As filed with the Securities and Exchange Commission on August _____, 1999
SECURITIES AND EXCHANGE COMMISSION File Nos. 333-86061
Washington, D.C. 20549 and 811-09287
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2 [X]
MERLIN FUNDS GROUP
(Exact name of registrant as specified in charter)
1200 Old Henderson Road, Columbus, Ohio 43220 (Address of
principal executive offices)
Registrant's Telephone Number: 877-637-3863
Joseph M. McCloud, 1200 Old Henderson Road, Columbus, Ohio 43220
(Name and address of agent for service)
Copy to:
Andrew B. Coogle, Esq.
Benesch, Friedlander, Coplan & Aronoff LLP
88 East Broad Street, 9th Floor, Columbus, Ohio 43215
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Post-Effective Amendment No. 1 to the Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite number of shares of beneficial interest.
It is proposed that this filing become effective (check appropriate box):
[X] Immediately upon filing pursuant to paragraph (b).
[ ] On (date) pursuant to paragraph (b).
[ ] Sixty (60) days after filing pursuant to paragraph (a)(1).
[ ] On (date) pursuant to paragraph (a)(1).
[ ] Seventy-five (75) days after filing pursuant to paragraph (a)(2).
[ ] On (date) pursuant to paragraph (a)(2) of Rule 485.
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MERLIN US COMMUNITY BANK STOCK FUND
The Merlin US Community Bank Stock Fund is a diversified portfolio of
Merlin Funds Group, an open-end management investment company. The investment
objective of the Bank Stock Fund is long-term capital growth. The Bank Stock
Fund will pursue this objective primarily by investing in equity securities of
community banks which the Bank Stock Fund's investment adviser believes offer
the potential for long-term growth. Many of these community banks are owned by
holding companies and, in those cases, the Bank Stock Fund will invest in equity
securities of the holding companies. The Bank Stock Fund considers a bank a
community bank if the bank has less than $15 billion in total assets.
Bank Stock Fund Shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured or guaranteed. An
investment in the Bank Stock Fund involves risk, including the possible loss of
your entire investment.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
This Prospectus is dated August 11, 1999.
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SUMMARY OF INVESTMENT OBJECTIVE, PRINCIPAL
INVESTMENT STRATEGIES AND PRINCIPAL RISKS
Summary of the Bank Stock Fund's Investment Objective
The investment objective of the Bank Stock Fund is long-term capital
growth.
Summary of the Bank Stock Fund's Principal Investment Strategies
The Bank Stock Fund will pursue its objective primarily by investing in
equity securities of community banks and community bank holding companies, which
the Bank Stock Fund's investment adviser believes offer the potential for
long-term growth. The Bank Stock Fund considers a bank a community bank if the
bank has less than $15 billion in total assets.
The Bank Stock Fund's investment adviser will consider the following when
selecting investments for the Bank Stock Fund:
- The company's return on assets, return on equity, efficiency ratio and
other operational ratios;
- The company's revenue consistency and growth;
- The company's earnings consistency and growth;
- The amount of the company's loan loss provisions, which are amounts
set aside by the company for potentially uncollectible loans;
- The general economic conditions in the communities where the company
conducts business; and
- Other similar factors.
Summary of Principal Risks of Investing in the Bank Stock Fund
The following is a summary of the principal risks of investing in the Bank
Stock Fund.
- Shareholders risk the loss of their investment in Bank Stock Fund Shares.
- The Bank Stock Fund is not appropriate for all investors.
- The success of the Bank Stock Fund is dependent upon the management
experience and skill of the Bank Stock Fund's portfolio manager.
- Community banks and community bank holding companies may be more
vulnerable than larger companies to adverse business or market
developments, and may have fewer resources and less experienced
management than larger companies.
- Less public information may be available about community banks and
community bank holding companies than is available about larger
companies to assist the Bank Stock Fund's investment adviser in making
investment decisions.
- Community bank and community bank holding company securities may be
more thinly traded than securities of larger companies. The Bank Stock
Fund may not be able to buy and sell these securities at optimum
prices. Prices for these securities may be more volatile than prices
for securities with better developed markets.
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- The price of Bank Stock Fund Shares may decline because changes in
interest rates adversely affect the value of bank securities.
- Due to the Bank Stock Fund's investment concentration in community
banks and community bank holding companies, investment in the Bank
Stock Fund is subject to the risks affecting the banking and financial
services industry generally. Legislative and regulatory developments
may adversely affect the banking industry (including the possibility
that other financial service providers may be permitted to provide
banking services).
- Due to the possibility of local economic downturns, the value of
community bank and community bank holding company securities may be
more vulnerable than securities of companies that do business in a
wider geographic area.
- The Bank Stock Fund must comply with the Bank Holding Company Act of
1956 or else pay fines and penalties.
- The Bank Stock Fund may lose money on illiquid investments if the Bank
Stock Fund must sell them in a short period of time.
- The price of Bank Stock Fund Shares could decline if the Bank Stock
Fund, the Bank Stock Fund's service providers or the community banks
in which the Bank Stock Fund invests are not year 2000 compliant.
See the discussion under the heading "Principal Risks of Investing in the
Bank Stock Fund" for a more complete discussion of the principal risks of
investing in the Bank Stock Fund.
PERFORMANCE INFORMATION
A bar chart showing the Bank Stock Fund's annual returns and a table
showing the Bank Stock Fund's average annual returns have not been included in
this prospectus because the Bank Stock Fund has not operated for a full calendar
year.
FEES AND EXPENSES OF THE BANK STOCK FUND
This table describes the fees and expenses you may pay if you buy and hold Bank
Stock Fund Shares.
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering Price) 3.00%
Maximum Deferred Sales Charge (Load) None(a)
(a) No sales charge is imposed on purchases of Bank Stock Fund Shares for
$1,000,000 or more. A contingent deferred sales charge of 1% is imposed if
these Bank Stock Fund Shares are sold sooner than one year after purchase.
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Annual Fund Operating Expenses (expenses that are deducted from Bank Stock Fund
assets)
Management Fees 2.00%
Distribution and Service (12b-1) Fees 0.50%
Total Annual Fund Operating Expenses 2.50%
Example: This Example is intended to help you compare the cost of
investing in the Bank Stock Fund with the cost of investing in other mutual
funds.
This Example assumes that you invest $10,000 in the Bank Stock Fund for the
time periods indicated and then redeem all of your Bank Stock Fund Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Bank Stock Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 year 3 years
$553 $1,063
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
Investment Objective
The Bank Stock Fund's investment objective is long-term capital growth.
The Bank Stock Fund's investment objective may be changed by the board of
trustees without shareholder approval. If the board of trustees changes the Bank
Stock Fund's investment objective, shareholders may not consider the new
investment objective appropriate and the new investment objective may not be in
the best interests of all shareholders.
Principal Investment Strategies and Types of Securities
Strategy. The Bank Stock Fund will pursue its investment objective by
investing in equity securities of community banks and community bank holding
companies, which the Bank Stock Fund's investment adviser believes offer the
potential for long-term growth. Except when pursuing a temporary defensive
position in response to adverse market conditions, the Bank Stock Fund will
invest at least 70% of its total assets in publicly traded equity securities of
community banks and community bank holding companies. The Bank Stock Fund may
from time to time invest in banks that are not members of the Federal Reserve
System or whose deposits are not insured by the Federal Deposit Insurance
Corporation.
Investment Considerations. The Bank Stock Fund's investment adviser will
make the investment decisions for the Bank Stock Fund and will be responsible
for the daily management and operation of the Bank Stock Fund's portfolio. In
deciding which securities the Bank Stock Fund will buy and sell, the Bank Stock
Fund's investment adviser will consider:
- The company's return on assets, return on equity, efficiency ratio and
other operational ratios;
- The company's revenue consistency and growth;
- The company's earnings consistency and growth;
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- The amount of the company's loan loss provisions, which are amounts
set aside by the company for potentially uncollectible loans;
- The general economic conditions in the communities where the company
conducts business; and
- Other similar factors.
The Bank Stock Fund's investment adviser may also consider the degree that
officers and directors of the company have personally invested in securities of
the company as an indicator of the quality of care and attention provided by the
company's management.
Equity Securities. The Bank Stock Fund may invest in common stocks and
preferred stocks. Although the Bank Stock Fund will purchase equity securities
primarily for capital appreciation, these investments may also produce dividends
and other income.
When evaluating convertible preferred stock, the Bank Stock Fund's
investment adviser will give primary emphasis to the attractiveness of the
underlying equity security. The Bank Stock Fund will not purchase preferred
stock rated below BBB by Standard & Poor's Rating Group. See Appendix A for a
description of these ratings.
Illiquid Securities. Illiquid securities are securities which cannot be
sold by the Bank Stock Fund within seven days in the ordinary course of business
at the approximate amount at which the Bank Stock Fund values the securities. Up
to 15% of the Bank Stock Fund's net assets may be invested in illiquid
securities.
Portfolio Turnover. The Bank Stock Fund intends to purchase and hold
securities for long-term capital appreciation and not to sell securities for
short-term gain. However, the Bank Stock Fund is not restricted with regard to
portfolio turnover. The Bank Stock Fund will make changes to its investment
portfolio if the Bank Stock Fund's investment adviser believes that business and
economic conditions or market prices indicate that it is in the best interests
of the Bank Stock Fund to do so. A high rate of portfolio turnover in any year
will increase brokerage commissions paid and could result in high amounts of
realized investment gain subject to the payment of taxes by shareholders. Any
realized net short-term capital gain will be taxed to shareholders as investment
income.
Also, the Bank Stock Fund's investment adviser may make short-term
investments when it believes these investments are in the best interest of the
Bank Stock Fund; see "-Temporary Investments."
Temporary Investments. The Bank Stock Fund may invest up to 30% of its
total assets in cash and temporary investments for cash management purposes, to
pay distributions to shareholders or to meet its operating expenses and
obligations to repurchase Bank Stock Fund Shares. In addition, the Bank Stock
Fund may invest an unlimited amount of its total assets in cash and temporary
investments when pursuing a temporary defensive position in response to adverse
market conditions.
These temporary investments may include:
- Short-term and medium-term obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities;
- Money market funds; and
- Repurchase agreements.
Investments in money market funds may subject shareholders to duplicative fees.
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To the extent that the Bank Stock Fund invests in temporary investments, it may
not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE BANK STOCK FUND
Shareholders may lose money.
The value of securities in the Bank Stock Fund's portfolio will go up and
down. Consequently, the price of Bank Stock Fund Shares may decline and
shareholders could lose money.
The Bank Stock Fund may not be appropriate for all investors.
The Bank Stock Fund is not a complete investment program and, due to the
uncertainty inherent in all investments, there can be no assurance that the Bank
Stock Fund will achieve its investment objective. An investment in the Bank
Stock Fund may not be appropriate for all investors, given the risks described
below and elsewhere in this prospectus. Investors should carefully consider
their ability to assume these risks before making an investment in the Bank
Stock Fund.
