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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M N-1A
Registration Statement Under the Securities Act of 1933 /x/
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. 5 /x/
and
Registration Statement Under the Investment Company Act of 1940 /x/
Amendment No. 6 /x/
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BERKELEY FUNDS
(Exact Name of Registrant as Specified in Charter)
650 California Street, Suite 2800, San Francisco, California 94108
(Address of Principal Executive Office)
(415) 393-0300
(Registrant's Telephone Number, Including Area Code)
ROBERT A. CORNMAN
650 California Street, Suite 2800, San Francisco, California 94108
(Name and Address of Agent for Service)
-------------------
Approximate Date of Proposed Public Offering: As soon as possible after this
Registration Statement becomes effective.
It is proposed that this filing will become effective (check appropriate box):
- --- immediately upon filing pursuant to paragraph (b)
x
- --- on June 3, 1998 pursuant to paragraph (b)
----------------
- --- 60 days after filing pursuant to paragraph (a)(1)
- --- on [date] pursuant to paragraph (a)(1)
- --- 75 days after filing pursuant to paragraph (a)(2)
- --- on [date] pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
- --- this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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BERKELEY FUNDS
BERKELEY INCOME EQUITY FUND
CONTENTS OF POST-EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statement of Berkeley
Funds contains the following documents:
- Facing Sheet
- Contents of Post-Effective Amendment to Registration Statement
- Cross-Reference Sheet for Berkeley Income Equity Fund
- Part A: Prospectus for Berkeley Income Equity Fund
- Part B: Statement of Additional Information for Berkeley Income
Equity Fund
- Part C: Other Information
- Signature Page
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BERKELEY FUNDS
Berkeley Income Equity Fund
CROSS REFERENCE SHEET
FORM N-1A
N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT
Part A: INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Fund Overview
3. Condensed Financial Information Not Applicable
4. General Description of Registrant "Fund Overview"
and "Fund Organization and
Management"
5. Management of the Fund "Fund Organization and Management"
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other "Fund Organization and Management"
Securities
7. Purchase of Securities "Simplified Account Information"
Being Offered and "Account Policies"
8. Redemption or Repurchase "Simplified Account Information"
and "Account Policies"
9. Pending Legal Proceedings Not Applicable
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Part B: Information Required in Statement of
Additional Information
------------------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History "General Information"
13. Investment Objectives and "Investment Objective, Policies
Policies and Risks" and "Investment
Restrictions"
14. Management of the Fund "Management of the Trust"
15. Control Persons and "General Information"
Principal Holders of
Securities
16. Investment Advisory and "Management of the Trust"
Other Services
17. Brokerage Allocation and "Portfolio Transactions"
Other Practices
18. Capital Stock and Other "General Information"
Securities
19. Purchase, Redemption and "Purchase and Redemption
Pricing of Securities Being of Shares"
Offered
20. Tax Status "Distributions and Taxes"
21. Underwriters "Management of the Trust"
22. Calculation of Performance Data "Performance Information"
23. Financial Statements "Financial Statements"
iii
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PART A
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PROSPECTUS
Berkeley Income Equity Fund
-----------------------
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[LOGO]
BERKELEY INCOME EQUITY FUND
PROSPECTUS
JUNE 3, 1998
Berkeley Funds (the "Trust") is a professionally managed, no-load, open-end
management company, currently consisting of two distinct portfolios each with
separate investment objectives. This Prospectus contains information about the
investment objectives of one of these portfolios, the Berkeley Income Equity
Fund (the "Income Equity Fund" or "Fund"), the types of securities in which the
Fund may invest, and applicable investment policies and restrictions.
This Prospectus concisely sets forth information a prospective investor
should know before investing in the Fund. Please read it carefully and retain it
for your future reference. A Statement of Additional Information ("SAI") with
the same date as this Prospectus contains additional information about the Fund.
The SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus. The Prospectus and SAI are
available without charge and may be obtained by calling toll free (888)
889-0799, or by writing to Berkeley Funds c/o Firstar Trust Company, P.O. Box
701, Milwaukee, Wisconsin 53201-0701.
Berkeley Capital Management serves as investment advisor to the Fund.
Berkeley Capital Management, a registered investment advisor, has been in the
investment advisory business for 25 years.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. All mutual fund
shares are subject to investment risks, including possible loss of principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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WHO MAY WANT TO INVEST IN THE INCOME EQUITY FUND:
- Those who are investing for retirement or other long-term goals.
- Those who want professional portfolio management.
- Those who are seeking capital appreciation.
- Those who desire quarterly income.
WHO MAY NOT WANT TO INVEST IN THE INCOME EQUITY FUND:
- Those who are investing with a shorter time frame.
- Those who are uncomfortable with an investment that may go up or down in
value.
