market price of smaller capitalization
companies tends to rise more in response to buying demand and fall more in
response to selling pressure than is the case with larger capitalization
companies.
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An investment in the Fund is not a deposit or obligation of any bank, is
not endorsed or guaranteed by any bank, and is not insured by the Federal
Deposit Insurance Corporation (FDIC) or any other government agency.
IS THIS FUND RIGHT FOR YOU?
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The Fund is designed for:
o long term investors seeking a fund with long term capital appreciation
o investors willing to accept price fluctuations and market cycles
o investors looking to diversify their portfolio into the banking
industry
HOW THE FUND HAS PERFORMED
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The chart and table below show the variability of the Fund's returns, which
is one indicator of the risks of investing in the Fund. The bar chart shows
changes in the Fund's returns since the Fund's inception. Sales loads are not
reflected in the bar chart and, if these amounts were reflected, returns would
be less than those shown. The table shows how the Fund's average annual total
returns compare over time to those of a broad-based securities market index. Of
course, the Fund's past performance is not necessarily an indication of its
future performance.
Insert bar chart with the following plot points*:
(Total return as of December 31)
1998...............(9.13)%
1999...............(3.71)%
*The Fund's year-to-date return as of March 31, 2000 was (_____)%
UPDATE: Since August 1, 1997 (the Fund's inception), the highest return for a
quarter was 13.97% (Q4, 1997); and the lowest return was (19.87)% (Q3, 1998).
AVERAGE ANNUAL TOTAL RETURNS:
ONE YEAR SINCE INCEPTION
Class A Shares (3.71)% 3.43%
S&P Index 21.04% 22.26%
NASDAQ Combined Bank
Index _____ (5.58)% 1.21%
<PAGE>
COSTS OF INVESTING IN THE FUND
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The following table describes the expenses and fees that you may pay if you
buy and hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) 1 CLASS A CLASS C
------- -------
Maximum Front End Sales Load Imposed on Purchases..............5.75%......NONE
Maximum Contingent Deferred Sales Charge ......................NONE.......2.00%
Sales Load Imposed on Reinvested Dividends.....................NONE.......NONE
Redemption Fee.................................................NONE.......NONE
Exchange Fee...................................................NONE.......NONE
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)2
Management Fees.......................................1.70%......1.70%
Distribution (12b-1) Fees.............................0.25%......1.00%
Other Expenses .......................................0.09%......0.10%
Total Fund Operating Expenses..................................2.04%......2.80%
Expense Reimbursement2 (0.09)% (0.10)%
Net Fund Operating Expenses 1.95% 2.70%
1 Processing organizations may impose transactional fees on shareholders.
2 The Adviser has made an irrevocable commitment to reimburse the Fund's
trustee expenses through June 1, 2003.
EXAMPLE:
The example below is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example uses the
same assumptions as other mutual fund prospectuses: a $10,000 initial
investment, 5% annual total return, constant operating expenses, and sale of all
shares at the end of each time period. Your actual expenses may be different.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Class A $762 $1,152 $1,575 $2,774
Class C
if you sold your shares
at the end of the period $473 $838 $1,439 $3,089
if you stayed in the fund $273 $838 $1,439 $3,089
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ADDITIONAL INFORMATION ABOUT INVESTMENT
STRATEGIES AND RELATED RISKS
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o General
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 considers the portion of insider ownership as it believes this is one
indicator of the care and concern a bank's management and board of directors
bring to the institution and it shareholders. 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 Fund will invest primarily in equity securities of banks,
lending institutions and financial services companies, the Fund may, based on
the Adviser's perception of the short term outlook for the banking industry,
invest in equity securities of companies outside the banking industry. To the
extent the Fund invests in companies outside the banking industry, it could
invest a significant portion of its portfolio in one or more sectors.
As of the date of this Prospectus, a significant portion of the Fund's
assets is invested in the technology sector, including telecommunications. A
weakness in this sector could result in significant losses to the Fund.
Technology companies may be significantly affected by falling prices and
profits, and intense competition. In addition, the rate of technological change
is generally higher than other companies, often requiring extensive and
sustained investment in research and development, and exposing such companies to
the risk of rapid product obsolescence. Telecommunications companies are also
subject to changing government regulations that may limit profits and restrict
services offered. Changes in governmental policies, such as telephone and cable
regulations and anti-trust enforcement, may have a material effect on the
products and services of these companies. It is likely that some of today's
technology companies will not exist in the future. The price of many technology
stocks has risen based on projections of future earnings and company growth. If
a company does not perform as expected, the price of the stock could decline
significantly. Many technology companies are currently operating at a loss and
may never be profitable.
Up to 15% of the Fund's portfolio may consist of illiquid securities.
Illiquid securities generally include securities that cannot be disposed of
promptly and in the ordinary course of business without taking a reduced price.
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
that the shareholders considered appropriate at the time of investment in the
Fund.
<PAGE>
o Temporary strategies
From time to time, the Fund may take temporary defensive positions which
are inconsistent with the Fund's principal investment strategies, in attempting
to respond to adverse market, economic, political, or other conditions. For
example, the Fund 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.
As a result, the Fund may not achieve its investment objective. If the Fund
acquires securities of money market funds, the shareholders of the Fund will be
subject to duplicative management fees.
PRICING YOUR SHARES
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When you buy and sell shares, the price of the shares is based on the
Fund's net asset value per share (NAV). The NAV is calculated at the close of
trading (normally 4:00 p.m. Eastern time) on each day the New York Stock
Exchange is open for business. The NAV is calculated by dividing the value of
the Fund's total assets (including interest and dividends accrued but not yet
received) minus liabilities (including accrued expenses) by the total number of
shares outstanding. The Fund's assets are generally valued at their market
value. If market prices are not available, or if an event occurs after the close
of the trading market that materially affects the values, assets may be valued
at their fair value. Requests to buy and sell shares are processed at the NAV
next calculated after we receive your order in the form described below.
HOW TO BUY SHARES
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INITIAL PURCHASE
The minimum initial investment is $2,500 ($1,000 for shareholders
participating in the continuing automatic transfer program). There is no minimum
for qualified retirement accounts and medical savings accounts.
You may open an account and make an initial investment through securities
dealers who have a sales agreement with Banc Stock Financial Services, Inc., the
Fund's distributor. You may also make a direct initial investment by following
these steps:
o complete and sign the investment application form which accompanies
this Prospectus;
o draft a check made payable to Banc Stock Group Fund;
o identify on the check and the application the Class in which you would
like to invest;
o mail the application and check to:
Banc Stock Group Fund
c/o Mutual Funds Service Co.