The success of the Bank Stock Fund depends on the management experience and
skills of the Bank Stock Fund's portfolio manager.
Joseph M. McCloud, an officer and trustee of the Bank Stock Fund and an
officer and director of the Bank Stock Fund's investment adviser, is the person
primarily responsible for the day-to-day management of the Bank Stock Fund's
portfolio. Therefore, the success of the Bank Stock Fund will depend largely
upon the management experience and skills of Mr. McCloud. Mr. McCloud does not
have experience in managing an institutional portfolio of bank stocks.
Investments in community banks have risks of investing in small companies.
Because the Bank Stock Fund intends to invest in community banks and
community bank holding companies, the Bank Stock Fund may be exposed to the
following small company investment risks:
- Community banks and community bank holding companies may be more
vulnerable than larger companies to adverse business or market
developments, may have limited markets or financial resources and may
lack experienced management.
- Most community banks and community bank holding companies are not
well-known to the investing public, do not have significant
institutional ownership and are followed by relatively few securities
analysts. As a result, there may be less publicly available
information concerning these companies compared to what is available
for larger companies.
- The securities of community banks and community bank holding companies
may be more thinly traded than securities of larger companies. Thinly
traded securities may have fewer market makers, larger differences
between their quoted bid and asked prices, and lower trading volumes,
resulting in comparatively greater price volatility and less liquidity
than securities of larger companies. The Bank Stock Fund may not be
able to buy and sell community bank and community bank holding company
securities at optimum prices.
Investments in banks have risk that changes in interest rates will adversely
affect bank profitability.
The profitability of a bank is dependant to a large degree upon its net
interest income. A bank's net interest income is calculated by subtracting the
interest it pays on deposits and borrowings from the interest it earns on loans
and investments. Recently, the difference between the interest rates earned by
banks on loans and investments and the interest rates paid by banks on deposits
and borrowings has generally narrowed due to changing market conditions and
competitive pricing pressures. This difference may narrow even further in the
future. If this happens, the price of Bank Stock Fund Shares may decline.
Investments in banks have risks that new legislation and regulation will reduce
profitability.
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The concentration of the Bank Stock Fund's investments in the banking
industry will subject the Bank Stock Fund to risks in addition to those that
apply generally to equity investments including:
- The risk that legislative and regulatory developments may
significantly affect the banking industry as a whole and may subject
the Bank Stock Fund to greater market fluctuations than a fund that
does not concentrate in a particular industry;
- The risk that the Federal Reserve may adjust interest rates and
adversely affect the profitability of banks;
- The risk that federal and state banking laws and regulations may limit
the ability of banks to compete geographically and restrict the
activities in which banks may engage; and
- The risk that federal and state banking laws and regulations may
permit other financial service providers to provide banking services.
Investments in community banks have risk of losing value due to local economic
downturns.
The profitability of community banks may be more dependant than companies
which serve a larger geographical region upon local and regional economic
conditions. Downturns in a local or regional economy or in the general business
cycle or depressed conditions in an industry, for example, may adversely affect
the quality or volume of a community bank's loan portfolio and the value of the
collateral, including real estate, held with respect to the loans. If this
happens to community banks in which the Bank Stock Fund is invested, the value
of Bank Stock Fund Shares may decline.
Investments in banks have risk of violating the Bank Holding Company Act of
1956.
If the Bank Stock Fund controls a bank, then the Bank Stock Fund must
register as a Bank Holding Company under the Bank Holding company Act of 1956.
The Bank Stock Fund would control a bank if:
- The Bank Stock Fund owned 25% or more of any class of voting
securities of the bank;
- The Bank Stock Fund controlled the election of a majority of the
directors or trustees of the bank; or
- The Federal Reserve board determined, after notice and opportunity for
hearing, that the Bank Stock Fund exercises a controlling influence
over the management or policy of the bank.
Under a safe harbor provision, if the Bank Stock Fund owns less than 5% of the
stock of a bank, then the Bank Stock Fund will not be in control of the bank. If
the Bank Stock Fund acquires more than 5% of the voting securities of a bank,
the Bank Stock Fund may be subjected to fines and penalties.
Illiquid securities may be sold at a discount.
If the Bank Stock Fund must sell illiquid securities in a short period of
time, the Bank Stock Fund may have to sell them at a discount. This risk will be
particularly acute when the Bank Stock Fund's operations require immediate cash
because the Bank Stock Fund may not have the time necessary to find a buyer who
is willing to pay full market price.
The year 2000 problem could adversely affect the value of Bank Stock Fund
Shares.
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Many of the services provided to the Bank Stock Fund depend on the smooth
functioning of computer systems. Many systems in use today cannot distinguish
between the year 1900 and the year 2000. Failure of service provider systems to
process information properly could have an adverse impact on the Bank Stock
Fund's performance. The Bank Stock Fund's investment adviser, distributor,
transfer agent, custodian, and other key service providers have reported that
each is working toward mitigating the risks associated with the so-called "year
2000 problem". However, there can be no assurance that the problem will be
corrected in all respects and that the Bank Stock Fund will not be adversely
affected.
The Bank Stock Fund's investment adviser will rely upon public filings and
other statements made by companies about their year 2000 readiness. The Bank
Stock Fund's investment adviser, of course, cannot audit each company and its
major suppliers to verify their year 2000 readiness. If a company in which the
Bank Stock Fund is invested is adversely affected by the year 2000 problem, it
is likely that the price of its security will also be adversely affected. A
decrease in the value of one or more of the Bank Stock Fund's portfolio holdings
will have a similar impact on the value of the Bank Stock Fund's shares.
MANAGEMENT
The Bank Stock Fund's Investment Adviser
Advisory Services. Under the supervision and direction of the Bank Stock
Fund's board of trustees, Merlin Advisors, Inc. will:
- Manage the Bank Stock Fund's portfolio in compliance with the stated
policies of the Bank Stock Fund;
- Make investment decisions for the Bank Stock Fund and place the
purchase and sale orders for portfolio transactions;
- Furnish office facilities and clerical and administrative services;
- Pay the salaries of all officers and employees who are employed by
both Merlin Advisors and the Bank Stock Fund;
- Be responsible for the overall management of the business affairs of
the Bank Stock Fund, including the provision of personnel for record
keeping, the preparation of governmental reports and responding to
shareholder communications; and
- Pay all of the operating expenses of the Bank Stock Fund with the
exception of brokerage, taxes, interest and extraordinary expenses.
Merlin Advisors' Address. Merlin Advisors' address is 1200 Old Henderson
Road, Columbus, Ohio 43220.
Advisory Fee. The Bank Stock Fund has agreed to pay Merlin Advisors an
annual fee equal to 2.00% of the Bank Stock Fund's average daily net assets.
Person Primarily Responsible for Portfolio Management. Joseph M. McCloud is
the person primarily responsible for the day-to-day management of the Bank Stock
Fund's portfolio. Mr. McCloud has been a Vice President of Michael Patterson,
Inc. responsible for the firm's asset management division since February, 1998.
He was an equity trader for Quantum Capital from February, 1998 until March,
1998 and an equity trader for Banc One Securities Corp from November, 1996 until
February, 1998. From January, 1996 until July, 1996 Mr. McCloud was an employee
in Dean Witter Reynolds, Inc.'s marketing department. Before that, in February,
1994, Mr. McCloud founded Image Alchemy, Inc., a marketing company.
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Interrelationships Between the Bank Stock Fund, Merlin Advisors and Michael
Patterson, Inc.
Michael W. Patterson and Joseph M. McCloud are affiliates of the Bank Stock
Fund, Merlin Advisors, the Bank Stock Fund's investment adviser, and Michael
Patterson, Inc., the Bank Stock Fund's distributor.
Mr. Patterson is a trustee, and the Chairman and Secretary of the Bank
Stock Fund. Mr. Patterson indirectly owns 75% of Merlin Advisors, and is a
director and the Chairman, Chief Executive Officer and Secretary of Merlin
Advisors. Mr. Patterson wholly owns Michael Patterson, Inc., and is a director
and the President, Chief Executive Officer, Chairman, Secretary and Treasurer of
Michael Patterson, Inc.
Mr. McCloud is a trustee and the Chairman and Secretary of the Bank Stock
Fund. Mr. McCloud indirectly owns 25% of Merlin Advisors, and is a director and
the President, Chief Financial Officer and Treasurer of Merlin Advisors. Mr.
McCloud is a Vice President of Michael Patterson, Inc.
SHAREHOLDER INFORMATION
The Price of a Bank Stock Fund Share
The Price of a Bank Stock Fund Share. The purchase price of a Bank Stock
Fund Share is the net asset value of a Bank Stock Fund Share, as next determined
after receipt by the Bank Stock Fund's distributor of properly identified
purchase funds, plus any applicable sales charge. Please see the "Sales Charges"
section of this prospectus for information regarding sales charges. Broker-
dealers other than the Bank Stock Fund's distributor may charge investors an
additional fee if Bank Stock Fund Shares are purchased through them.
Calculation of a Bank Stock Fund Share's Net Asset Value. The net asset
value of a Bank Stock Fund Share is calculated by dividing the excess of the
Bank Stock Fund's assets, including accrued income, over any liabilities,
including estimated accrued expenses, by the number of shares outstanding,
rounded to the nearest cent. Net asset value per Bank Stock Fund Share is
determined as of the close of the close of the New York Stock Exchange (4:00
p.m. Eastern time) on each day that the exchange is open for business.
Valuation of Portfolio Securities. Portfolio securities are valued
primarily on the basis of market quotations. When market quotations are not
available, the Bank Stock Fund's investment adviser believes that market
quotations do not accurately reflect current value or the securities are
restricted, the values of securities are determined in good faith by the Bank
Stock Fund's board of trustees.
Procedure for Purchasing Bank Stock Fund Shares
Minimum Investments. The minimum initial investment in Bank Stock Fund
Shares is $1,500. Once a shareholder has made an initial investment, the
shareholder may make additional purchases of $150 or more.
Shareholder Accounts. When a shareholder invests in the Bank Stock Fund,
Mutual Shareholder Services, LLC, the Bank Stock Fund's transfer agent, will
open an account for the shareholder. This account will contain any Bank Stock
Fund Shares that the shareholder purchases and all Bank Stock Fund Shares which
are paid to the shareholder as dividends or capital gains distributions. Each
shareholder is notified of the status of his account following each purchase or
sale transaction.
Initial Purchases. An investor may make an initial purchase of Bank Stock
Fund Shares by check or by wire.
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In order to purchase Bank Stock Fund Shares by check, an investor must:
- Complete and sign the Account Application which accompanies this
Prospectus; and
- -
- Mail the Account Application and a check payable to the Merlin Funds
Group for the initial investment to Mutual Shareholder Services, LLC,
The Tower at Erieview, Suite 1005, 1301 East Ninth Street, Cleveland,
Ohio 44114.