THE INVESTMENT ADVISOR
Berkeley Capital Management, 650 California Street, Suite 2800, San
Francisco, California 94108 ("Berkeley" or the "Advisor") serves as investment
advisor to the Fund. Berkeley has been engaged in the investment management
business since 1972 and currently manages $1.6 billion of discretionary assets
for numerous accounts including employee benefit plans, public retirement
systems, religious foundations and other institutional investors, as well as
individuals.
ADMINISTRATOR, TRANSFER AGENT, DIVIDEND PAYING AGENT, SHAREHOLDER SERVICING
AGENT AND CUSTODIAN
Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701
("Firstar") serves as administrator, transfer agent, dividend paying agent,
shareholder servicing agent and custodian for the Fund. Firstar provides
administrative services to the Fund, provides information and services to
shareholders, effects the transfer of Fund shares and serves as custodian of the
Fund's assets.
THE PRINCIPAL UNDERWRITER
The Fund's principal underwriter is Berkeley International Securities
Corporation, 650 California Street, Suite 2800, San Francisco, California 94108,
an affiliate of the Advisor.
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TABLE OF CONTENTS
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FUND OVERVIEW
Investment Objective................................................................ 4
Investment Strategy................................................................. 4
Principal Investments............................................................... 4
Portfolio Management................................................................ 5
Risk Factors........................................................................ 5
Investor Expenses................................................................... 5
SIMPLIFIED ACCOUNT INFORMATION
Opening an Account.................................................................. 7
Buying Shares....................................................................... 7
Selling or Redeeming Shares......................................................... 8
Signature Guarantees................................................................ 9
ACCOUNT POLICIES
Transaction Policies................................................................ 10
Account Features and Policies....................................................... 11
Distributions and Taxation.......................................................... 12
FUND ORGANIZATION AND MANAGEMENT
The Fund and the Board of Trustees.................................................. 12
Shareholder Meetings and Voting Rights.............................................. 12
Investment Advisor Compensation..................................................... 13
Service Provider Compensation....................................................... 13
Service Fee......................................................................... 13
Computer Systems.................................................................... 13
Principal Shareholder............................................................... 13
Investment Objective................................................................ 14
RISK FACTORS
General Mutual Fund Considerations.................................................. 14
The Fund's Investments and Related Risks............................................ 14
The Fund's Investment Techniques.................................................... 16
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FUND OVERVIEW
INVESTMENT OBJECTIVE
The Berkeley Income Equity Fund ("Income Equity Fund" or "Fund") is a
diversified fund that seeks to increase the value of your investment over the
long-term and to provide you with current income. There can be no assurance that
the Fund will achieve its investment objective.
INVESTMENT STRATEGY
The Fund uses a yield-driven process for selecting equities. The portfolio
typically consists of traditional dividend-paying stocks, growth stocks which
are trading at what are believed to be temporarily depressed prices and other
stocks which have been identified by Berkeley's screening process as described
below.
First, the Standard and Poor's 500 Index ("S&P 500") is screened to identify
those stocks which have a current dividend yield that is at least 30% higher
than the average yield of the Standard & Poor's Industrial Average.
Second, stocks selected from this group are analyzed to identify those
stocks with current yields which are substantially higher, relative to the yield
of the market, than the historical norm for that particular stock. This analysis
attempts to identify stocks with values which might currently be abnormally
depressed.
Next, the stocks which pass both of these screens are analyzed in an effort
to confirm that they have the ability to sustain or increase their dividends.
This review is done by analyzing the company's financial statements, with
particular emphasis on the company's balance sheet and cash flow statements, its
business fundamentals, industry environment and future prospects, as well as its
management strategy.
The Advisor seeks to identify undervalued industries by this process with
the result that such industries may be more heavily represented in the final
list of stocks eligible for investment; however, in order to control exposure to
sector and industry risks, no single industry sector is weighted at more than
twice its weighting within the S&P 500.
The Income Equity Fund also strives to capture capital gains and minimize
capital losses through a series of sell disciplines. In general, a stock will
begin to be sold when its yield declines to the historical average yield for
that stock, or when it declines to a market yield, whichever comes first. Also a
stock normally is sold if it declines 20% from its cost relative to market or if
its fundamentals deteriorate to the point of jeopardizing the anticipated
dividend payments.
PRINCIPAL INVESTMENTS
The Income Equity Fund seeks long-term growth of capital and current income
by investing primarily in equity securities of U.S. corporations with above
average dividend yields. The Fund normally invests at least 65% of its total
assets in these securities; however, it has the flexibility to invest the
balance of the portfolio in other equities and security types.