6000 Memorial Drive
Dublin, OH 43017
<PAGE>
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 your bank
account through ACH (automated clearing house). SALES LOADS
o CLASS A SHARES
Shares of the Fund are purchased at the public offering price. The public
offering price for Class A shares is the next determined NAV plus a sales load
as shown in the following table.
================================================================================
Sales Load as % of:
Amount of Investment Public Net Dealer Reallowance
Offering Amount as % of
Price Invested Public Offering Price
================================================================================
Less than $50,000 5.75% 6.10% 5.25%
$50,000 but less than $100,000 5.25% 5.54% 5.00%
$100,000 but less than $250,000 4.75% 4.99% 4.25%
$250,000 but less than $500,000 3.00% 3.09% 2.50%
$500,000 but less than $1,000,000 1.00% 1.01% .75%
$1,000,000 or more None None None
================================================================================
o CLASS C SHARES
Class C shares are subject to a contingent deferred sales charge ("CDSC")
(based on the lower of the shares' cost and current NAV) 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 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 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 C
Shares, C Shares not subject to a CDSC are redeemed first.
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.
DISTRIBUTION PLANS
Each class has adopted a plan under Rule 12b-1 that allows the class to pay
distribution fees for the sale and distribution of its shares. The Distribution
Plan for Class C shares also allows the class to pay for services provided to
shareholders. Class A shares pay annual 12b-1 expenses of 0.25% and Class C
shares pay annual 12b-1 expenses of 1.00% (of which 0.75% is an asset based
sales charge and 0.25% is a service fee). Because these fees are paid out of the
Fund's assets on an on-going basis, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.
<PAGE>
ADDITIONAL PURCHASES
The minimum additional purchase is $500 ($100 for CAT purchases). You may
buy additional shares at any time through your securities dealer. Or you may buy
additional shares directly from the Fund, by mail or wire. Mail your request,
with the following information, to the address above:
o the name of your account;
o your account number; and
o a check made payable to Banc Stock Group Fund.
To purchase shares of the Fund by wire, call the Transfer Agent at (888)
BANK-595 for instructions. Then, provide your bank with the following wiring
information:
Firstar Bank, N.A.
ABA #0420-0001-3
Attn: Banc Stock Group Fund
D.D.A. #486448004
Account Name _________________ (write in shareholder
name) For Account # ______________ (write in account
number)
The Fund will accept wire orders only on a day on which the Fund, the
Custodian and the Transfer Agent are open for business. A wire purchase will be
considered made when the wired money is received and the purchase is accepted by
the Fund. Any delays that may occur in wiring money, including delays that 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 Fund may charge a fee in the future.
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.
Call us at 888-BANK-595 to open an IRA or SEP plan or obtain more specific
information regarding these retirement plan options. Custodial fees for an IRA
will be paid by redemption of Fund shares from the IRA unless you pay these fees
directly to the IRA custodian.
OTHER PURCHASE INFORMATION
We reserve the right to limit the amount of purchases and to refuse to sell
to any person. 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, we 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.
<PAGE>
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
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. Under
certain circumstances, shareholders of the Adviser's parent company, Banc Stock
Group, Inc., may purchase shares of the Fund during certain promotional periods
without paying a sales charge. Contact the Fund's distributor, Banc Stock
Financial Services, Inc., at 1-800-347-BANK for additional information.
HOW TO SELL SHARES
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You may sell all or part of your investment on any day that the New York
Stock Exchange is open for trading. You may receive proceeds of your sale in a
check or federal wire transfer. The proceeds 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 sale. A broker may charge a transaction fee to
sell shares. Presently, there is no charge for wire sales, but we may charge for
this service in the future. Any charges for wire sales will be deducted from
your Fund by redemption of shares.
BY MAIL - To sell any part of your account in the Fund by mail, send a
written request, with the following information, to the address above:
o the Fund name;
o your account number;
o the name(s) on your account;
o your address;
o the dollar amount or number of shares you wish to redeem; and
o the signatures of all registered account owners, signed in the exact
name(s) and any special capacity in which they are registered and
guaranteed by an "eligible guarantor institution."
An eligible guarantor institution is 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 your
protection. In certain instances, we may require you to furnish additional legal
documents to insure proper authorization.
<PAGE>
BY TELEPHONE - If you have completed the Optional Telephone Redemption and
Exchange section of your investment application, you may sell any part of your
account by calling us at (888) BANK-595. The Fund, the Transfer Agent and the
Custodian are not liable for following instructions communicated by telephone
that they reasonably believe to be genuine. They will use reasonable procedures
to confirm that telephone instructions are genuine.
We may terminate the telephone sale procedures at any time. During periods
of extreme market activity it is possible that you may encounter some difficulty
in telephoning us, although we have never experienced difficulties in receiving
or in a timely fashion responding to telephone requests. If you are unable to
reach us by telephone, you may request a sale by mail.
ADDITIONAL INFORMATION - If you are not certain of the requirements for a
sale please call us at (888) BANK-595. We cannot accept, and will return,
requests specifying a certain date or share price. We will normally mail you the
proceeds on or before the fifth business day following your sale. However, we
will not mail any proceeds unless your investment check has cleared the bank,
which normally may take up to fifteen calendar 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, we may
suspend sales or postpone payment dates.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, we reserve the right to require you to redeem all of your shares in
the Fund on 30 days' written notice if the value of your shares is less than
$2,500 due to sales, or such other minimum amount as we 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. You may
increase the value of your shares in the Fund to the minimum amount within the
30-day period.
HOW TO EXCHANGE SHARES
You may exchange, without charge, any or all of your shares in the Fund for
shares in the Fund's Money Market Account with the Flex Fund's Money Market
Fund, a separately managed money market fund. You may request the exchange by
telephoning (888) BANK-595 or writing the Transfer Agent at 6000 Memorial Drive,
Dublin, OH 43017. Exchanges may be made only if the Money Market Fund is
registered in your state of residence. The exchange privilege with the Money
Market Fund does not constitute an offering or recommendation of the Money
Market Fund. It is your responsibility to obtain and read a prospectus of the
Money Market Fund before you make an exchange.
o If you exchange shares into or out of the Fund, the exchange is made
at the net asset value per share of each fund next determined after
the exchange request is received.
o If you exchange Class C shares of the Fund, the time you own the Money
Market Account shares will not be included when the holding period for
the CDSC is calculated.
o If you exchange only a portion of your Class C shares, shares not
subject to a CDSC are exchanged first.
o If you redeem shares from the Money Market Account that were
previously Class C shares of the Fund, the redemption is made at the
net asset value per share next determined after the redemption request
is received, less any CDSC that applied to the Fund shares.