In order to purchase Bank Stock Fund Shares by wire, an investor must:
- Complete and sign the Account Application which accompanies this
Prospectus;
- Fax the Account Application to Mutual Shareholder Services, LLC at
(216) 875-8992; and
- Advise the investor's bank or broker to transmit the payment for
the initial investment via Federal Reserve Wire System to: Star Bank,
N.A. Cinti/Trust, ABA #0420-0001-3, DDA #821602034, For Account:
Merlin US Community Bank Stock Fund, Account #19-5450.
Any wire must be accompanied by the investor's name and account number. Prior to
wiring any funds, an investor should call Mutual Shareholder Services, LLC at
(216) 736-3500 in order to obtain the necessary account number and to receive
additional instructions. The investor's bank may charge the investor a fee for
the wire transfer.
Additional Purchases. Shareholders may also make additional purchases of
Bank Stock Fund Shares by check or wire.
In order to make an additional purchase by check, the shareholder must mail
a check, in the amount of the additional purchase and payable to the Merlin
Funds Group, and the stub or sales confirmation from the shareholder's previous
purchase to Mutual Shareholder Services, LLC, The Tower at Erieview, Suite 1005,
1301 East Ninth Street, Cleveland, Ohio 44114.
In order to make an additional purchase by wire, the shareholder should
follow the wire instructions for initial purchases. However, the shareholder
should not complete or deliver a new Account Application.
Systematic Investment Plan. The systematic investment plan permits
investors to purchase Bank Stock Fund Shares at monthly intervals. Provided the
investor's bank or other financial institution allows automatic withdrawals,
Bank Stock Fund Shares may be purchased by transferring funds from the account
designated by the investor. At the investor's option, the investor's account
will be debited in the amount specified by the investor to purchase Bank Stock
Fund Shares once a month. The investor's account must be with a domestic
financial institution which is an Automated Clearing House member. Investors
desiring to participate in the systematic investment plan should call Mutual
Shareholder Services, LLC at (216) 736-3500 to obtain appropriate forms. The
systematic investment plan does not assure a profit and does not protect a
shareholder against loss.
Non-Payment by Investors. The Bank Stock Fund reserves the right to reject
any order and cancel any order because of non-payment by the investor. If an
order is canceled because of non-payment, the investor will be responsible for
any related loss that the Bank Stock Fund incurs. If the investor is already a
shareholder, the Bank Stock Fund may redeem the investor's Bank Stock Fund
Shares from the investor's account as reimbursement for losses resulting from
the investor's non-payment.
Purchases Over $50,000. The Bank Stock Fund may, in its sole discretion,
require that an investor purchasing more than $50,000 of Bank Stock Fund Shares
make payment by wire, cashier's check or certified check.
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Redemption of Bank Stock Fund Shares
Redemption Price. The Bank Stock Fund will redeem each Bank Stock Fund
Share offered by a shareholder for redemption at the net asset value per Bank
Stock Fund Share next determined after receipt of the redemption request, if in
good order, by the Bank Stock Fund's transfer agent. Because the net asset value
of Bank Stock Fund Shares will fluctuate as a result of changes in the market
value of securities owned by the Bank Stock Fund, the amount a shareholder
receives upon redemption may be more or less than the amount paid for the
shares.
Redemption Proceeds. The Bank Stock Fund will mail redemption proceeds to
the shareholder's registered address of record unless the shareholder requests
that the redemption proceeds be transmitted by wire to the shareholder's
pre-designated account at a domestic bank. The Bank Stock Fund will not wire
redemption proceeds in an amount less than $5,000. If the Bank Stock Fund wires
redemption proceeds to a shareholder, the shareholder must pay the cost of the
wire. If the shareholder purchased Bank Stock Fund Shares by check, the check
must clear before the Bank Stock Fund will deliver redemption proceeds to the
shareholder. A shareholder may avoid this delay by purchasing Bank Stock Fund
Shares by wire, cashier's check or certified check.
Redemption by Mail. Bank Stock Fund Shares may be redeemed by mail by
writing directly to the Bank Stock Funds' transfer agent, Mutual Shareholder
Services, LLC, at The Tower at Erieview, Suite 1005, 1301 East Ninth Street,
Cleveland, Ohio 44114. The redemption request must be signed exactly as the
shareholder's name appears on the registration form, with the signature
guaranteed, and must include the shareholder's account number. If Bank Stock
Fund Shares are owned by more than one person, the redemption request for those
shares must be signed by all owners exactly as their names appear on the
registration.
If a shareholder's Bank Stock Fund Shares are represented by a certificate,
the certificate must accompany the redemption request and must be endorsed as
registered with a signature guarantee. Additional documents may be required for
registered certificates owned by corporations, executors, administrators,
trustees or guardians. The Bank Stock Fund's transfer agent will not process a
redemption request until the transfer agent has received all of the necessary
documents in proper form. Shareholders may call Mutual Shareholder Services, LLC
at (216) 736-3500 for help in obtaining all of the necessary documents and in
completing the documents correctly.
A shareholder may obtain a signature guarantee from a bank, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. A notary public is not an
acceptable guarantor. The Bank Stock Fund may, in its sole discretion, waive
signature guarantee requirements on a case-by-case basis.
Redemption By Telephone. A shareholder may redeem Bank Stock Fund Shares by
telephone by calling Mutual Shareholder Services, LLC at (216) 736-3500 between
9:00 A.M. and 4:00 P.M. Eastern time on any day the New York Stock Exchange is
open for trading. To redeem Bank Stock Fund Shares by telephone, a shareholder
must make the election to do so on the initial application form or on other
forms prescribed by the Bank Stock Fund. Shareholders may obtain these forms by
calling Mutual Shareholder Services, LLC at (216) 736-3500. These forms contain
a space for the shareholder to supply his own four digit identification number.
The shareholder must give this identification number when requesting redemption
by telephone. The Bank Stock Fund will not be liable for following instructions
communicated by telephone that the Bank Stock Fund reasonably believes to be
genuine. If the Bank Stock Fund fails to employ reasonable procedures to confirm
that instructions communicated by telephone are genuine, the Bank Stock Fund may
be liable for any losses due to unauthorized or fraudulent instructions. Any
changes or exceptions to the original election must be made in writing with
signature guaranteed, and will be effective upon receipt by the Bank Stock
Fund's transfer agent. Mutual Shareholder Services, LLC reserves the right to
refuse any telephone instructions and may discontinue the aforementioned
redemption option without notice. The minimum telephone redemption is $1,000.
Other Information Concerning Redemption. The Bank Stock Fund reserves the
right to take up to seven days to pay redemption proceeds if, in the judgment of
the Bank Stock Fund's investment adviser, the Bank Stock Fund could be affected
adversely by immediate payment. In addition, shareholders' rights of redemption
may be suspended or the date of payment postponed:
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- For any period during which the New York Stock Exchange is closed,
other than for customary week-end and holiday closings;
- When trading in the markets that the Bank Stock Fund normally
utilizes is restricted, or when an emergency, as defined by the rules
and regulations of the SEC, exists, making disposal of the Bank Stock
Fund's investments or determination of its net asset value
impracticable; or
- For any other periods the SEC permits by order for the protection
of shareholders.
Due to the high cost of maintaining accounts, the Bank Stock Fund has the
right to redeem, upon at least 30 days' written notice to the shareholder, all
of a shareholder's Bank Stock Fund Shares if, through redemptions, the
shareholder's account has a net asset value of less than $1,000. During the
period after receipt of notice and prior to the date of the involuntary
redemption, the shareholder may avoid the involuntary redemption by purchasing
additional Bank Stock Fund Shares and raising the net asset value of the
shareholder's account to at least $1,000.
Dividends and Distributions by the Bank Stock Fund
The Bank Stock Fund intends to distribute net realized capital gains,
including net realized short-term capital gains, if any, and net investment
income, if any, at least annually. There can be no assurance that the Bank Stock
Fund will earn income, realize capital gains, or ever pay a dividend.
All dividends paid to each shareholder by the Bank Stock Fund will be
reinvested automatically at net asset value in additional Bank Stock Fund Shares
unless the shareholder has delivered to the Bank Stock Fund a written election
to receive dividends in cash.
Taxation
General. As with any investment, investments in Bank Stock Fund Shares
could have tax consequences for shareholders. Potential investors should
consider these tax consequences.
Taxes on Distributions. Distributions shareholders receive from the Bank
Stock Fund are subject to federal income tax, and may also be subject to state
or local taxes.
For federal tax purposes, the Bank Stock Fund's dividends and distributions
of short-term capital gains are taxable to shareholders as ordinary income. The
Bank Stock Fund's distributions of long-term capital gains are taxable to
shareholders generally as capital gains.
If an investor buys Bank Stock Fund Shares when the Bank Stock Fund has
realized but not yet distributed income or capital gains, the investor will be
"buying a dividend" by paying full price for the shares and then receiving a
portion of the price back in the form of a taxable distribution.
Any taxable distributions shareholders receive from the Bank Stock Fund
will normally be taxable to shareholders when they receive them, regardless of
whether the distributions are in cash or in additional Bank Stock Fund Shares.
Taxes on Transactions. Redemptions of Bank Stock Fund Shares, including
exchanges, may result in a capital gain or loss for federal tax purposes. A
capital gain or loss on a shareholder's investment in the Bank Stock Fund is the
difference between the cost of the shareholder's shares and the price the
shareholder receives when the shareholder sells them.
<PAGE>
SALES CHARGES
Sales Load
Except in circumstances described below, shareholders must pay a front-end
sales load at the time of each purchase of Bank Stock Fund Shares. The front-end
sales load is calculated as a percentage of the net asset value of the Bank
Stock Fund Shares purchased, which percentage decreases as the dollar value of
the shares purchased increases. The term "offering price" includes the front-end
sales load.
The current sales charge rates and commissions paid to selected dealers are
as follows:
Sales Load as % of:
Amount of
Investment NAV Net Amount Invested
Dealer Reallowance (at NAV)
Less than $100,000 3.00% 3.09% 2.50%
$100,000 but less than $250,000 2.75% 2.83% 2.25%
$250,000 but less than $500,000 2.25% 2.30% 1.75%
$500,000 but less than $750,000 1.75% 1.78% 1.25%
$750,000 but less than $1,000,000 1.25% 1.27% 0.75%
$1,000,000 or more NONE*
*No sales charge is imposed on purchases of Bank Stock Fund Shares of $1,000,000
or more. A contingent deferred sales charge of 1% is imposed if these Bank Stock
Fund Shares are sold sooner than one year after purchase.
The Bank Stock Fund's distributor may charge a reallowance to dealers and
may also compensate dealers out of its own assets. The Bank Stock Fund's
distributor retains the entire sales load on all direct initial investments in
the Bank Stock Fund and on all investments in accounts with no dealer of record.
The Bank Stock Fund will waive the sales charge for:
- Individuals who are affiliated with the Bank Stock Fund's investment
adviser;
- Employees of the Bank Stock Fund's investment adviser and the Bank
Stock Fund's other service providers, and their immediate family
members; and
- Fee-based financial planners or employee benefit plan consultants
acting for the accounts of their clients.
These waivers are intended to encourage people associated with the Bank
Stock Fund to invest in the Bank Stock Fund and to avoid duplicative fees for
potential investors.