The Income Equity Fund generally invests in stocks with favorable, long-term
fundamental characteristics when their current relative yields are at the upper
end of their historical relative yield ranges. Frequently, these stocks are out
of favor in the financial community. The Fund may also invest in corporations
that are in a mature stage of development or operating in slower growth sectors
of the economy. While it is anticipated that a substantial part of the total
growth in asset value achieved by the
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Fund will result from appreciation in the price of the portfolio securities,
dividends are also expected to provide a meaningful portion of the portfolio's
total return.
The Income Equity Fund reserves the right to invest without limitation in
investment-grade debt instruments and money market instruments for temporary,
defensive purposes. See "The Fund's Investments" starting on page 14 for more
detailed descriptions on other security types which may be held in the Income
Equity Fund. It is anticipated that the annual portfolio turnover rate of the
Fund will be less than 50%.
PORTFOLIO MANAGEMENT
James E. Landau is the Portfolio Manager for the Income Equity Fund. He has
27 years of investment experience and has been with the Advisor for over 23
years. Previously, he was with American Express Investment Management Co. He has
a B.S.B.A. from Washington University in St. Louis and an M.B.A. from Harvard
University.
RISK FACTORS
As with any mutual fund, the value of your investment may fluctuate from
day-to-day with movements in the stock market, as well as in response to the
activities of individual companies. To the extent the Fund is overweighted in
certain market sectors, as compared to the S&P 500, the Fund may be more
volatile than the S&P 500. For a further explanation, see "The Fund's Portfolio
Investments and Related Risks" starting on page 14.
INVESTOR EXPENSES
Investors pay various expenses, either directly or indirectly. The figures
below are projected expenses for the Berkeley Income Equity Fund for the current
fiscal year. Actual expenses may be more or less than those shown.
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SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases...................................... None
Sales charge on reinvested dividends................................... None
Redemption fee*........................................................ None
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ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management fees........................................................ 0.50%
12b-1 fees............................................................. None
Other expenses
Service fee............................................... 0.25%
Miscellaneous expenses.................................... 1.00%
Total Other expenses................................................... 1.25%
Total operating expenses............................................... 1.75%
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* Shareholders who request redemption proceeds to be sent by wire transfer may
be required to pay a $12 fee that will be directly deducted from redemption
proceeds.
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EXAMPLE OF EXPENSES FOR THE FUND
EXAMPLE. You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of each period:
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1 Year.............................................................. $18
3 Years............................................................. $55
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The purpose of the preceding table is to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. In the table above, "Other Expenses" is based on estimated
amounts for the current fiscal year. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The example assumes a 5% annual rate of return pursuant
to requirements of the SEC. This hypothetical rate of return is not intended to
be representative of past or future performance.
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SIMPLIFIED ACCOUNT INFORMATION
Please contact your Financial Consultant prior to opening an account. If you
do not work with a Financial Consultant, please review the information below.
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- -------------------------------------------------------------------------------------------
OPENING AN ACCOUNT
This is the minimum initial $1,000
investment
- -------------------------------------------------------------------------------------------
Use this type of application New Account Application
- -------------------------------------------------------------------------------------------
The Fund offers a variety of features, which are described
Before completing the in the
application "Account Policies" section of this prospectus. Please read
this section before completing the application.
- -------------------------------------------------------------------------------------------
Completing the application If you need assistance, contact your Financial Consultant,
or call us at (888) 889-0799.
- -------------------------------------------------------------------------------------------
If you are a participant in a Make purchases through your plan administrator or sponsor,
qualified retirement plan who is responsible for transmitting orders.
- -------------------------------------------------------------------------------------------
Mail application and check, payable to:
If you are sending money by Berkeley Income Equity Fund, c/o Firstar Trust Company,
check PO Box 701, Milwaukee, WI 53201-0701.
Berkeley Funds WILL NOT accept third-party checks.
- -------------------------------------------------------------------------------------------
Please read the bank wire section under the "Buying Shares"
section below.
If you are sending money by You will need to establish an account number with Berkeley
bank wire Funds by sending a completed, signed application to the
address above. To receive your account number, call either
your Financial Consultant or us at (888) 889-0799.
- -------------------------------------------------------------------------------------------
BUYING SHARES
This is the minimum $250
subsequent investment
- -------------------------------------------------------------------------------------------
Shares of the Fund are available for purchase on days that
the
New York Stock Exchange is open. All transactions received
The price you will receive
in good order
before the market closes receive that day's price. A
transaction is considered to be "in good order" if all
required elements for the transactions have been received
(e.g. completed application form, payment, etc.).
- -------------------------------------------------------------------------------------------
If you are a participant in a Make purchases through your plan administrator or sponsor,
qualified retirement plan who is responsible for transmitting orders.
- -------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------
If you are sending money by check Please send your check and a statement coupon or a note
indicating your name and account number to the Fund at the address listed
above.