<PAGE>
In times of extreme economic or market conditions, exchanging Fund or Money
Market Fund shares by telephone may be difficult. To receive a specific day's
price, your letter or call must be received before that day's close of the New
York Stock Exchange. Each exchange represents the sale of shares from one fund
and the purchase of shares in another, which may produce a gain or loss for
Federal income tax purposes.
Exchanges will be accepted only if the registration of the two accounts is
identical. The Fund, the Transfer Agent and the Custodian are not liable for
following instructions communicated by telephone that they reasonably believe to
be genuine. They will use reasonable procedures to confirm that telephone
instructions are genuine.
DIVIDENDS AND DISTRIBUTIONS
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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.
The Fund typically distributes substantially all of its net investment
income in the form of dividends and taxable capital gains to its shareholders
every December. These distributions are automatically reinvested in the Fund
unless you request cash distributions on your application or through a written
request. Dividends paid by the Fund may be eligible in part for the dividends
received deduction for corporations. If you sell your entire account, you will
be paid all dividends accrued to the time of sale, including the day of sale.
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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In general, selling shares of the Fund and receiving distributions (whether
reinvested or taken in cash) are taxable events. Depending on the purchase price
and the sale price, you may have a gain or a loss on any shares sold. Any tax
liabilities generated by your transactions or by receiving distributions are
your responsibility. The Fund expects that its distributions will primarily
consist of capital gains (which may be taxable at different rates depending on
the length of time the Fund holds its assets). Because distributions of long
term capital gains are subject to capital gains taxes, regardless of how long
you have owned your shares, you may want to avoid making a substantial
investment when the Fund is about to make a long term capital gains
distribution.
Early each year, we will mail to you a statement setting forth the federal
income tax information for all distributions made during the previous year. If
you do not provide your taxpayer identification number, your account will be
subject to backup withholding.
The tax considerations described in this section do not apply to
tax-deferred accounts or other non-taxable entities. Because each investor's tax
circumstances are unique, please consult with your tax adviser about your Fund
investment.
<PAGE>
OPERATION OF THE FUND
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Heartland Advisory Group, Inc., 1105 Schrock Road, Suite 437, Columbus,
Ohio 43229 (the "Adviser") manages 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 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.
In February 1999, the Fund's shareholders approved a new management
agreement whereby the Fund lowered the fee payable to the Adviser to an annual
average rate of 2.25% of its average daily net assets. Effective July 1, 1999,
the Adviser has agreed to permanently waive its management fee to an annual rate
of 1.70% of the Fund's 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 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.
INVESTMENT ADVISER TRANSFER AGENT AND ADMINISTRATOR
Heartland Advisory Group, Inc. (ALL REDEMPTION REQUESTS)
1105 Schrock Road, Suite 437 Mutual Funds Service Co.
Columbus, Ohio 43229 6000 Memorial Drive
Dublin, OH 43017
CUSTODIAN AUDITORS
Firstar Bank, N.A. McCurdy & Associates CPA's, Inc.
425 Walnut Street, ML 6118 27955 Clemens Road
Cincinnati, Ohio 45202 Westlake, Ohio 44145
LEGAL COUNSEL DISTRIBUTOR
Brown, Cummins & Brown Co., L.P.A. Banc Stock Financial Services, Inc.
3500 Carew Tower, 441 Vine Street 1105 Schrock Road, Suite 437
Cincinnati, Ohio 45202 Columbus, Ohio 43229
<PAGE>
FINANCIAL HIGHLIGHTS
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The following condensed supplementary financial information for the period
August 1, 1997 (commencement of operations) through February 28, 1998, and for
the fiscal years ended February 28, 1999 and February 29, 2000, is derived from
the audited financial statements of the Fund. The financial statements of the
Fund have been audited by McCurdy & Associates CPA's, Inc., independent public
accountants, and are included in the Fund's Annual Report. The Annual Report
contains additional performance information and is available upon request and
without charge.
(For a fund share outstanding throughout the period)
<TABLE>
<CAPTION>
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
CLASS A CLASS C CLASS A CLASS A
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
For the period For the period
For the year June 3, 1999 For the year August 1, 1997
ended (commencement of ended (commencement of
February 29, operations) through February 28, operations) through
2000 February 29, 2000 1999 February 28, 1998
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.72 $11.23 $12.75 $10.00
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
Net Investment loss (0.06) (0.05) (0.15) (0.07)
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
Net realized and unrealized gains (losses)
on investments (1.19) (1.77) (1.22) 2.82
------ ------ ------ ----
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
Total from investment operations (1.25) (1.82) (1.37) 2.75
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
LESS DISTRIBUTIONS
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
From net capital gains (0.07) (0.07) (0.66) --
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
Total Distributions (0.07) (0.07) (0.66) --
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
NET ASSET VALUE, END OF PERIOD $ 9.40 $ 9.34 $10.72 $12.75
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
Total return (excludes sales and
redemption charges) -11.75% -16.29%(1) -10.79% 27.50%(1)
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
RATIOS/SUPPLEMENTARY DATA
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
Net assets at end of period (000) $9,411 $71 $15,716 $13,702
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
Ratio of expenses to average net assets 2.17% 2.74%(2) 2.50% 2.50%(2)
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
Ratio of net investment loss to average net
assets -0.40% - 0.82%(2) -1.27% -1.07%(2)
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
Ratio of expenses to average net assets
before reimbursement of trustee fees 2.26% 2.84%(2) 2.50% 2.50%(2)
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
Ratio of net investment loss to average net
assets before reimbursement of trustee fees -0.49% -0.92% -1.27% -1.07%(2)
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
Portfolio turnover rate 119.13% 119.13%(1) 54.07% 26.65%(1)
- --------------------------------------------- ----------------- --------------------- ----------------- ---------------------
<FN>
(1) Not annualized.
(2) Annualized.
</FN>
</TABLE>
<PAGE>
[BACK COVER PAGE]
Several additional sources of information are available to you. The
Statement of Additional Information (SAI), incorporated into this prospectus by
reference, contains detailed information on Fund policies and operations.
Shareholder reports contain management's discussion of market conditions,
investment strategies and performance results as of the Funds' latest
semi-annual or annual fiscal year end.
Call the Fund at 888-BANK-595 to request free copies of the SAI and the
Funds' annual and semi-annual reports, to request other information about the
Funds and to make shareholder inquiries.