Sales Load Reductions.
If a shareholder intends to purchase $100,000 or more in Bank Stock Fund
Shares over a period of time up to 13 months, the shareholder may agree to do so
in a letter of intent. At the time of each purchase related to a letter of
intent, the shareholder must deliver payment of the full sales load for that
purchase as described above under the heading "Sales Charges-Sales Load."
However, the Bank Stock Fund's custodian will hold the excess of these sales
load payments over the sales load which would have been charged on the total
purchase described in the letter of intent in an escrow account. If the
shareholder complies with all of the terms of the letter of intent, this excess
will be refunded to the shareholder.
A Shareholder who makes the election described in this section and submits
a letter of intent is not obligated to purchase the amount specified in the
letter of intent. However, if the shareholder does not comply with the terms of
the letter of intent, the custodian will not refund the escrowed funds to the
shareholder and will treat the escrowed funds as sales loads collected.
<PAGE>
Right of Accumulation
A shareholder may add the value of any Bank Stock Fund Shares which the
shareholder already owns for the purpose of calculating the sales charge at the
time of a subsequent purchase. A shareholder must notify the shareholder's
broker or the Bank Stock Fund's transfer agent at the time of purchase to
qualify for this treatment.
12b-1 Fees
The Bank Stock Fund has adopted a Distribution and Shareholder Servicing
Plan as permitted by Rule 12b-1 under the Investment Company Act of 1940. The
Distribution and Shareholder Servicing Plan allows the Bank Stock Fund to pay
distribution and other fees for the sale of Bank Stock Fund Shares and for
services provided to shareholders. Under the Distribution and Shareholder
Servicing Plan, the Bank Stock Fund pays Michael Patterson, Inc., the Bank Stock
Fund's distributor, distribution and shareholder services fees at the annual
rate of 0.50% of the Bank Stock Fund's average net assets.
Because these fees are paid out of the Bank Stock 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.
SERVICE PROVIDERS
Merlin Advisors, Inc., located at 1200 Old Henderson Road, Columbus, Ohio
43220, is the Bank Stock Fund's investment adviser.
Firstar Bank, N.A., located at 425 Walnut Street, Cincinnati, Ohio 45201,
is the custodian for the Bank Stock Fund's securities and cash.
Mutual Shareholder Services, LLC, located at The Tower at Erieview, Suite
1005, 1301 East Ninth Street, Cleveland, Ohio 44114, is the Bank Stock Fund's
transfer agent.
Michael Patterson, Inc., located at 1200 Old Henderson Road, Columbus, Ohio
43220, is the distributor of the Bank Stock Fund Shares.
McCurdy & Associates CPA's, Inc., located at 27955 Clemens Road, Westlake,
Ohio 44145, are the Bank Stock Fund's independent accountants.
Benesch, Friedlander, Coplan & Aronoff LLP, located at 88 East Broad
Street, 9th Floor, Columbus, Ohio 43215, is legal counsel to the Bank Stock
Fund, Merlin Funds Group and Merlin Advisors.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
AAA - This is the highest rating that may be assigned to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is
very strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Although it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for preferred stock in this category than for issues in the A
category.
BB, B, CCC - Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity
to pay preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation. While these issues
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC - The rating CC is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently paying.
C - A preferred stock rated C is a non-paying issue.
To provide more detailed indications of preferred stock quality, the
rating from AA to CCC may be modified by the addition of a plus (+) or a
minus (-) sign to show the relative standing within the major rating
categories.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT 1
STRATEGIES AND PRINCIPALRISKS
PERFORMANCE INFORMATION 2
FEES AND EXPENSES OF THE BANK STOCK FUND 2
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES 3
PRINCIPAL RISKS OF INVESTING IN THE BANK STOCK FUND 4
MANAGEMENT 7
SHAREHOLDER INFORMATION 8
SALES CHARGES 12
SERVICE PROVIDERS 13
The Statement of Additional Information dated August 11, 1999 contains
additional information about the Bank Stock Fund and is incorporated by
reference into this prospectus. The Statement of Additional Information is
available without charge upon request. Shareholders may call the Bank Stock Fund
toll free at 877- MERFUND to request the Statement of Additional Information, to
request other information about the Bank Stock Fund and to make shareholder
inquiries.
You may review and copy information about the Bank Stock Fund, including
the Statement of Additional Information, at the SEC's Public Reference Room in
Washington, DC 20549-6009. You may obtain information about the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Reports and other
information about the Bank Stock Fund are available on the SEC's Internet site
at http://www.sec.gov and copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington, D.C. 20549-6009.
The Merlin Funds Group
1200 Old Henderson Road
Columbus, Ohio 43220
877 637-3863
The Bank Stock Fund's Investment Company Act File Number is 811-09287
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION August 11, 1999
MERLIN US COMMUNITY BANK STOCK FUND
1200 Old Henderson Road
Columbus, Ohio
(877) 637-3863
Merlin US Community Bank Stock Fund is a diversified portfolio of Merlin Funds
Group, an open-end management investment company. The investment objective of
the Bank Stock Fund is to obtain long term capital growth. This Statement of
Additional Information is not a prospectus. A copy of the Bank Stock Funds'
prospectus can be obtained from the Fund's distributor, Michael Patterson, Inc.,
at 1200 Old Henderson Road, Columbus, Ohio 43220, telephone number (614) 451-
5806.
Information from the prospectus is incorporated by reference into this
Statement of Additional Information as specifically noted herein.
The date of this Statement of Additional Information and of the prospectus to
which it relates is August 11, 1999.
<PAGE>
TABLE OF CONTENTS
CAPTION PAGE LOCATION IN PROSPECTUS
General Information and Bank 3 Not Applicable
Stock Fund History
Investments and Risks 3 "Summary of Investment Objective,
Principal Investment Strategies
and Principal Risks," "Investment
Objective and Principal
Investment Strategies," and
"Principal Risks of Investing in
the Bank Stock Fund"
Management of the Bank Stock 6 "Management-The Bank Stock Fund's
Fund Investment Advisor," "Sales
Charges-Sales Load" and "Service
Providers"
Ownership of Bank Stock Fund Shares 8 Not Applicable
Investment Advisory and Other Services 9 "Management-The Bank Stock
Fund's Investment Advisor,"
"Sales Charges" and "Service
Providers"
Brokerage Allocation 11 Not Applicable
Capital Stock and Other Securities 13 Not Applicable
Purchase, Redemption and Pricing 14 "Shareholder Information-The
Price of a Bank of Shares Stock
Fund Share," "Shareholder
Information-Procedure for
Purchasing Bank Stock Fund
Shares" and "Shareholder
Information-Redemption of Bank
Stock Fund Shares"
Taxation of the Bank Stock Fund 14 Not Applicable
Distributor 14 "Sales Charges"
Performance 14 Not Applicable
Financial Statements 15 Not Applicable
<PAGE>
GENERAL INFORMATION AND BANK STOCK FUND HISTORY
Merlin Funds Group, an open-end investment management company, was organized
as a business trust under the laws of the State of Delaware by the filing of a
Certificate of Trust on February 3, 1999 with the Secretary of State of the
State of Delaware.
The Bank Stock Fund is a diversified portfolio of Merlin Funds Group. The
investment objective of the Bank Stock Fund is long-term capital growth.
To provide the initial capitalization for Merlin Funds Group, Merlin Funds
Group and Michael Patterson, Inc. entered into an Investment Agreement dated May
20, 1999 with each of J. Craig Wright and Alice Wright. Under these Investment
Agreements, Merlin Funds Group sold, and J. Craig Wright and Alice Wright
bought, a total of 10,000 Bank Stock Fund Shares for aggregate consideration of
$100,000 on August 10, 1999.
INVESTMENTS AND RISKS
Investment Strategies and Risks
The principal investment strategies used by the Bank Stock Fund to pursue its
investment objective, together with the principal risks of investing in the Bank
Stock Fund, are described in the Bank Stock Fund's prospectus under the headings
"Investment Objective and Principal Investment Strategies" and "Principal Risks
of Investing in the Bank Stock Fund".
The Bank Stock Fund has also adopted the following investment strategies to be
used by the Bank Stock Fund's investment adviser in managing the Bank Stock Fund
that are not principal strategies:
Warrants and Stock Purchase Rights. The Bank Stock Fund may invest in warrants
to purchase equity securities and stock purchase rights. Owners of warrants
and stock purchase rights have the right to buy specified securities at a set
price.
Options on Securities and Securities Indices. The Bank Stock Fund may write
and purchase call and put options on securities and securities indices. The
value of options purchased by the Bank Stock Fund, together with the
obligations of the Bank Stock Fund under options written by the Bank Stock
Fund, other than options written or purchased for hedging purposes and call
options written "against-the-box," will not exceed 5% of the Bank Stock Fund's
total assets at the time of the writing or purchase.
A call option written by the Bank Stock Fund obligates the Bank Stock
Fund to sell specified securities to the owner of the option at a specified
price if the option is exercised by the owner on or before the expiration
date. A put written by the Bank Stock Fund obligates the Bank Stock Fund to
purchase specified securities from the option owner at a specified price if
the option is exercised by the owner on or before the expiration date.
Repurchase Agreements. The Bank Stock Fund may enter repurchase agreements
with broker-dealers, banks and other financial institutions. A repurchase
agreement is a contract which requires the Bank Stock Fund, against receipt of
securities of at least equal value, to advance a specified amount of money to
a financial institution which agrees to reacquire the securities at an agreed
upon time and price. Repurchase agreements, which are usually for periods of
one week or less, enable the Bank Stock Fund to invest its cash reserves at
fixed rates of return. The Bank Stock Fund may enter into repurchase
agreements, but only if the Bank Stock Fund deposits securities, with its
custodian, having a market value equal to the Bank Stock Fund's repurchase
obligation. To minimize the risk of loss, the Bank Stock Fund will only enter
into repurchase agreements with persons the Bank Stock Fund's investment
adviser considers creditworthy.
<PAGE>
The investment strategies described above will expose the Bank Stock Fund to
the following risks in addition to the risks described in the Bank Stock Fund's
prospectus under the heading "Principal Risks of Investing in the Bank Stock
Fund":
Warrants and stock purchase rights may be riskier than common stock and lose
their value entirely if not exercised on or before their expiration dates.
Generally, owners of warrants and stock purchase rights do not have a right to
dividends or a right to participate in shareholder votes, and do not have
rights in the assets of the issuer. As a result, investments in warrants and
stock purchases rights may be considered riskier than investments which give
owners rights to receive payments or to participate in shareholder votes, or
give owners interests in the issuer's assets. In addition, the value of
warrants and stock purchase rights do not necessarily change with the value of
the underlying securities, and they cease to have value if they are not
exercised by their expiration date.
Investments in options require special skills and may not have an active
trading market. The writing and purchasing of options is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. The successful use
of options depends in part on the Bank Stock Fund's investment adviser's
ability to predict future price fluctuations and the degree of correlation
between the options and securities markets.