- ----------------------------------------------------------------------------------------------------------------
Please call the Transfer Agency at (888) 889-0799 to notify them of your
incoming wire. Instruct your bank to wire the amount you wish to invest
to:
Berkeley Funds
c/o Firstar Bank Milwaukee
If you are sending money by bank ABA #075000022
wire Credit: Firstar Trust Company
Account: 112-952-137
Further Credit: Berkeley Income Equity Fund
(Name/Title of Account)
- ----------------------------------------------------------------------------------------------------------------
SELLING OR REDEEMING SHARES
IN WRITING BY PHONE
- ----------------------------------------------------------------------------------------------------------------
Selling shares by phone is a service
option which must be established
prior to making a request. See the
"Your Account" section, or contact
your Financial Consultant or call
Certain requests may require a us at (888) 889-0799 for further
signature guarantee. See the information. The maximum amount
Things you should know "Signature Guarantees" section for which may be requested by phone,
further information. You may sell regardless of account size, is
up to the full account value. $50,000. Amounts greater than that
must be requested in writing. If
you wish to receive your monies by
bank wire, the minimum request is
$1,000.
If you purchased shares through a Financial Consultant, or a plan
administrator/ sponsor, you should call them regarding the most efficient
way to sell shares. If you bought shares recently by check, you may
redeem your shares; however, the proceeds may not be available for up to
15 calendar days from the date of purchase. Sales by a corporation, trust
or fiduciary may have special requirements. Please call your Financial
Consultant, a plan administrator/sponsor or call us at (888) 889-0799 for
further information.
- ----------------------------------------------------------------------------------------------------------------
The price you will receive Shares of the Fund are available for redemption on days that the
New York Stock Exchange is open. All transactions received in good order
before the market closes receive that day's price.
- ----------------------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------
If you are a participant in a Make sales through your plan administrator or sponsor,
qualified retirement plan who is responsible for transmitting orders.
- ----------------------------------------------------------------------------------------------------------------
Please put your request in writing,
including: the name of the account
owners, account number and fund you
are redeeming from, the share or
dollar amount you wish to sell, and
a statement requesting or denying Either contact your Financial
the tax withholding election, Consultant or call us at (888)
If you want to receive your monies signed by all account owners. Mail 889-0799.
by bank wire (Note: A $12 wire fee this request to: The proceeds will be sent to
will be charged) Berkeley Funds the existing bank wire address
c/o Firstar Trust Company listed on the account.
PO Box 701, Milwaukee, WI
53201-0701.
The wire will be sent to existing
bank wire address listed on the
account.
- ----------------------------------------------------------------------------------------------------------------
SIGNATURE GUARANTEES
A signature guarantee by a financial institution may be required to verify
the authenticity of an individual's signature. It can usually be obtained
A definition from a broker, commercial or savings bank, or credit union. A
notarization from a notary public is not acceptable as a signature
guarantee.
- ----------------------------------------------------------------------------------------------------------------
A signature guarantee is needed when making the following types of
When you need one requests:
1. When selling more than $50,000 worth of shares;
2. When requesting a check or bank wire be sent to a name or address
that is not currently listed on the account;
3. When selling where your address was changed within the last 15 days.
- ----------------------------------------------------------------------------------------------------------------
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ACCOUNT POLICIES
TRANSACTION POLICIES
PURCHASE OF SHARES Shares are offered at net asset value ("NAV") without a
sales charge. However, your Financial Consultant may charge you a service fee or
other charge. The minimum initial investment for regular accounts is $1,000 and
the minimum subsequent investment is $250. The Distributor may waive these
minimums from time to time. Purchases must be in U.S. dollars, and checks must
be drawn on a U.S. bank. We do not accept cash, travelers checks or third party
checks.
TELEPHONE PURCHASES Shares may be purchased by calling the Transfer Agency
at (888)889-0799. A bank wire must be sent using the instructions listed under
Buying Shares on page 8. In the event that the Transfer Agency does not receive
your wire prior to 6:00 p.m. Eastern Time, the purchase will be canceled.
VALUATION OF SHARES The NAV per share for the Fund is determined each
business day at the close of trading on the New York Stock Exchange (usually 4
p.m. Eastern Time). The NAV per share is computed by taking total Fund assets,
subtracting any liabilities of the Fund, and dividing the resulting amount by
the number of outstanding shares of the Fund. Securities listed or traded on an
exchange are valued at the last quoted sales price on that exchange prior to the
time the Fund calculates its NAV. Securities traded over-the-counter are valued
at the last sales price. If there is no sale of a particular security, it is
valued at the average between the bid and ask prices. Long-term debt obligations
in general are valued at the average of representative quoted bid and ask prices
for such securities and options in general are valued at the last sale price on
exchange on which they are listed. Short-term debt securities of less than 60
days maturities are valued at amortized cost.
BUY AND SELL PRICES When you buy shares, you pay the NAV, as described
earlier. When you sell shares, you receive the NAV.