You may review and copy information about the Fund (including the SAI and
other reports) at the Securities and Exchange Commission (SEC) Public Reference
Room in Washington, D.C. Call the SEC at 1-202-942-8090 for room hours and
operation. You may also obtain reports and other information about the Fund on
the EDGAR Database on the SEC's Internet site at HTTP.//WWW.SEC.GOV, and copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102.
Investment Company Act #811-8061
<PAGE>
BANC STOCK GROUP FUND
STATEMENT OF ADDITIONAL INFORMATION
July 1, 2000
This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the Prospectus of Banc Stock Group Fund dated
July 1, 2000. This SAI incorporates by reference the Trust's Annual Report to
Shareholders for the fiscal year ended February 29, 2000 ("Annual Report"). A
free copy of the Prospectus or Annual Report 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.
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. 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 Fund's
shareholders.
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.
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.
As of July 1, 2000, the officers and trustees as a group beneficially owned
less than 1% of the Fund.
<PAGE>
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.
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.
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
4
<PAGE>
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.
D. 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.
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
5
<PAGE>
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.
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
6
<PAGE>
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 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.
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. Under
certain circumstances, shareholders of the Adviser's parent company, Banc Stock
Group, Inc., may purchase shares of the Fund during certain promotional periods
without paying a sales charge. 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 changes for these investors.
7
<PAGE>
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 1.70% of the average daily net
assets of the Fund. Effective July 1, 1999, the Adviser agreed to permanently
waive its management fee to an annual rate of 1.70% of the average daily net
assets of the Fund. For the period from August 1, 1997 (commencement of
operations) through February 28, 1998 and for the fiscal year ended February 28,
1999, the Fund paid investment management fees to the Adviser of $110,653 and
$435,072, respectively. For the fiscal year ended February 29, 2000, the Fund
paid investment management fees to the Adviser of $277,238.
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. 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.
8
<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>
Anthony J. Reilly * President President of Banc Stock Financial Services, Inc.,
Age: 32 registered representative since 1992; Head of Trading
1105 Schrock Road, Suite 437 Department and General Securities Principal. Interim CEO
Columbus, Ohio 43229 of The Banc Stock Group, Inc., Columbus, Ohio.
===================================== ========================== ===========================================================
Lisa R. Hunter * Trustee, Treasurer, Vice president of Banc Stock Financial Services, Inc. and
Age: 45 Secretary and Chief Director of Compliance.** Prior to 1995, compliance
1105 Schrock Road, Suite 437 Financial Officer administrator of VESTAX Securities Corp, 1932 Georgetown
Columbus, Ohio 43229 Rd., Hudson, Ohio 44256.
===================================== ========================== ===========================================================
John M. Bobb Trustee Director of Headwater Group, 8200 Clouse Road, New
Age: 58 Albany, Ohio, a fine arts consulting agency, 1994 to
8200 Clouse 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: 53
600 Fairway Blvd.
Columbus, Ohio 43215
===================================== ========================== ===========================================================
Gary A. Radville Trustee Chief Financial Officer of Peer Foods, Inc., 4631 S.
Age: 42 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 year ended February 29, 2000 is set forth in the following table:
================================ ==============================
TOTAL COMPENSATION
FROM TRUST (THE TRUST IS
NAME NOT IN A FUND COMPLEX)
================================ ==============================
Michael E. Guirlinger 0
================================ ==============================
Lisa R. Hunter 0
================================ ==============================
John M. Bobb $4,000
================================ ==============================
Virginia H. Rader $4,000
================================ ==============================
Gary A. Radville $4,000
================================ ==============================
** 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.
The Trust, the Adviser and its affiliates have adopted a Code of Ethics
that permits personnel subject
9
<PAGE>
to the Code to invest in securities, including, under certain circumstances and
subject to certain restrictions, securities that may be purchased or held by the
Fund. However, the Code restricts personal investing practices by directors,
officers and employees of the Adviser and its affiliates and officers of the
Trust. The Code of Ethics also restricts personal investing practices of
trustees of the Trust who have knowledge about recent Fund trades. The Code of
Ethics prohibits acquisition of securities without preclearance in, among other
events, an initial public offering or a limited offering. These provisions are
designed to put the interests of Fund shareholders before the interest of people
who manage the Fund.
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.
10
<PAGE>
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 (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.
Consistent with the Conduct Rules 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. In addition, the Distributor (not the Fund) may
compensate brokers and other intermediaries for directing assets to or retaining
assets in the Fund. The Distributor is a registered broker-dealer and it is
anticipated that it will
11
<PAGE>
receive brokerage commissions from the Fund. Both the Adviser and the
Distributor are wholly owned by Banc Stock Group, Inc., a corporation which
invests in financial services companies.
For the period from August 1, 1997 (commencement of operations) through
February 28, 1998 and for the fiscal year ended February 28, 1999, the Fund paid
total brokerage commissions of $197,647 and $204,588, respectively. For the
fiscal year ended February 29, 2000, the Fund paid total brokerage commissions
of $144,454. For the period from April 1, 1997, (commencement of operations)
through February 28, 1998, Banc Stock Financial Services, Inc. ("BSFS") was paid
$196,987 (99.67% of all brokerage commissions) for effecting 98.66% of the
Fund's brokerage transactions. For the fiscal year ended February 28, 1999, BSFS
was paid $204,558 for effecting 100% of the Fund's brokerage transactions. For
the fiscal year ended February 29, 2000, BSFS was paid $144,454 in commissions
for effecting 100% of the Fund's brokerage transactions.
DISTRIBUTION PLANS
Effective March 1, 1999, 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).
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. The Fund does not participate in any joint distribution
activities with other mutual funds.
The Trustees expect that 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 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
12
<PAGE>
independent Trustees. Lisa R. Hunter, trustee of the Trust, may benefit
indirectly from payments received by the Adviser under the Plans because of her
relationships with the Adviser and its affiliates.
The table below states the amounts paid under the Fund's distribution plans
for the year ended February 29, 2000.
DISTRIBUTION PLAN EXPENSES PAID BY THE FUND
TYPE OF EXPENSE AMOUNT PAID
- --------------------------------------------------------------------------------
Class A Shares Class C Shares
Advertising $0 $0
Printing and Mailing of Prospectuses $0 $0
Compensation to Underwriters $0 $0
Compensation to Broker-Dealers $21,020 $0
Compensation to Sales Personnel $0 $0
Interest, Carrying, or Other Financial Charges $0 $0
Total $21,020 $0
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.
TAXES
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.