There is no assurance that a liquid secondary market on an options
exchange will exist for any exchange-traded option at any particular time. If
the Bank Stock Fund is unable to effect a closing purchase transaction with
respect to covered options it has written, the Bank Stock Fund will not be
able to sell the underlying securities or dispose of assets held in a
segregated account until the options expire or are exercised. Similarly, if
the Bank Stock Fund is unable to effect a closing sale transaction with
respect to options it has purchased, the Bank Stock Fund must exercise the
options and incur transaction costs before realizing any profit. Reasons for
the absence of a liquid secondary market on an exchange include:
- There may be insufficient trading interest in the options;
- Restrictions may be imposed by an exchange;
- Trading halts, suspensions or other restrictions may be imposed;
- Unusual or unforeseen circumstances may interrupt normal operation
on an exchange;
- The facilities of an exchange or the Options Clearing Corporation may
not be adequate to handle current trading volume; or
- One or more exchanges could discontinue the trading of options, and the
secondary market on that exchange would cease to exist.
The Bank Stock Fund may purchase and sell options that are traded
over-the-counter. The market for over-the-counter options is more limited than
the market for exchange-traded options and may involve the risk that
broker-dealers participating in these transactions will not fulfill their
obligations.
Repurchase agreements pose a credit risk. An investment in a repurchase
agreement has the risk that the other party to the agreement will not fulfill
its obligation to repurchase the subject securities. This would cause the Bank
Stock Fund to incur a loss, as well as legal expense, if the value of the
securities declined before the Bank Stock Fund liquidated the securities.
Options, warrants and stock purchase rights are derivative securities which
may lose value due to illiquidity, or changes in interest rates and stock
prices. The Bank Stock Fund may purchase or sell options and invest in
warrants and stock purchase rights, all of which are derivative securities.
Derivative securities derive their value from a different underlying security,
index or financial indicator. The use of derivative instruments exposes the
Bank Stock Fund to additional risks and transaction costs. Risks inherent to
the use of derivative instruments include:
<PAGE>
- The risk that interest rates, securities prices and currency markets will
not move in the direction anticipated by the Bank Stock Fund's investment
adviser;
- Imperfect correlation between the price of the derivative instrument and
movements in the prices of the securities, interest rates or currencies
being hedged;
- The fact that skills needed to use these strategies are different than
those needed to select equity securities;
- The possible absence of a liquid secondary market for any particular
instrument and possible exchange imposed price fluctuation limits, either
of which may make it difficult or impossible to close out a position when
desired;
- Leverage risk, that is, the risk that adverse price movements in an
instrument can result in a loss substantially greater than the Bank Stock
Fund's initial investment in that instrument and, in some cases, the
potential loss is unlimited; and
- Inability to close out hedged positions to avoid adverse tax
consequences.
Fund Policies
The Bank Stock Fund has adopted the following fundamental investment policies
and restrictions. These policies cannot be changed without approval by the
owners of a majority of the outstanding voting securities of the Bank Stock
Fund. As defined in the Investment Company Act of 1940, the "vote of a majority
of the outstanding voting securities" of the Bank Stock Fund means the lesser of
the vote of (a) 67% of the Bank Stock Fund Shares at a meeting where more than
50% of the outstanding Bank Stock Fund Shares are present in person or by proxy
or (b) more than 50% of the outstanding Bank Stock Fund Shares. Without approval
by the vote of a majority of the outstanding voting securities of the Fund, the
Bank Stock Fund may not:
1. Invest less than 70% of its total assets in publicly traded equity
securities of community banks and community bank holding companies, except
when the Bank Stock Fund is pursuing a temporary defensive position in
response to adverse market conditions.
2. Lend money or securities, provided that the making of interest-bearing
demand deposits with banks compatible with the Bank Stock Fund's investment
objective strategies and policies are not prohibited.
3. Borrow money except (a) from a bank, provided that there is an asset
coverage of 300% for all borrowings of the Bank Stock Fund; or (b) from a bank
or other persons for temporary purposes only, provided that these temporary
borrowings amount to less than 5% of the Bank Stock Fund's net assets when the
borrowing is made.
4. Invest in commodities or commodity futures contracts or in real
estate, although it may invest in securities which are secured by real estate
and securities of issuers which invest or deal in real estate.
5. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of issuers
which invest in or sponsor these programs.
6. Underwrite securities issued by others, except to the extent the Bank
Stock Fund may be deemed to be an underwriter under the federal securities
laws, in connection with the disposition of the Bank Stock Fund's portfolio
securities.
7. Issue senior securities of the Bank Stock Fund. This limitation is not
applicable to activities that may be deemed to involve the issuance or sale of
a senior security by the Bank Stock Fund, provided that the Bank Stock Fund's
engagement in such activities is (a) consistent with or permitted by the
Investment Company Act of 1940, the rules and regulations promulgated
thereunder or interpretations of the SEC and (b) as described in the Bank
Stock Fund's prospectus and this Statement of Additional Information.
<PAGE>
8. Invest more than 5% of the value of its total assets in the securities
of any one issuer (except obligations issued or guaranteed by the United
States Government, its agencies and instrumentalities).
9. Acquire more than 5% of the outstanding voting securities of any
issuer.
If a percentage restriction is adhered to at the time the action is taken by the
Bank Stock Fund, a later increase or decrease in the percentage beyond the
specified limit resulting from a change in values or net assets will not be
considered a violation.
The following investment policies are not fundamental and they may be changed
without shareholder approval:
1. The Bank Stock Fund will not purchase securities on margin except to
obtain short-term credits necessary for the clearance of transactions.
2. The Bank Stock Fund will not write or purchase call and put options on
securities and securities indices with an aggregate value, excluding the value
of options written or purchased for hedging purposes and call options written
against-the-box, in excess of 5% of the Bank Stock Fund's total assets at the
time of the purchase or writing.
Defensive Investments
The information in the Bank Stock Fund's prospectus under the caption
"Investment Objective and Principal Investment Strategies-Principal Investment
Strategies and Types of Securities; Temporary Investments" is incorporated
herein by reference.
MANAGEMENT OF THE BANK STOCK FUND
Responsibilities
The business and affairs of the Bank Stock Fund are managed by or under the
direction of the Bank Stock Fund's board of trustees. The day-to-day operations
of the Bank Stock Fund are conducted by the Bank Stock Fund's officers.
<PAGE>
Biographical Information
The following table provides biographical information with respect to each
current trustee and officer of the Bank Stock Fund. Each trustee who is or may
be deemed to be an "interested person" of the Bank Stock Fund, as defined in the
Investment Company Act of 1940, is indicated by an asterick
Position(s) Held Principal Occupation(s)
Name, Address and Age with the Bank During Past Five (5)
Stock Fund Years
Michael W. Patterson* Trustee; President, Chief Executive
1200 Old Henderson Road Chairman; Officer, Chairman, Secretary
Columbus, Ohio 43220 Secretary and Treasurer of Michael
Age: 31 Patterson, Inc. (a registered
broker/dealer) since
November, 1997; Registered
Representative for Quantum
Capital Corp. (a registered
broker/dealer) from December
1996 until March, 1998;
Registered Representative for
Hamilton Shea Group (a
registered broker/dealer)
from April, 1995 until
December, 1996; Registered
Representative for Diversified
Capital Markets (a
registered broker/dealer)
form May, 1993 until April,
1995; and a Registered
Representative for M.C.
Capital Corp. (a registered
broker/dealer) from February
1991 until May, 1993.
Joseph M. McCloud Trustee; Vice President of Michael
1200 Old Henderson Road President; Patterson, Inc.(broker/dealer)
Columbus, Ohio 43220 Treasurer since February, 1998; Equity
trade for Quantum Capital
(broker/dealer) from February,
1998 until March 1998; Equity
trader for Banc One Securities
Corp.(broker/ dealer) from
November, 1996 until
February,1998; Marketin
associate for Dean Witter
Reynolds, Inc. (broker/dealer)
from January, 1996 until July,
1996; Mr. McCloud formed Image
Alchemy Inc.(Internet services
company) from February 1994,
which he operated until
January, 1996.
Cavin C. Carmell Trustee Owner and operator of
1439 North High Street Univesity Area Rentals since
Columbus,Ohio 43201 Trustee july, 1985.
Age: 42
Gavin Freytag Trustee Partial owner and President of
1220 West Powell Road Profitworks, Ltd., which
Columbus, Ohio 43065 provides employee education
Age: 32 programs and helps employers
develop and implement employee
incentive programs, since
August, 1996; Trust Officer
for Fiduciary Trust Company (a
provider of investment
management services) from
March, 1993 until July, 1994.
William F.Mailbaum Trustee Sole owner of Comprehensive
232 Storington Road Dwelling Evaluations (a
Westerville, Ohio 43081 provider of property
Age: 71 inspection services) since
September, 1986.
<PAGE>
Trustees and Officers Who Hold Positions with the Bank Stock Fund's Investment
Adviser and Distributor
The information in the Bank Stock Fund's prospectus under the caption
"Management-Interrelationships Between the Bank Stock Fund, Merlin Advisors and
Michael Patterson, Inc." is incorporated herein by reference.
Compensation
No officer, director or employee of Merlin Advisors, Inc., the Bank Stock
Fund's investment adviser, receives any compensation from the Bank Stock Fund
for serving as an officer or trustee of the Bank Stock Fund. Merlin Advisors
will pay, out of the advisory fee it receives from the Bank Stock Fund, each
trustee who is not an interested person in Merlin Advisors a fee of $250 per
hour for each board of trustees or shareholders meeting attended. The estimated
fees payable to the trustees for the current fiscal year, which are the only
compensation or benefits payable to trustees, are summarized in the following
table:
Compensation Table
Aggregate Pension or Total Compensation
Name of Trustee Compensation Retirement Benefits From Bank Stock
from Bank Accruded As Part of Fund Payable
Stock Fund(a) Fund Expenses(b) to Trustees(a)
Michael W. Patterson $0 $0 $0
Joseph M McCloud $0 $0 $0
Cavin C. Carmell $1,500 $0 $1,500
Gavin Freytag $1,500 $0 $1,500
William F. Maibaum $1,500 $0 $1,500
(a) Estimated fees for current fiscal year based on four meetings of the board
of trustees and one shareholder meeting.
(b) The Bank Stock Fund does not now, nor does it intend to ever, pay pension or
retirement benefits under any plan, either directly or indirectly.
Sales Load Waiver
The information in the Bank Stock Fund's prospectus under the caption "Sales
Charges-Sales Load" is incorporated herein by reference.
OWNERSHIP OF BANK STOCK FUND SHARES
As of the date of this Statement of Additional Information, the Bank Stock
Fund Shares are the only series of Merlin Funds Group shares and there are a
total of 10,000 Bank Stock Fund Shares issued and outstanding. J. Craig Wright
and Alice Wright each own 5,000 Bank Stock Fund Shares. Mr. and Mrs. Wright
will have the voting power to decide all matters submitted to shareholders for a
vote until their ownership percentages are sufficiently diluted by the issuance
of additional Bank Stock Fund Shares to other persons. Mr. and Mrs. Wright are
individuals whose address is 17 South High Street, Columbus, Ohio 43215.