EXECUTION OF REQUESTS The Fund operates on those days when the New York
Stock Exchange is open, usually Monday through Friday. Buy and sell requests are
executed at the NAV next calculated after your request is received in good order
by the Transfer Agent or other authorized agent or subagent. Investments by
participants of qualified retirement plans are made through the plan sponsor or
administrator.
At times of peak activity, it may be difficult to place your request by
phone. During these times, consider sending your request in writing. The Fund
reserves the right to reject any purchase, or to suspend or modify the
continuous offering of its shares. Your Financial Consultant is responsible for
forwarding payment promptly to the Transfer Agent. Berkeley Funds reserves the
right to cancel any buy request if payment is not received within three business
days.
In unusual circumstances, the Fund may postpone payment of sale proceeds for
up to three business days or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be
recorded in order to verify their accuracy. In addition, Berkeley Funds will
take measures to verify the identity of the caller, such as asking for name,
account number, Social Security or taxpayer ID number and other relevant
information.
SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell
shares for which the purchase money has not yet been collected, the request will
be executed in a timely fashion, but the Fund will not release the proceeds to
you until your purchase payment clears. This may take up to 15 calendar days
after the purchase.
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SHAREHOLDER INQUIRIES Shareholder inquiries should be addressed to the
Berkeley Income Equity Fund, c/o Berkeley Fund's Transfer Agent as follows:
Berkeley Income Equity Fund
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
or if forwarding by overnight couriers to:
Berkeley Income Equity Fund
c/o Firstar Trust Company
615 East Michigan Street, Third Floor
Milwaukee, WI 53202
Telephone inquiries can be made by calling (888) 889-0799.
SHAREHOLDER FEES
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- - Outgoing Wire Transfer.................................... $12.00/wire
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- - Returned Check............................................ $20.00/item
- - Stop Payment Request...................................... $20.00/request
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The services referred to may be terminated or modified at any time upon 60
days' written notice to shareholders. Shareholders seeking to add to, change or
cancel their selection of available services should contact the Transfer Agent
at the address and telephone number provided above.
ACCOUNT FEATURES AND POLICIES
ACCOUNT STATEMENTS In general, you will receive statements or notifications
as follows:
- After every transaction that affects your account balance.
- After any changes of name or address of the registered owner(s).
- In all other circumstances, every quarter.
Every year you will also receive an applicable tax information statement
mailed by January 31. Participants in qualified retirement plans will receive
account information from their plan sponsor or administrator.
SMALL ACCOUNTS If you draw down an account so that its total value is less
than the required minimum, you may be asked to purchase more shares within 60
days. If you do not take action, the Fund may close out your account and mail
the proceeds to you. Your account will not be closed if its drop in value is due
to Fund performance.
AUTOMATIC INVESTMENT PLAN To make regular investing more convenient, you
may make regular monthly or quarterly investments in the Fund through automatic
withdrawals of specified amounts from your bank account. You may choose any day
of the month on which to have your purchases made. In the event the day you have
chosen does not fall on a business day, the purchase will be made on the
following business day.
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AUTOMATIC WITHDRAWALS You may make automatic withdrawals from the Fund of
$250 or more on a monthly or quarterly basis if you have an account balance of
$10,000 or more in the Fund. Withdrawal proceeds will normally be mailed prior
to the end of the month or quarter.
DISTRIBUTIONS AND TAXATION
DIVIDENDS The Fund generally distributes most or all of its net earnings,
if any, in the form of dividends. The Fund pays quarterly dividends. Any net
capital gains are distributed at least annually.
TAXABILITY OF DIVIDENDS As long as the Fund meets the requirements for
being a tax-qualified regulated investment company, which is its intent, the
Fund will pay no federal income tax on the earnings it distributes to
shareholders. Consequently, any dividends that you receive from the Fund whether
reinvested or taken as cash, are generally considered taxable. Distributions of
the Fund's long-term capital gains are taxable as capital gains; dividends from
other sources are generally taxable as ordinary income.
Some dividends paid in January may be taxable to you as if they had been
paid the previous December. Corporations may be entitled to take a
dividends-received deduction for a portion of certain dividends they receive.
The tax information statement that is mailed to you details your dividends
and their federal tax category; however, you should verify your tax liability
with your tax professional.
TAXABILITY OF TRANSACTIONS Unless you are investing through a tax-exempt
retirement account, any time you sell shares, it is considered a taxable event
for you. Depending on the purchase price and the sale price of the shares you
sell, you may incur a capital gain or loss on the transaction. You are
responsible for any tax liabilities generated by your transactions.