INVESTMENT PERFORMANCE
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.
"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.
13
<PAGE>
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 for Class A shares of the Fund for the fiscal year ended February 29,
2000 and for the period from August 1, 1997 (inception) to February 29, 2000 was
- --11.75% and 0.15%, respectively. The average annual total return for Class C
shares of the Fund for the period from June 3, 1999 (commencement of operations)
to February 29, 2000 was -16.29%.
14
<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 Class A shares
of the Fund as calculated in this manner for the period from August 1, 1997
(inception) to February 29, 2000 was 0.38%. The total return of Class C shares
of the Fund as calculated in this manner for the period from June 3, 1999
(commencement of operations) to February 29, 2000 was -16.29%.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. In addition, a non-standardized quotation may be an
indication of the value of a $10,000 investment (made on the date of the
commencement of operations of each class of shares of the Fund) as of the end of
a specified period. This value, for Class A shares and Class C shares of the
Fund for the period ended February 29, 2000, was $10,038 and $8,371,
respectively. 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.
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.
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.
15
<PAGE>
CUSTODIAN
Firstar 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
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, 1999, ADS received $$54,881 from the Adviser
(not the Fund) for its services to the Fund. For the fiscal year ended February
29, 2000, MFS received $94,556 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 29, 2001. 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 total amount of underwriting
commissions paid by the Fund with respect to Class A shares for the period from
August 1, 1997 (commencement of operations) through February 28, 1998 and for
the fiscal year ended February 28, 1999, were $________ and $__________,
respectively, of which BSFS, in its capacity as distributor for the Fund,
retained $______ and $______ in total underwriting commissions for the
respective periods. The total amount of underwriting commissions paid by the
Fund with respect to Class A shares for the fiscal year ended February 29, 2000
was $______, of which BSFS, in its capacity as distributor for the Fund,
retained $____ in total underwriting commissions. The total amount of
underwriting commissions paid by the Fund with respect to Class C shares for the
period from June 3, 1999 (commencement of operations) through February 29, 2000
was $______, of which BSFS, in its capacity as distributor for the Fund,
retained $____ in total underwriting commissions.
Banc Stock Financial Services, Inc., the principal underwriter and an
affiliated person of the Fund, received the following commissions and other
compensation from the Fund during the fiscal year ended February 29, 2000:
16
<PAGE>
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions and Brokerage Other
UNDERWRITER COMMISSIONS PURCHASES COMMISSIONS COMPENSATION
----------- ----------- --------- ----------- ------------
CLASS A SHARES CLASS A SHARES
Banc Stock Financial
Services, Inc. $ $0 $144,454 $0
CLASS C SHARES CLASS C SHARES
$ $0
17
<PAGE>
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 29, 2000. The Fund will provide the Annual Report without charge at
written request or request by telephone.
18
<PAGE>
THE BSG FUNDS
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation
(i) Copy of Registrant's Amended and Restated Declaration of Trust,
which was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 1, is hereby incorporated by reference.
(ii) Copy of Amendment No. 1 to Registrant's Amended and Restated
Declaration of Trust, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 1, is hereby
incorporated by reference.
(b) By-Laws. Copy of Registrant's By-Laws, which was filed as an Exhibit
to Registrant's Registration Statement, is hereby incorporated by
reference.
(c) Instruments Defining Rights of Security Holders-None other than in
Registrant's Amended and Restated Declaration of Trust, as amended,
and By-Laws.
(d) Investment Advisory Contracts. Copy of Registrant's Management
Agreement with its Adviser, Heartland Advisory Group, Inc., which was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 4, is
hereby incorporated by reference.
(e) Underwriting Contracts. Copy of Registrant's Underwriting Agreement
with Banc Stock Financial Services, Inc., which was filed as an
Exhibit to Registrant's Pre-Effective Amendment, is hereby
incorporated by reference.
(f) Bonus or Profit Sharing Contracts- None.
(g) Custodian Agreements. Copy of Registrant's Agreement with the
Custodian, Firstar Bank, N.A. (Star Bank, N.A)., which was filed as an
Exhibit to Registrant's Pre-Effective Amendment, is hereby
incorporated by reference.
(h) Other Material Contracts - None.
(i) Legal Opinion.
(i) Opinion of Brown, Cummins & Brown Co., L.P.A., which was filed as
an Exhibit to Registrant's Pre-Effective Amendment, is hereby
incorporated by reference.
(ii) Consent of Brown, Cummins & Brown Co., L.P.A. is filed herewith.
(j) Other Opinions. Consent of McCurdy & Associates CPA's, Inc. is filed
herewith.
(k) Omitted Financial Statements- None.
(l) Initial Capital Agreements. Copy of Letter of Initial Stockholder,
which was filed as an Exhibit to Registrant's Pre-Effective Amendment,
is hereby incorporated by reference.
<PAGE>
(m) Rule 12b-1 Plan.
(i) Class A Shares 12b-1 Distribution Expense Plan , which was filed
as an exhibit to Registrant's Post-Effective Amendment No. 4, is
hereby incorporated by reference.
(ii) Class C Shares 12b-1 Distribution Expense Plan , which was filed
as an exhibit to Registrant's Post-Effective Amendment No. 4, is
hereby incorporated by reference.
(n) Rule 18f-3 Plan. Rule 18f-3 Plan ,which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 3, is hereby incorporated by
reference.
(o) Power of Attorney
(i) Power of Attorney for Registrant and Certificate with respect
thereto, which were filed as an Exhibit to Registrant's
Post-Effective Amendment No. 1, are hereby incorporated by
reference.
(ii) Powers of Attorney for Trustees and Officers are filed herewith.
(p) Code of Ethics - Copy of Code of Ethics of The BSG Funds and The
Heartland Group of Companies, Inc. is filed herewith
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
None.
ITEM 25. INDEMNIFICATION
(a) Article VI of the Registrant's Declaration of Trust provides for
indemnification of officers and Trustees as follows:
SECTION 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. Subject to and
except as otherwise provided in the Securities Act of 1933, as amended, and
the 1940 Act, the Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers
or trustees of another organization in which the Trust has any interest as
a shareholder, creditor or otherwise (hereinafter referred to as a "Covered
Person") against all liabilities, including but not limited to amounts paid
in satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by
any Covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person
may be or may have been involved as a party or otherwise or with which such
person may be or may have been threatened, while in office or thereafter,
by reason of being or having been such a Trustee or officer, director or
trustee, and except that no Covered Person shall be indemnified against any
liability to the
<PAGE>
Trust or its Shareholders to which such Covered Person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office.