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
Control Persons of Merlin Advisors, Inc. and Affiliates Common to the Adviser
and the Trust
The information in the Bank Stock Fund's prospectus under the caption
"Management-Interrelationships Between the Bank Stock Fund, Merlin Advisors and
Michael Patterson, Inc." is incorporated herein by reference.
Investment Adviser
The information in the Bank Stock Fund's prospectus under the captions
"Management-The Bank Stock Fund's Investment Adviser" and "Management-
Interrelationships Between the Bank Stock Fund, Merlin Advisors and Michael
Patterson, Inc." is incorporated herein by reference.
Distributor
Michael Patterson, Inc. is the distributor of Bank Stock Fund Shares under
the terms of a distribution agreement dated June 17, 1999 between Michael
Patterson, Inc. and the Bank Stock Fund. Michael Patterson, Inc.'s principal
business address is 1200 Old Henderson Road, Columbus, Ohio 43220.
The information in the Bank Stock Fund's prospectus under the caption
"Management-Interrelationships Between the Bank Stock Fund, Merlin Advisors and
Michael Patterson, Inc." is incorporated herein by reference.
Distribution Plan
The Bank Stock Fund has adopted a Distribution and Shareholder Servicing Plan
as permitted by Rule 12b-1 under the Investment Company Act of 1940. The
Distribution and Shareholder Servicing Plan allows the Bank Stock Fund to pay
distribution and other fees for the sale of Bank Stock Fund Shares and for
services provided to shareholders. Under the Distribution and Shareholder
Servicing Plan, the Bank Stock Fund pays Michael Patterson, Inc. distribution
and shareholder services fees at the annual rate of 0.50% of the Bank Stock
Fund's average net assets.
Michael Patterson, Inc. uses this fee to pay administration, shareholder
services and distribution assistance costs incurred to service the Bank Stock
Fund, including, but not limited to:
- Compensation to securities dealers and other persons for providing
distribution assistance with respect to Bank Stock Fund Shares;
- Compensation to dealers and other person providing distribution
assistance for providing administration, accounting and other shareholder
services with respect to Bank Stock Fund Shares; and
- Otherwise promoting the sale of Bank Stock Fund Shares, including paying
for the preparation of advertising and sales literature and the printing
and distribution of such materials to prospective Bank Stock Fund
investors.
However, Michael Patterson, Inc. will be paid the full amount of this fee
regardless of the amount of Michael Patterson, Inc.'s expenses.
The information in the Bank Stock Fund's prospectus under the caption
"Management-Interrelationships Between the Bank Stock Fund, Merlin Advisors and
Michael Patterson, Inc." is incorporated herein by reference. Because of their
relationships with Michael Patterson, Inc., Michael W. Patterson and Joseph M.
McCloud have personal financial interests in the operation of the Distribution
and Shareholder Servicing Plan.
<PAGE>
Other Service Providers
Transfer Agent and Accounting Services Provider. The Bank Stock Fund has
entered into a Transfer Agent Agreement with Mutual Shareholder Services, LLC,
an Ohio limited liability company, wherein Mutual Shareholder Services has
agreed to act as the Bank Stock Fund's transfer agent and dividend disbursing
and redemption agent. Under the Transfer Agent Agreement, Mutual Shareholder
Services will:
- - Receive order for the purchase of Bank Stock Fund Shares for acceptance;
- - Promptly deliver payments for Bank Stock Fund Shares and appropriate
documentation thereof to the Bank Stock Fund's custodian;
- - Issue Bank Stock Fund Shares and hold issued Bank Stock Fund Shares in
appropriate shareholder accounts;
- - Receive redemption requests and redemption directions for acceptance, and
deliver appropriate documentation thereof to the Bank Stock Fund's custodian;
- - Upon receipt by Mutual Shareholder Services of money paid to the Bank Stock
Fund's custodian for any redemption, pay over the money as instructed by the
redeeming shareholder;
- - Effect transfers of Bank Stock Fund Shares by the registered owners thereof,
upon receipt of appropriate instructions;
- - Prepare and transmit payments for dividends and distributions declared by the
Bank Stock Fund;
- - Maintain records of account for all of the foregoing activities;
- - Record the issuance of Bank Stock Fund Shares and maintain a record of the
total number of Bank Stock Fund Shares that are authorized, issued and
outstanding;
- - On a regular basis, provide the Bank Stock Fund with the total number of Bank
Stock Fund Shares which are authorized, issued and outstanding;
- - Maintain all shareholder accounts;
- - Prepare shareholder meeting lists;
- - Mail proxies;
- - Receive and tabulate proxies;
- - Mail shareholder reports and prospectuses to current shareholders;
- - Withhold taxes on U.S. residents and non-resident alien accounts;
- - Prepare and file U.S. Treasury Department Forms 1099 and other appropriate
forms required with respect to dividends and distributions by federal
authorities for all shareholders;
- - Prepare and mail confirmation forms and statements of account for all
purchases and redemptions of Bank Stock Fund Shares and other confirmable
transactions in shareholder accounts;
- - Prepare and mail activity statements for shareholders;
<PAGE>
- - Provide shareholder account information and provide a system and reports which
will enable the Bank Stock Fund to monitor the total number of Bank Stock Fund
Shares sold in each State; and,
- - Perform all other customary services of a transfer agent, dividend disbursing,
and redemption agent.
Under the Transfer Agent Agreement, the Bank Stock Fund has agreed to pay
Mutual Shareholder Services an annual fee, paid monthly, equal to $11.50 per
shareholder account (with a monthly minimum of $775) plus $12 per month for each
State in which the Bank Stock Fund is registered under such State's securities
laws, plus out-of-pocket expenses.
The Bank Stock Fund has entered into an Accounting Services Agreement with
Mutual Shareholder Services under which Mutual Shareholder Services has agreed
to provide portfolio pricing and related services to the Bank Stock Fund, and
the Bank Stock Fund has agreed to pay Mutual Shareholder Services an annual fee
of $21,000 for the first $25,000,000 in net assets, $9,500 for the next
$25,000,000 in net assets and $5,750 for each additional $25,000,000 in net
assets, plus out-of-pocket expenses. The fees paid by the Bank Stock Fund to
Mutual Shareholder Services are discounted at a rate which declines as the
amount of the Bank Stock Fund's net assets increases. The discount rate is 80%
until net assets exceed $250,000, then 70% until the net assets exceed $500,000,
then 60% until net assets exceed $1,000,000, then 50% until net assets exceed
$2,000,000 and then the discount rate declines 5% for each additional $1,000,000
in net assets until the discount rate is 0%.
Custodian. The Bank Stock Fund has entered into a Custody Agreement with
Firstar Bank, N.A., a national banking association, wherein Firstar Bank has
agreed to serve as the custodian of the Bank Stock Fund's portfolio securities
and cash. In consideration of such services, the Bank Stock Fund has agreed to
pay Firstar Bank:
- Portfolio transaction fees on a per transaction basis which fees
range from $5 to $80 depending upon the type of transaction;
- A percentage of the market value of the Bank Stock Fund's portfolio
securities and cash held by Firstar Bank equal to an annual rate of
0.0003% on the first $20,000,000; 0.0002% on the next $20,000,000;
and 0.00015% on any amount in excess of $40,000,000;
- A monthly minimum fee of $300; and
- Reimbursement of out-of-pocket expenses.
Firstar Bank's address is 425 Walnut Street, Cincinnati, Ohio 45201.
Public Accountants. McCurdy & Associates CPA's, Inc., independent certified
public accountants located at 27955 Clemens Road, Westlake, Ohio 44145, has been
selected as auditors for the Bank Stock Fund. In this capacity, McCurdy &
Associates CPA's, Inc. periodically reviews the accounting and financial records
of the Bank Stock Fund and examines its financial statements.
Dealer Reallowances
The information in the Bank Stock Fund's prospectus under the caption "Sales
Charges-Sales Load" is incorporated herein by reference.
BROKERAGE ALLOCATION
Types of Fees. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally no stated commission in the
case of securities traded in the over-the-counter markets, but the price of
those securities includes an undisclosed commission or mark-up. The cost of
securities purchased from underwriters includes an underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealer's markup or markdown.
<PAGE>
Broker-Dealer Selection Policy. The Bank Stock Fund's primary policy is to
execute all purchases and sales of portfolio securities at the most favorable
prices consistent with best execution, considering all of the costs of the
transaction including brokerage commissions and dealer mark-ups.
The Bank Stock Fund and the Bank Stock Fund's investment adviser may consider
the reliability and quality of the services, including primarily the
availability and value of research information and to a lesser extent
statistical assistance furnished to the Bank Stock Fund or to the Bank Stock
Fund's investment adviser, when selecting a broker-dealer. As permitted by
Section 28(e) of the Securities Exchange Act of 1934, the Bank Stock Fund may
pay a broker which provides brokerage and research services to the Bank Stock
Fund an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. The Bank Stock Fund
may pay these commissions only after a good faith determination by the Bank
Stock Fund's board of trustees that the price is reasonable in light of the
services provided and the policies as the Bank Stock Fund's board of trustees
may adopt from time to time.
The research information and statistical assistance furnished by brokers-
dealers may benefit other clients of the Bank Stock Fund's investment adviser,
and not all of this information and assistance may be used by the Bank Stock
Fund's investment adviser in connection with the Bank Stock Fund. The Bank Stock
Fund's investment adviser's fee will not be reduced by reason of the investment
adviser receiving this research information and statistical assistance.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and the Bank Stock Fund's investment adviser's
obligation to seek the best qualitative execution, the Bank Stock Fund's
investment adviser may consider the number of Bank Stock Fund Shares a
broker-dealer has sold when selecting a broker-dealer to execute portfolio
transactions. In addition, the Bank Stock Fund's distributor may compensate
brokers for directing investors to buy or retain Bank Stock Fund Shares.
Bank Stock Fund's Investment Adviser. The Bank Stock Fund's investment adviser
will select broker-dealers to execute securities transactions for the Bank Stock
Fund's portfolio. However, the investment adviser's selections must be
consistent with the Bank Stock Fund's policies and the investment advisory
agreement between the Bank Stock Fund and the investment adviser, and will at
all times be reviewable by the Bank Stock Fund's board of trustees.
Even though investment decisions for the Bank Stock Fund are made
independently from those of the other accounts managed by the Bank Stock Fund's
investment adviser, investments of the kind made by the Bank Stock Fund may also
be made by other accounts managed by the investment adviser. When the Bank Stock
Fund and one or more other accounts managed by the investment adviser are
prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed by
the investment adviser to be equitable. In some cases, this procedure may
adversely affect the price paid or received by the Bank Stock Fund or the size
of the position obtained for or disposed of by the Bank Stock Fund.