FUND ORGANIZATION AND MANAGEMENT
THE FUND AND THE BOARD OF TRUSTEES
Berkeley Funds were organized as a business trust under the laws of Delaware
on October 28, 1996. The Trust is managed by a Board of Trustees which is
responsible for protecting the interests of Fund shareholders. The Trustees meet
throughout the year to oversee the Fund's activities, review contractual
agreements with companies that provide services to the Fund, and review the
Fund's investment performance. The majority of the Trustees are not otherwise
affiliated with Berkeley Capital Management or Berkeley International Securities
Corporation.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
The Trust is not required to hold annual shareholders' meetings and does not
intend to do so. The Fund may hold special meetings and mail proxy materials.
These meetings may be called to elect or remove Trustees, change fundamental
policies, approve a management contract, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. The Trust will mail
proxy materials in advance, including a voting card and information about the
proposals to be voted on. The number of votes you are entitled to is based upon
the dollar value of your investment.
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INVESTMENT ADVISOR COMPENSATION
The Fund pays the Advisor a fee pursuant to an investment advisory
agreement. The Income Equity Fund pays the Advisor an advisory fee at the annual
rate of 0.50% of the Fund's average net assets.
The Advisor reserves the right to waive or defer its management fees payable
by the Fund, and to absorb other operating expenses of the Fund so that its
expenses will not exceed the expense ratio on an annual basis through October
31, 1998 of 1.75%.
SERVICE PROVIDER COMPENSATION
The Trust pays fees to Firstar Trust Company for certain administrative
services, portfolio accounting, custody and shareholder services. These fees are
included in "Other Expenses" of the Fund's annual operating expenses.
SERVICE FEE
As described in the Statement of Additional Information, the Trust and the
Advisor have entered into a Shareholder Services Agreement ("Agreement"). The
Agreement allows the Advisor to provide, or arrange for others to provide,
certain specified services to shareholders of the Fund. As compensation for such
services, each month the Fund will pay to the Advisor a service fee of up to
0.25% (per annum) of the Fund's average daily net assets. The Advisor will pay
certain banks, trust companies, broker-dealers, and other institutions (each a
"Participating Organization") that provide such shareholder services out of the
service fees the Advisor receives from the Fund. In certain cases, the Advisor
may also pay a fee, out of its own resources and not out of the service fee, to
a Participating Organization for providing other administrative services to
customers who invest in the Fund. A Participating Organization may charge its
customers a fee for the services it provides. Customers of Participating
Organizations should read this Prospectus in conjunction with the service
agreement and other literature describing the services and related fees provided
by the Participating Organization prior to purchasing any Fund shares.
COMPUTER SYSTEMS
The investment management services provided by the Advisor, and the services
provided by the Principal Underwriter and the Transfer Agent to shareholders
depend on the smooth functioning of their computer systems. Many computer
software applications in use today cannot distinguish the year 2000 from the
year 1900 because of the way dates are encoded and calculated. That failure
could have a negative impact on the handling of securities trades, pricing and
account services. The Advisor, the Principal Underwriter and the Transfer Agent
have been actively working on necessary changes to their computer systems to
deal with the year 2000 problem and expect their systems will be adapted in time
for that event, although there can be no assurance that they will be successful
or that interaction with other noncomplying computer systems will not impair
their services at that time.
PRINCIPAL SHAREHOLDER
As of the date of this Prospectus, Berkeley International Securities
Corporation owned all of the outstanding shares of the Fund. It is contemplated
that the public offering of shares of the Fund will reduce Berkeley
International Securities Corporation's holdings to less than 5% of the total
shares outstanding.
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INVESTMENT OBJECTIVE
The Fund's investment objective is fundamental, consequently it may only be
changed with shareholder approval. Unless expressly designated as fundamental,
the Fund's other investment strategies and policies, however, may be changed by
the Board of Trustees. The Fund also is subject to additional investment
policies and restrictions described in the Statement of Additional Information.
The Fund has reserved the right, if approved by the Board of Trustees, to
convert in the future to a "feeder" fund that would invest all of its assets in
a "master" fund having substantially the same investment objective, policies and
restrictions. Shareholders will be given at least 30 days' prior written notice
if any such action is approved.
RISK FACTORS
GENERAL MUTUAL FUND CONSIDERATIONS
Prospective investors should know that any mutual fund investment is subject
to normal market fluctuations and other risks inherent in investing in
securities. There can be no assurance that your investment will increase in
value. The value of your investment may go up or down depending upon market
forces and you may not recoup your original investment. You should consider an
investment in the Fund a long-term investment.
THE FUND'S INVESTMENTS AND RELATED RISKS
EQUITY SECURITIES. The Fund will buy equity securities, including common
stocks, convertible securities, rights and warrants. Equity securities represent
an ownership in a company. The Fund may invest in growth companies, cyclical
companies, companies with smaller market capitalizations, or companies believed
to be undergoing a basic change in operations or markets. Although equity
securities have a history of long-term growth in value, their prices rise and
fall as a result of changes in the company's financial condition as well as
movements in the overall securities markets.