SECTION 6.5 ADVANCES OF EXPENSES. The Trust shall advance attorneys'
fees or other expenses incurred by a Covered Person in defending a
proceeding to the full extent permitted by the Securities Act of 1933, as
amended, the 1940 Act, and Ohio Revised Code Chapter 1707, as amended. In
the event any of these laws conflict with Ohio Revised Code Section
1701.13(E), as amended, these laws, and not Ohio Revised Code Section
1701.13(E), shall govern.
SECTION 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article VI shall not be exclusive of or
affect any other rights to which any such Covered Person may be entitled.
As used in this Article VI, "Covered Person" shall include such person's
heirs, executors and administrators. Nothing contained in this article
shall affect any rights to indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
The Registrant may not pay for insurance which protects the Trustees
and officers against liabilities rising from action involving willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of their offices.
(b) The Registrant may maintain a standard mutual fund and investment
advisory professional and directors and officers liability policy. The
policy, if maintained, would provide coverage to the Registrant, its
Trustees and officers, and could cover its Advisers, among others. Coverage
under the policy would include losses by reason of any act, error,
omission, misstatement, misleading statement, neglect or breach of duty.
(c) Pursuant to the Underwriting Agreement, the Underwriter has agreed
to indemnify, defend, and hold the Registrant, its officers, trustees,
employees, shareholders and agents, and any person who controls the
Registrant within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending against such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) which the Registrant, its trustees, officers, employees,
shareholders and agents, or any such controlling person may incur under the
1933 Act or under common law or otherwise arising out of or based upon any
untrue statement of a material fact or alleged untrue statement of a
material fact contained in information furnished in writing by the
Underwriter to the Registrant for use in the Registration Statement, or
arising out of or based upon any omission or alleged omission to state a
material fact in connection with such information required to be stated in
the Registration Statement necessary to make such information not
misleading.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the provisions of Ohio
law and the Agreement and Declaration of the Registrant or the By-Laws of
the Registrant, or otherwise, the Registrant has been advised that in the
<PAGE>
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Trust in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A. Heartland Advisory Group, Inc., 1105 Schrock Road, Suite 437, Columbus,
Ohio 43229 ("HAG"), adviser to The BSG Funds, is a registered investment
adviser.
(1) HAG has engaged in no other business during the past two fiscal
years.
<PAGE>
(2) Information with respect to the directors and officers of HAG is
incorporated by reference to Schedule D of Form ADV filed by it under the
Investment Advisors Act (File No. 801-32176).
ITEM 27. PRINCIPAL UNDERWRITERS
(a) None.
(b) Banc Stock Financial Services, Inc. ("BSFS"), 1105 Schrock Road,
Suite 437, Columbus, Ohio is the Registrant's principal underwriter.
Anthony J. Reilly is the President, Jeffrey C. Barton is the Treasurer and
Sandra L. Quinn is the Secretary of the underwriter. Anthony J. Reilly is
the President of the Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be maintained by the Registrant at 1105 Schrock
Road, Suite 437, Columbus, Ohio 43229 and/or by the Registrant's Custodian,
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, and/or
transfer and shareholder service agent, Mutual Funds Service Co., 6000
Memorial Dr., Dublin, Ohio 43017.
ITEM 29. MANAGEMENT SERVICES NOT DISCUSSED IN PARTS A OR B
None.
ITEM 30. UNDERTAKINGS
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cincinnati, State of Ohio, on the 4th day of May,
2000.
THE BSG FUNDS
By: /s/ Donald S. Mendelsohn
----------------------------
Donald S. Mendelsohn,
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Anthony J. Reilly,*
President *By: /s/ Donald S. Mendelsohn
-----------------------------
Donald S. Mendelsohn,
Lisa R. Hunter*, Trustee, Treasurer, Attorney-in-Fact
Secretary and Chief Financial Officer
John M. Bobb*, Trustee May 4, 2000
Virginia H. Rader*, Trustee
- --------------------------------
Gary A. Radville, Trustee
<PAGE>
EXHIBIT INDEX
PAGE
1. Consent of Brown, Cummins & Brown Co., L.P.A.............EX-99.23.i
2. Consent of McCurdy & Associates CPA's, Inc...............EX-99.23.j
3. Trustee and Officer Powers of Attorney...................EX-99.23.o
4. Code of Ethics...........................................EX-99.23.p
Exhibit 23(i)
May 4, 2000
The BSG Funds
1105 Schrock Road, Suite 437
Columbus, Ohio 43229
Gentlemen:
A legal opinion that we prepared was filed with your Pre-Effective
Amendment to your Registration Statement (the "Legal Opinion"). We hereby give
you our consent to incorporate by reference the Legal Opinion into
Post-Effective Amendment No. 5 to your Registration Statement (the "Amendment"),
and consent to all references to us in the Amendment.
Very truly yours,
/s/ Brown, Cummins & Brown Co., L.P.A.
Exhibit 23(j)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Post-Effective Amendment No. 5 to the Registration Statement (File No.
333-22075) for The BSG Funds of our report dated March 22, 2000 and all
references to our firm included in or made a part of this Amendment.
/s/ McCurdy & Associates CPA's, Inc.
May 3, 2000
Exhibit 23(o)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, The BSG Funds, a business trust organized under the laws of the
State of Ohio (hereinafter referred to as the "Trust"), periodically files
amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is the President of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R.
CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and in
his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 3rd
day of May, 2000.
/s/ Anthony J. Reilly
----------------------------------
ANTHONY J. REILLY
President
STATE OF OHIO )
) ss:
COUNTY OF FRANKLIN )
Before me, a Notary Public, in and for said county and state, personally
appeared ANTHONY J. REILLY, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 3rd day of May, 2000.
/s/ Lisa R. Hunter
------------------------
Notary Public
June 30, 2004
------------------------
My commission expires:
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, The BSG Funds, a business trust organized under the laws of the
State of Ohio (hereinafter referred to as the "Trust"), periodically files
amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee and the Treasurer and Secretary of
the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R.
CUMMINS and DONALD S. MENDELSOHN, and each of them, her attorneys for her and in
her name, place and stead, and in her office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 3rd
day of May, 2000.
/s/ Lisa R. Hunter
----------------------------------
LISA R. HUNTER
Trustee , Treasurer and Secretary
STATE OF OHIO )
) ss:
COUNTY OF FRANKLIN )
Before me, a Notary Public, in and for said county and state, personally
appeared LISA R. HUNTER, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that she executed
and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 3rd day of May, 2000.