Michael Patterson, Inc. The Bank Stock Fund's board of trustees has
determined that any portfolio transaction for the Bank Stock Fund, including in
certain instances over-the-counter purchases and sales, may be effected through
Michael Patterson, Inc. if:
- In the Bank Stock Fund's investment adviser's judgment, the use of
Michael Patterson, Inc. is likely to result in price and execution at
least as favorable as those of other qualified brokers; and
- Michael Patterson, Inc. charges the Bank Stock Fund a commission for the
transaction at a rate consistent with those charged by Michael
Patterson, Inc. to comparable unaffiliated customers in similar
transactions.
<PAGE>
Each quarter, the Bank Stock Fund's board of trustees review a report
comparing the commissions charged to the Bank Stock Fund by Michael Patterson,
Inc. to the commissions which would have been charged for the same transactions
by a national discount brokerage firm and a full-service brokerage firm at
institutional rates. Based upon this review, the Bank Stock Fund's board of
trustees determines on a quarterly basis whether the commissions charged by
Michael Patterson, Inc. meet the requirements of the Investment Company Act of
1940.
Michael Patterson, Inc. will not participate in commissions from brokerage
given by the Bank Stock Fund to other brokers or dealers.
Over-the-counter purchases and sales are transacted through brokers and
dealers with principal market makers. The Bank Stock Fund will in no event
effect principal transactions with Michael Patterson, Inc. in which Michael
Patterson, Inc. makes a market.
Michael W. Patterson and Joseph M. McCloud are affiliates of the Bank Stock
Fund and Michael Patterson, Inc. Michael Patterson, Inc. is the Bank Stock
Fund's current distributor. See "Management-Interrelationships between Bank
Stock Fund, Merlin Advisors and Michael Patterson, Inc."
CAPITAL STOCK AND OTHER SECURITIES
Merlin Funds Group's Agreement and Declaration of Trust provides for an
unlimited number of authorized shares of beneficial interest, which may, without
shareholder approval, be divided into an unlimited number of series of such
shares. Currently, the Bank Stock Fund Shares are the only series of Merlin
Funds Group shares. Each share represents an equal proportionate interest in a
fund with other shares of the same series and class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
that fund as are declared at the discretion of the trustees. All consideration
received by Merlin Funds Group for shares of a fund and all assets in which such
consideration is invested will belong to that fund and will be subject to the
liabilities relating thereto.
Shareholders are entitled to one vote per share (with proportional voting for
fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except that the shares shall be voted by individual series or class when
required by the Investment Company Act of 1940 or when the trustees have
determined that the matter affects only the interests of a particular series or
class.
Whenever the approval of a majority of the outstanding shares of Merlin Funds
Group or a particular fund is required in connection with shareholder approval
of an investment advisory contract, changes in the investment objective and
policies or the investment restrictions, or approval of a distribution expense
plan, a "majority" shall mean the lesser of the vote of (a) 67% or more of the
shares of Merlin Funds Group or such fund present at a meeting, if the holders
of more than 50% of the outstanding shares of Merlin Funds Group or such fund
are present in person or by proxy, or (b) more than 50% of the outstanding
shares of Merlin Funds Group or such fund.
Meetings of shareholders may be called by the Bank Stock Fund board of
trustees in accordance with the terms of the Bank Stock Fund's Agreement and
Declaration of Trust and By-Laws, and will be called by the trustees for the
purpose of voting upon the question of removal of a trustee or trustees when
requested in writing to do so by the owners of at least 10% of the outstanding
Bank Stock Fund Shares.
Upon issuance and sale in accordance with the terms of the Bank Stock Fund's
prospectus, each Bank Stock Fund Share will be fully paid and non-assessable.
Bank Stock Fund Shares have no preemptive, subscription or conversion rights.
The Agreement and Declaration of Trust also provides that shareholders shall not
be subject to any personal liability for the acts or obligations of the Bank
Stock Fund and that every agreement, obligation or instrument entered into or
executed by a Bank Stock Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder.
<PAGE>
Owners of Bank Stock Fund Shares do not have cumulative voting rights.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The information contained in the Bank Stock Fund's prospectus under the
captions "Shareholder Information-The Price of a Bank Stock Fund Share,"
"Shareholder Information-Redemption of Bank Stock Fund Shares" and "Sales
Charges" is incorporated herein by reference.
TAXATION OF THE BANK STOCK FUND
The Bank Stock Fund intends to qualify continually as a regulated investment
company under Subchapter M of the Internal Revenue Code. As a regulated
investment company, the Bank Stock Fund would not incur federal income tax
liability for any income the Bank Stock Fund distributes to shareholders. If the
requirements of Subchapter M are not met, the Bank Stock Fund will not receive
special tax treatment and will pay federal income taxes, thus reducing the
return of the Bank Stock Fund.
DISTRIBUTOR
Michael Patterson, Inc., a registered NASD broker-dealer, offers Bank Stock
Fund Shares on a best-efforts basis. Pursuant to the distribution agreement
between the Bank Stock Fund and Michael Patterson, Inc., Michael Patterson, Inc.
has agreed to hold itself available to receive orders, satisfactory to Michael
Patterson, Inc., for the purchase of Bank Stock Fund Shares, to accept such
orders on behalf of the Bank Stock Fund as of the time of receipt of such orders
and to transmit such orders to the Bank Stock Fund's transfer agent as promptly
as practicable.
The information contained in the Prospectus under the caption "Sales Charges"
is incorporated herein by reference.
PERFORMANCE
From time to time, the Bank Stock Fund may advertise performance data
represented by a cumulative total return or an average annual total return.
Total returns are based on the overall or percentage change in value of a
hypothetical investment in the Bank Stock Fund and assume all of the Bank Stock
Fund's dividends and capital gain distributions are reinvested. A cumulative
total return reflects the Bank Stock Fund's performance over a stated period of
time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if
the Bank Stock Fund's performance had been constant over the entire period.
Because average annual returns tend to smooth out variations in the Bank Stock
Fund's returns, it should be recognized that they are not the same as actual
year-by-year results.
The Bank Stock Fund's performance may be compared to well-known indices such
as the Dow Jones Industrial Average or alternative investments such as Treasury
Bills. Also, the Bank Stock Fund may include published editorial comments
compiled by independent organizations such as Lipper Analytical Services or
Morningstar, Inc.
All performance information is historical in nature and is not intended to
represent or guarantee future results. The value of Bank Stock Fund Shares when
redeemed may be more or less than their original cost.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
MERLIN FUNDS GROUP
-----------------------
REGISTRATION STATEMENT ON FORM N-1A
-----------------------
FINANCIAL STATEMENTS
-----------------------
<PAGE>
To The Shareholders and Trustees
Merlin Funds Group:
We have audited the accompanying statement of assets and liabilities of the
Merlin Funds Group (comprised of the Merlin US Community Bank Stock Fund) as of
August 3, 1999. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. Our procedures included
confirmation of cash held by the custodian as of August 3, 1999, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the Merlin
US Community Bank Stock Fund as of August 3, 1999, in conformity with generally
accepted accounting principles.
/s/ McCurdy & Associates CPA's, Inc.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
August 3, 1999
<PAGE>
MERLIN FUNDS GROUP
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 3, 1999
Merlin US Community
Bank Stock Fund
ASSETS:
Cash in Bank $100,000
Total Assets $100,000
LIABILITIES: $ 0
Total Liabilities $ 0
NET ASSETS $100,000
NET ASSETS CONSIST OF:
Capital Paid In $100,000
OUTSTANDING SHARES
Unlimited Number of Shares
Authorized Without Par Value 10,000
NET ASSET VALUE PER $10.00
SHARE
OFFERING PRICE PER $10.30
SHARE
See accompanying notes and accountant's audit report
<PAGE>
MERLIN FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS
August 3, 1999
1. ORGANIZATION
Merlin Funds Group (the "Trust") is an open-end management investment company
organized as a business trust under the laws of the State of Delaware by a
Declaration of Trust dated February 3, 1999. The Declaration of Trust provides
for an unlimited number of authorized shares of beneficial interest without
par value, which may, without shareholder approval, be divided into an
unlimited number of series of such shares, and which presently consist of one
series of shares for the Merlin US Community Bank Stock Fund (the "Fund").
The Fund uses an independent custodian and transfer agent. No transactions
other than those relating to organizational matters and the sale of 10,000
shares of the Merlin US Community Bank Stock Fund have taken place to date.
The investment objective of the Bank Stock Fund is long-term capital growth.
2. CONTROL PERSONS
As of August 3, 1999, all of the outstanding shares of the Fund were owned by
J. Craig Wright and Alice Wright. A shareholder who beneficially owns,
directly or indirectly, more than 25% of the Fund's voting securities may be
deemed a "control person" (as defined in the 1940 Act) of the Fund. Neither of
these "control persons" are related to the Fund or any of its service
providers.
3. RELATED PARTY TRANSACTIONS
The Fund has an investment advisory agreement with Merlin Advisors, Inc.
which is a registered investment adviser under the Investment Advisers
Act of 1940. Merlin Advisors, Inc. will provide investment advisory
services and will pay all operating expenses of the Fund with the exception
of brokerage, taxes, interest, distribution (12b-1) fees and extraordinary
expenses. Merlin Advisors, Inc. will receive a fee equal to 2% per annum of
the average daily net asset value of the Fund.
The Fund has adopted a distribution and shareholder servicing plan as
permitted by Rule 12b-1 under the Investment Company Act of 1940. The Fund has
entered into a distribution agreement with Michael Patterson, Inc. The Fund
will pay Michael Patterson, Inc. distribution and shareholder services fees at
the annual rate of 0.50% of the Fund's average net assets.
Michael W. Patterson and Joseph M. McCloud are officers and/or directors of
Merlin Funds Group, Merlin Advisors, Inc. and Michael Patterson, Inc.
4. CAPITAL STOCK AND DISTRIBUTION
At August 3, 1999, an unlimited number of shares were authorized and paid in
capital amounted to $100,000 for the Merlin US Community Bank Stock Fund.
Transactions in capital stock were as follows:
Shares Sold:
Merlin US Community Bank Stock Fund 10,000
Shares Redeemed:
Merlin US Community Bank Stock Fund 0
Net Increase:
Merlin US Community Bank Stock Fund 10,000
Shares Outstanding:
Merlin US Community Bank Stock Fund 10,000
<PAGE>
MERLIN FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 3, 1999
5. SALES LOAD
Except in circumstances described below, shareholders must pay a front-end
sales load at the time of each purchase of Bank Stock Fund shares. The
front-end sales load is calculated as a percentage of the net asset value of
the Bank Stock Fund shares purchased, which percentage decreases as the dollar
value of the shares purchased increases. The term "offering price" includes
the front-end sales load.
The current sales charge rates and commissions paid to selected dealers are as
follows:
Sales Load as % of:
Amount Net Dealer
of Investment NAV Amount Reallowance
Invested (At NAV)
Less than $100,000 3.00% 3.09% 2.50%
$100,000 but less than $250,000 2.75% 2.83% 2.25%
$250,000 but less than $500,000 2.25% 2.30% 1.75%
$500,000 but less than $750,000 1.75% 1.78% 1.25%
$750,000 but less than $1,000,000 1.25% 1.27% 0.75%
$1,000,000 or more NONE*
*No sales charge is imposed on purchases of Bank Stock Fund shares of
$1,000,000 or more. A contingent deferred sales charge of 1% is imposed if
these Bank Stock Fund shares are sold sooner than one year after purchase.