CONVERTIBLE SECURITIES. The Fund may buy convertible bonds and convertible
preferred stock. A convertible bond is a fixed income security that may be
converted into a prescribed amount of common stock at a specified formula. A
convertible preferred stock is preferred stock exchangeable for a given number
of common stock shares. A convertible security entitles the owner to receive
interests or dividends until the security matures or is converted. Convertibles
typically have several unique investment characteristics such as: (a) higher
yields than common stocks but lower yields than non-convertible debt securities;
(b) lesser degree of fluctuation in value (and appreciation potential) than the
underlying stock since they have fixed income characteristics; and (c) potential
for capital appreciation if the market price of the underlying security
increases. See the "Corporate Debt Securities" Section below for a discussion of
credit quality considerations of the Fund's possible convertible bond
investments.
DEPOSITARY RECEIPTS. The Fund may purchase sponsored or unsponsored
American Depositary Receipts ("ADRs"), ("depositary receipts"). ADRs are
depositary receipts typically administered by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
Generally, depositary receipts in registered form are designed for use in the
U.S. securities market and depositary receipts in bearer form are designed for
use in securities markets outside the U.S. Depositary receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. Depositary receipts may be issued pursuant to
sponsored or unsponsored
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programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of despositary receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored programs are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a sponsored
program. Accordingly, there may be less information available regarding issuers
of securities underlying unsponsored programs and there may not be a correlation
between such information and the market value of the depositary receipts.
Depositary receipts also involve the risks of other investments in foreign
securities such as changes in foreign currency values, different political and
regulatory environments, the possibility of expropriation, nationalization or
conficatory taxation and the overall economic conditions in the foreign
countries where the Fund invests. For a further explanation, see the Statement
to Additional Information. For purposes of the Fund's investment policies, the
Fund's investments in depositary receipts will be deemed to be investments in
the underlying securities.
U.S. GOVERNMENT SECURITIES. The Fund may buy U.S. government securities
which are obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities. Some U.S. government securities, such as U.S. Treasury
bills, notes, bonds, and certificates issued by the Government National Mortgage
Association (GNMA) are supported by the full faith and credit of the United
States Government. Other U.S. government securities, such as securities issued
by the Federal National Mortgage Association (FNMA) and the Federal Home Loan
Bank, are supported by the right of the issuer to borrow from the U.S. Treasury.
Still others, such as the Student Loan Marketing Association, are supported only
by the credit of the issuer. U.S. government securities may include zero coupon
securities that are issued or purchased at a significant discount from face
value. Zero coupon securities are extremely sensitive to changes in interest
rates, and their principal value tends to rise or fall to a much greater extent
than traditional debt securities. The Fund does not intend to invest more than
5% of its net assets in zero coupon securities.
CORPORATE DEBT SECURITIES. The Fund may buy corporate debt securities.
Corporate debt securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligation (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). When interest rates decline, the value of the
Funds' debt securities can be expected to rise, and when interest rates rise,
the value of those securities can be expected to decline.
Under normal circumstances, the Fund will purchase debt obligations only if
they are investment grade at the time of purchase--that is, they carry a rating
of at least Baa from Moody's Investor Services or BBB from Standard & Poor's
Rating Group, or comparable rating from another rating agency or, if not rated
by an agency are determined by the Advisor to be of comparable quality. Bonds
rated at or below Baa3 or BBB- have speculative characteristics and changes in
economic circumstances are more likely to lead to a weakened capacity to make
interest and principal payments than higher rated bonds. For a further
explanation of these ratings, see the Statement of Additional Information.
After its purchase by the Fund, a debt security may cease to be rated or its
rating may be downgraded below that required for purchase by the Fund. A
security downgraded below the minimum level may be retained if determined by the
Advisor to be in the best interests of the Fund.
INVESTMENT COMPANY SECURITIES. The Fund may invest up to 10% of its total
assets in the shares of other Investment Companies. The Fund may invest in money
market mutual funds in connection with the
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management of its daily cash positions. In addition to the advisory and
operational fees the Fund bears directly in connection with its own operation,
the Fund also would bear their pro rata portions of each other investment
company's advisory and operational expenses.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
securities that are considered illiquid. An illiquid investment is generally an
investment that is not registered under U.S. securities laws, cannot be offered
for public sale in the U.S. without first being registered under U.S. securities
laws, or cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund values it. Limitations on
resale may adversely affect the marketability of illiquid securities, and the
Fund may not be able to dispose of these securities at the desired time and
price. The Fund may bear additional expenses if it has to register these
securities under U.S. securities laws before being resold.