/s/ Sandra Quinn
------------------------
Notary Public
January 21, 2002
------------------------
My commission expires:
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, The BSG Funds, a business trust organized under the laws of the
State of Ohio (hereinafter referred to as the "Trust"), periodically files
amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R.
CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and in
his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th day
of October, 1997.
/s/ John M. Bobb, III
---------------------------
JOHN M. BOBB, III
Trustee
STATE OF OHIO )
) ss:
COUNTY OF FRANKLIN )
Before me, a Notary Public, in and for said county and state, personally
appeared JOHN M. BOBB, III, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that he executed
and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 13th day of October, 1997.
/S/ JOANN M. STRASSER
--------------------------
Notary Public
My commission has no expiration date
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, The BSG Funds, a business trust organized under the laws of the
State of Ohio (hereinafter referred to as the "Trust"), periodically files
amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R.
CUMMINS and DONALD S. MENDELSOHN, and each of them, her attorneys for her and in
her name, place and stead, and in her office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 13th day
of Octover, 1997.
/s/Virginia H. Rader
------------------------
VIRGINIA H. RADER
Trustee
STATE OF OHIO )
) ss:
COUNTY OF FRANKLIN )
Before me, a Notary Public, in and for said county and state, personally
appeared VIRGINIA H. RADER, known to me to be the person described in and who
executed the foregoing instrument, and who acknowledged to me that she executed
and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 13th day of October, 1997.
/S/ JOANN M. STRASSER
--------------------------
Notary Public
My commission has no expiration date
Exhibit 23(p)
REVISED CODE OF ETHICS
THE BSG FUNDS AND THE HEARTLAND GROUP
OF COMPANIES, INC.
(adopted January 28, 2000)
I. STATEMENT OF GENERAL PRINCIPLES
This Code of Ethics has been adopted by The BSG Funds (the "Trust") and the
Heartland Group of Companies, Inc. (d/b/a The Banc Stock Group) and its
subsidiaries (collectively, the "Adviser"), for the purpose of instructing all
employees, officers, directors and trustees of the Trust and/or the Adviser in
their ethical obligations and to provide rules for their personal securities
transactions. All such employees, officers, directors and trustees owe a
fiduciary duty to the Trust and its shareholders. A fiduciary duty means a duty
of loyalty, fairness and good faith towards the Trust and its shareholders, and
the obligation to adhere not only to the specific provisions of this Code but to
the general principles that guide the Code. These general principles are:
o The duty at all times to place the interests of the Trust and its
shareholders first;
o The requirement that all personal securities transactions be conducted
in a manner consistent with the Code of Ethics and in such a manner as
to avoid any actual or potential conflict of interest or any abuse of
any individual's position of trust and responsibility; and
o The fundamental standard that such employees, officers, directors and
trustees should not take inappropriate advantage of their positions,
or of their relationship with the Trust or its shareholders.
It is imperative that the personal trading activities of the employees,
officers, directors and trustees of the Trust and the Adviser, respectively, be
conducted with the highest regard for these general principles in order to avoid
any possible conflict of interest, any appearance of a conflict, or activities
that could lead to disciplinary action. This includes executing transactions
through or for the benefit of a third party when the transaction is not in
keeping with the general principles of this Code.
<PAGE>
All personal securities transactions must also comply with the Adviser's
Insider Trading Policy and Procedures and the Securities & Exchange Commission's
Rule 17j-1. Under this rule, no Employee may:
o employ any device, scheme or artifice to defraud the Trust or any of
its shareholders;
o make to the Trust or any of its shareholders any untrue statement of a
material fact or omit to state to such client a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading;
o engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon the Trust or any of its
shareholders; or
o engage in any manipulative practice with respect to the Trust or any
of its shareholders.
II. DEFINITIONS
A. ADVISORY EMPLOYEES: Employees who participate in or make recommendations
with respect to the purchase or sale of securities. The Compliance Officer will
maintain a current list of all Advisory Employees.
B. BENEFICIAL INTEREST: ownership or any benefits of ownership, including
the opportunity to directly or indirectly profit or otherwise obtain financial
benefits from any interest in a security.
C. COMPLIANCE OFFICER: Elise R. Hunter, or in the case of a Pre-Clearance
request by the Compliance Officer, or in her absence, Michael E. Guirlinger.
D. DISINTERESTED TRUSTEES: trustees whose affiliation with the Trust is
solely by reason of being a trustee of the Trust.
E. EMPLOYEE ACCOUNT: each account in which an Employee or a member of his
or her family has any direct or indirect Beneficial Interest or over which such
person exercises control or influence, including, but not limited to, any joint
account, partnership, corporation, trust or estate. An Employee's family members
include the Employee's spouse, minor children, any person living in the home of
the Employee and any relative of the Employee (including in-laws) to whose
support an Employee directly or indirectly contributes.
2
<PAGE>
F. EMPLOYEES: the employees, officers, and trustees of the Trust and the
employees, officers and directors of the Adviser, including Advisory Employees.
The Compliance Officer will maintain a current list of all Employees.
G. EXEMPT TRANSACTIONS: transactions which are 1) effected in an amount or
in a manner over which the Employee has no direct or indirect influence or
control, 2) pursuant to a systematic dividend reinvestment plan, systematic cash
purchase plan or systematic withdrawal plan, 3) in connection with the exercise
or sale of rights to purchase additional securities from an issuer and granted
by such issuer pro-rata to all holders of a class of its securities, 4) in
connection with the call by the issuer of a preferred stock or bond, 5) pursuant
to the exercise by a second party of a put or call option, 6) closing
transactions no more than five business days prior to the expiration of a
related put or call option, 7) with respect to affiliated registered open-end
investment companies.
H. FUNDS: any series of the Trust.
I. RELATED SECURITIES: securities issued by the same issuer or issuer under
common control, or when either security gives the holder any contractual rights
with respect to the other security, including options, warrants or other
convertible securities.
J. SECURITIES: any note, stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, pre-organization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil, gas
or other mineral rights, or, in general, any interest or instrument commonly
known as a "security," or any certificate or interest or participation in
temporary or interim certificate for, receipt for, guarantee of, or warrant or
right to subscribe to or purchase (including options) any of the foregoing;
except for the following: 1) securities issued by the government of the United
States, 2) bankers' acceptances, 3) bank certificates of deposit, 4) commercial
paper, and 5) shares of registered open-end investment companies.