The Bank Stock Fund's distributor may charge a reallowance to dealers and may
also compensate dealers out if its own assets. The Bank Stock Fund's
distributor retains the entire sales load on all direct initial investments in
the Bank Stock Fund and on all investments in accounts with no dealer of
record.
The Bank Stock Fund will waive the sales charge for:
- Individuals who are affiliated with the Bank Stock Fund's investment
adviser;
- Employees of the Bank Stock Fund's investment adviser and the Bank Stock
Fund's other service providers, and their immediate family members, and
- Fee-based financial planners or employee benefit plan consultants acting
for the accounts of their clients.
These waivers are intended to encourage people associated with the Bank Stock
Fund to invest in the Bank Stock Fund and to avoid duplicate fees for
potential investors.
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibit Description
a(1) Certificate of Trust of Merlin Funds Group dated February 3,
1999 (previously filed).
a(2) Agreement and Declaration of Trust of Merlin Funds Group dated
February 3, 1999 (previously filed).
b By-Laws of Merlin Funds Group dated February 3, 1999
(previously filed).
c Article IV, Section 4 and Articles V, VI and VII of the
Agreement and Declaration of Trust of Merlin Funds Group (see
Exhibit a(1)) and Article III of the By-Laws of Merlin Funds
Group (see Exhibit b).
d Investment Advisory Agreement between Merlin Funds Group and
Merlin Advisers, Inc. dated June 17, 1999 (previously filed).
e Distribution Agreement between Merlin Funds Group and Michael
Patterson, Inc. dated June 17, 1999 (previously filed).
f None.
g Custody Agreement between Merlin Funds Group and Firstar Bank,
N.A. dated June 17, 1999 (previously filed).
h(1) Transfer Agent Agreement between Merlin Funds Group and Mutual
Shareholder Services, LLC dated June 17, 1999 (previously
filed).
h(2) Accounting Services Agreement between Merlin Funds Group and
Mutual Shareholder Services, LLC dated June 17, 1999
(previously filed).
i Legal opinion of Benesch, Friedlander, Coplan & Aronoff LLP
dated June 28, 1999 (previously filed).
j Consent of McCurdy & Associates CPA's, Inc.
k None.
l(1) Investment Agreement dated May 20, 1999 among J. Craig Wright,
Michael Patterson, Inc., and Merlin Funds Group (previously
filed).
l(2) Investment Agreement dated May 20, 1999 among Alice Wright,
Michael Patterson, Inc., and Merlin Funds Group (previously
filed).
m Distribution and Shareholder Servicing Plan of Merlin Funds
Group dated June 8, 1999 (previously filed).
n None.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
The Bank Stock Fund and Merlin Advisers, Inc. may be deemed to be under
the common control of Michael W. Patterson because Mr. Patterson is a
75% owner of Merlin Advisors, a director of Merlin Advisors, the
Chairman, Chief Executive Officer and Secretary of Merlin Advisors, the
sole owner of Michael Patterson, Inc., a director of Michael Patterson,
Inc. and the President, Chief Executive Officer, Chairman, Secretary and
Treasurer of Michael Patterson, Inc.
The Bank Stock Fund and Merlin Advisors may be deemed to be under the
common control of Joseph M. McCloud because Mr. McCloud is a 25% indirect
owner of Merlin Advisors, a director of Merlin Advisors, the President
and Treasurer of Merlin Advisors, and a Vice President of Michael
Patterson, Inc.
The information in the Bank Stock Fund's prospectus under the caption
"Management-Interrelationships Between the Bank Stock Fund, Merlin
Advisors and Michael Patterson, Inc." is incorporated herein by
reference.
Item 25. Indemnification
Section 3817 of the Delaware Code provides that a business trust has the
power to indemnify and hold harmless any trustee of the business trust or
beneficial owner of the business trust or other person from and against
any and all claims and demands whatsoever.
Sections 3 and 4 of Article IV of the Bank Stock Fund's Agreement and
Declaration of Trust, filed as Exhibit (a) hereto, are incorporated
herein by reference.
These provisions are limited by the following undertaking set forth in
rules promulgated by the SEC:
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 foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the
registrant of expenses incurred or paid by a trustee, officer or
controlling person of the registrant 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 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 such
Act and will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser.
Michael W. Patterson is a director of Merlin Advisors and also serves as
the Chairman, Chief Executive Officer and Secretary of Merlin Advisors.
Mr. Patterson has served as a director and the President, Chief
Executive Officer, Chairman, President, Secretary and Treasurer for
Michael Patterson, Inc., an Ohio corporation, since November, 1997.
Michael Patterson, Inc. is a registered broker-dealer located at 1200
Old Henderson Road, Columbus, Ohio 43220. From December, 1996 until
March, 1998, Mr. Patterson served as a registered representative for
Quantum Capital Corp., a registered broker-dealer.
<PAGE>
Joseph M. McCloud is a director of Merlin Advisors and also serves as
Merlin Advisor's President and Treasurer. Mr. McCloud has served as a
Vice President of Michael Patterson, Inc. since February, 1998. Michael
Patterson, Inc. is a registered broker-dealer located at 1200 Old
Henderson Road, Columbus, Ohio 43220. From February, 1998 until March,
1998, Mr. McCloud served as an equity trader for Quantum Capital Corp., a
registered broker-dealer whose principal business address is 1200 Old
Henderson Road, Columbus, Ohio 43220. From November, 1996 until February,
1998, Mr. McCloud served as an equity trader for Banc One Securities
Corp., a registered broker-dealer whose principal business address is 733
Greencrest Drive, Westerville, Ohio 43081.
Item 27. Principal Underwriters.
(a) Michael Patterson, Inc. will be distributing the Bank Stock Fund
Shares and does not currently act as a principal underwriter, depositor
or investment adviser for any other investment company.
(b) The following information is provided with respect to each director
and officer of Michael Patterson, Inc. who is also affiliated with the
Bank Stock Fund.
Name and Principal Positions & Positions and
Business Address Offices with Offices with Bank
Underwriter Stock Fund
Michael W. Director, Trustee, Chairman
Patterson President, Chief and Secretary
1200 Old Henderson Executive Officer,
Road Chairman,
Columbus, Ohio President,
43220 Secretary and
Treasurer
Joseph M. McCloud Vice President Trustee, President
1200 Old Henderson and Treasurer
Road
Columbus, Ohio
43220
Item 28. Location of Accounts and Records.
All accounts, books and documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and Rules 31a-1 through 31a-3 thereunder are maintained at the
office of the Bank Stock Fund and the offices of Mutual Shareholder
Services, LLC at The Tower at Erieview, Suite 1005, 1301 East Ninth
Street, Cleveland, Ohio 44114, except that all records relating to the
activities of the Bank Stock Fund's Custodian are maintained at the
office of the Custodian, Firstar Bank, N.A., 425 Walnut Street,
Cincinnati, Ohio 45201.
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
The registrant undertakes to call a meeting of shareholders for the
purpose of voting on the question of a removal of a trustee or trustees
when requested in writing to do so by the holders of at least 10% of the
registrant's outstanding shares of beneficial interest and in connection
with such meeting to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Bank Stock Fund has duly caused this Post-Effective
Amendment Number 1 to the Registration statement to be signed on its behalf by
the undersigned, duly authorized, in the City of Columbus, State of Ohio, on the
11th day of August, 1999. The Registrant certifies that this Amendment meets
all the requirements for effectiveness under Rule 485(b) of the Securities and
Exchange Commission.
Merlin Funds Group
By:/s/ Joseph M. McCloud
Joseph M. McCloud, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment Number 1 to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Michael W. Patterson Trustee, Chairman, Secretary August 11, 1999
Michael W. Patterson
/s/ Joseph M. McCloud Trustee, President, Treasurer August 11, 1999
Joseph M. McCloud
/s/ Cavin C. Carmell Trustee August 11, 1999
Cavin C. Carmell
/s/ Gavin Freytag Trustee August 11, 1999
Gavin Freytag
/s/ William F. Maibaum Trustee August 11, 1999
William F. Maibaum
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
MERLIN FUNDS GROUP
-----------------------
REGISTRATION STATEMENT ON FORM N-1A
-----------------------
EXHIBITS
-----------------------
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<PAGE>
EXHIBIT INDEX
Exh Number of Pages Page in
ibi Description in Original Manually
t Document Signed
Num Original
ber
a(1) Certificate of Trust (previously
of Merlin Funds Group 1 filed)
dated February 3,
1999.
a(2) Agreement and (previously
Declaration of Trust 28 filed)
of Merlin Funds Group
dated February 3,
1999.
b By-Laws of Merlin (previously
Funds Group dated 7 filed)
February 3, 1999.
c Article IV, Section 4
and Articles V, VI and
VII of the Agreement
and Declaration of
Trust of Merlin Funds
Group (see Exhibit
a(1)) and Article III
of the By-Laws of
Merlin Funds Group
(see Exhibit (b)).
d Investment Advisory
Agreement between 10
Merlin Funds Group and (previously
Merlin Advisors, Inc. filed)
dated June 17, 1999.
e Distribution Agreement
between Merlin Funds 5 (previously
Group and Michael filed)
Patterson, Inc., dated
June 17, 1999.
f Reserved.
g Custody Agreement
between Merlin Funds 26 (previously
Group and Firstar filed)
Bank, N.A. dated June
17, 1999.
h(1) Transfer Agent
Agreement between 7
Merlin Funds Group and (previously
Mutual Shareholder filed)
Services, LLC dated
June 17, 1999.
h(2) Accounting Services 5
Agreement between
Merlin Funds Group and (previously
Mutual Shareholder filed)
Services, LLC dated
June 17, 1999.
i Legal Opinion of 1
Benesch, Friedlander, (previously
Coplan & Aronoff LLP filed)
dated June 28, 1999.
j Consent of McCurdy & 1 44
Associates CPA's, Inc.
<PAGE>
k Reserved.
l(1) Investment Agreement 1
dated May 20, 1999
among J. Craig Wright, (previously
Michael Patterson, filed)
Inc., and Merlin Funds
Group
l(2) Investment Agreement 1
dated may 20, 1999
among J. Craig Wright, (previously
Michael Patterson, filed)
Inc. and Merlin Funds
Group
m Distribution and 3 (previously
Shareholder Servicing filed)
Plan of Merlin Funds
Group dated June 8, 1999.
n Reserved.
<PAGE>
Exhibit J
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to all references made to us in this Post-Effective Amendment No.1 to
the Merlin Funds Group's Registration Statement on Form N-1A.
/s/ McCurdy & Associates CPA's, Inc.
McCurdy & Associates CPA's, Inc.
August 4, 1999
<PAGE>
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<PERIOD-END> AUG-03-1999
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