3
<PAGE>
K. SECURITIES TRANSACTION: the purchase or sale, or any action to
accomplish the purchase or sale, of a Security for an Employee Account. The term
Securities Transaction does not include transactions executed by the Adviser for
the benefit of unaffiliated persons, such as investment advisory and brokerage
clients.
III. PERSONAL INVESTMENT GUIDELINES
A. Restrictions on Securities Transactions
1. The Personal Investment Guidelines in this Section III do not apply
to Exempt Transactions. Employees must remember that regardless of the
transaction's status as exempt or not exempt, the Employee's fiduciary
obligations remain unchanged.
2. While trustees of the Trust are subject at all times to the
fiduciary obligations described in this Code, the Personal Investment
Guidelines and Compliance Procedures in Sections III and IV of this Code
apply to Disinterested Trustees only if the trustee knew, or in the
ordinary course of fulfilling the duties of that position, should have
known, that during the fifteen days immediately preceding or after the date
of the trustee's transaction that the same Security or a Related Security
was or was to be purchased or sold for a Fund or that such purchase or sale
for a Fund was being considered, in which case such Sections apply only to
such transaction.
3. Employees may not execute a Securities Transaction on a day during
which a purchase or sell order in that same Security or a Related Security
is pending for a Fund unless the Securities Transaction is combined
("blocked") with the Fund's transaction. Securities Transactions executed
in violation of this prohibition shall be unwound or, if not possible or
practical, the Employee must disgorge to the Fund the value received by the
Employee due to any favorable price differential received by the Employee.
For example, if the Employee buys 100 shares at $10 per share, and the Fund
buys 1000 shares at $11 per share, the Employee will pay $100 (100 shares x
$1 differential) to the Fund.
4
<PAGE>
4. An Advisory Employee may not execute a Securities Transaction
within seven (7) calendar days before or after a transaction in the same
Security or a Related Security has been executed on behalf of a Fund unless
(a) the transactions are executed on the same day and blocked; (b) the
Advisory Employee sells the same Security after the Fund sells the
Security; or (c) the Advisory Employee purchases the same Security after
the Fund purchases the Security. If the Compliance Officer determines that
a transaction has violated this prohibition, the transaction shall be
unwound or, if not possible or practical, the Employee must disgorge to the
Fund the value received by the Employee due to any favorable price
differential received by the Employee.
5. Any Securities Transactions in a private placement must be
authorized by the Compliance Officer, in writing, prior to the transaction.
In connection with a private placement acquisition, the Compliance Officer
will take into account, among other factors, whether the investment
opportunity should be reserved for a Fund, and whether the opportunity is
being offered to the Employee by virtue of the Employee's position with the
Trust or the Adviser. The Compliance Officer shall retain a record of any
such authorization and the rationale supporting the authorization.
Employees who have been authorized to acquire securities in a private
placement will, in connection therewith, be required to disclose that
investment if and when the Employee takes part in any subsequent investment
in the same issuer. In such circumstances, the determination to purchase
Securities of that issuer on behalf of a Fund will be subject to an
independent review by personnel of the Adviser with no personal interest in
the issuer.
6. Employees are prohibited from acquiring any Securities in an
initial public offering without the prior written authorization of the
Compliance Officer. This restriction is imposed in order to preclude any
possibility of an Employee profiting improperly from the Employee's
position with the Trust or the Adviser. The Compliance Officer shall retain
a record of any such authorization and the rationale supporting the
authorization.
5
<PAGE>
C. Other Restrictions
1. Employees are prohibited from serving on the boards of directors of
publicly traded companies, without the prior written approval of the
Compliance Officer. The consideration of prior authorization will be based
upon a determination that the board service will be consistent with the
interests of the Trust and the Funds' shareholders. In the event that board
service is authorized, Employees serving as directors will be isolated from
other Employees making investment decisions with respect to the securities
of the company in question.
2. No Employee may accept from a customer or vendor an amount in
excess of $50 per year in the form of gifts or gratuities, or as
compensation for services. If there is a question regarding receipt of a
gift, gratuity or compensation, it is to be reviewed by the Compliance
Officer.
IV. COMPLIANCE PROCEDURES
A. Employee Disclosure and Certification
1. Within ten (10) days of the commencement of employment with the
Trust or the Adviser, each Employee must certify that he or she has read
and understands this Code and recognizes that he or she is subject to it,
and must disclose the following information: 1) all personal Securities
holdings, 2) the name of the broker/dealer account, and 3) the date of
submission (collectively, the "Disclosure Information").
2. Annually, each Employee must certify that he or she has read and
understands this Code and recognizes that he or she is subject to it, and
must provide the Disclosure Information. Annually, each Employee must also
certify the he or she has complied with the requirements of this Code and
has disclosed or reported all personal Securities Transactions required to
be disclosed or reported pursuant to the requirements of this Code. The
information disclosed pursuant to this subparagraph must be current as of a
date no more than 30 days before the report
6
<PAGE>
is submitted.
B. Compliance
1. All Employees must direct their broker, dealer or bank to send
duplicate copies of all confirmations and periodic account statements
directly to the Compliance Officer. Each Employee must report, no later
than ten (10) days after the close of each calendar quarter, on the
Securities Transaction Report form provided by the Trust or the Adviser,
all transactions in which the Employee acquired any direct or indirect
Beneficial Interest in a Security, including Exempt Transactions, and
certify that he or she has reported all transactions required to be
disclosed pursuant to the requirements of this Code.
2. The Compliance Officer will (a) spot check the trading
confirmations provided by brokers and (b) review all such confirmations on
a quarterly basis, to determine whether any violations of this Code
occurred. The Employee's annual disclosure of Securities holdings will be
reviewed by the Compliance Officer for compliance with this Code, including
transactions that reveal a pattern of trading inconsistent with this Code.
In the case of Elise R. Hunter, the compliance procedures of this paragraph
will be performed by Michael E. Guirlinger.
3. If an Employee violates this Code, the Compliance Officer will
report the violation to management personnel of the Trust and the Adviser
for appropriate remedial action which, in addition to the actions
specifically delineated in other sections of this Code, may include a
reprimand of the Employee, or suspension or termination of the Employee's
relationship with the Trust and/or the Adviser.
4. The management personnel of the Trust will report annually to the
Trust's board of trustees regarding existing procedures and any changes in
the procedures made during the past year and certify to the Trust's board
of trustees that the Adviser has adopted procedures reasonably necessary to
prevent Employees from violating this Code. The report will identify any
violations of this Code, any significant remedial action during the past
year and any
7
<PAGE>
recommended procedural or substantive changes to this Code based on
management's experience under this Code, evolving industry practices or
legal developments.
8