RULE 144A SECURITIES. The Fund does not intend to invest more than 5% of
its net assets in Rule 144A Securities. 144A Securities are restricted
securities eligible for purchase by institutional buyers in accordance with Rule
144A.
TEMPORARY INVESTMENTS. The Fund may on a temporary basis (when Berkeley
determines that market conditions call for a temporary defensive posture) invest
up to all of its assets in short-term debt instruments. These temporary
investments include: notes issued or guaranteed by the U.S. government, its
agencies or instrumentalities; commercial paper rated in the highest two rating
categories; certificates of deposit; repurchase agreements and other
investment-grade corporate debt securities.
THE FUND'S INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements--i.e.,
the purchase by the Fund of a security that the seller has agreed to buy back,
usually within one to seven days. The seller's promise to repurchase the
security is fully collateralized by securities equal in value to at least 102%
of the purchase price, including accrued interest. If the seller defaults and
the collateral value declines, the Fund might incur a loss. If the seller
declares bankruptcy, the Fund may not be able to sell the collateral at the
desired time. The Fund will enter into these agreements only with brokers,
dealers, or banks that meet credit quality standards established by the Board of
Trustees of the Trust.
BORROWING. The Fund may borrow up to one-third of its total assets for
temporary, extraordinary or emergency purposes, such as to provide cash for
redemption requests without having to sell portfolio securities at an
inopportune time. As a consequence of borrowing, the Fund will incur obligations
to pay interest, resulting in an increase in expenses.
OPTIONS. The Fund may enter into option contracts, involving securities and
securities indexes for hedging purposes only. As a general rule, the Fund will
not purchase or sell options if, immediately thereafter, more than 25% of its
net assets would be hedged.
RISKS OF OPTIONS TRANSACTIONS. When the Fund uses options as a hedging
device, there is a risk that the prices of the hedging vehicle may not correlate
perfectly with the prices of the securities in the portfolio. This may cause the
options to react differently than the Fund's portfolio securities to market
changes. In addition, Berkeley could be incorrect in its expectations about the
direction or the extent of market movements. In these events, the Fund could
lose money on the option.
WARRANTS AND RIGHTS. The Fund does not intend to invest more than 5% of its
net assets in warrants and rights.
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It is not certain that a secondary market for positions in futures contracts
or for options will exist at all times. Although Berkeley will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market will exist for these instruments.
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PART B
------------------
STATEMENT OF
ADDITIONAL INFORMATION
Berkeley Income Equity Fund
------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
BERKELEY FUNDS
650 California Street, Suite 2800, San Francisco, CA 94108
BERKELEY INCOME EQUITY FUND
JUNE 3, 1998
Berkeley Funds (the "Trust") is an open-end management investment company
currently offering two distinct funds. This Statement of Additional Information
contains information regarding Berkeley Income Equity Fund (the "Fund").
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Berkeley Income Equity Fund Prospectus (the
"Prospectus") dated June 3, 1998, which may be amended from time to time for
Berkeley Income Equity Fund, a separately managed investment portfolio of the
Trust. To obtain a free copy of the Prospectus, please contact Firstar Trust
Company (the "Transfer Agent") at (888) 889-0799.
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- ----------------- ----
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RISKS . . . . . . . . . . . . . . . . . . .2
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SHARE PRICE CALCULATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . 23
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
APPENDIX - RATINGS OF INVESTMENT SECURITIES. . . . . . . . . . . . . . . . . 24
</TABLE>
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
The following discussion supplements the discussion of the Fund's investment
objective and policies as set forth in the Prospectus and provides additional
information regarding portfolio securities of the Fund. There can be no
assurance that the investment objective of the Fund can be achieved. The
objective of the Fund is to provide shareholders with long-term growth of
investment and current income.
CORPORATE DEBT SECURITIES
The majority of the Fund's assets are invested in equities, although the Fund
may invest in non-convertible corporate debt securities of domestic companies
over a range of industries. The debt securities in which the Fund invests may
be of varying maturities and include corporate bonds, debentures, notes and
other similar corporate debt instruments.
RISKS OF INVESTING IN CONVERTIBLE SECURITIES AND CORPORATE DEBT SECURITIES
There are a number of risks generally associated with an investment in debt
securities (including convertible securities). Yields on short, intermediate,
and long-term debt securities depend on a variety of factors, including the
general condition of the money and bond markets, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. Debt
securities with longer maturities tend to produce higher yields and are
potentially subject to greater capital appreciation and depreciation than
obligations with shorter maturities and lower yields. The market prices of
debt securities may vary, depending upon available yields. In general, an
increase in interest rates will reduce the value of such investments, and a
decline in interest rates will increase the value of such investments. The
ability of the Fund to achieve its investment objectives also depends on the
continuing ability of the issuers of the debt securities in which the Fund
invests to meet its obligations for the payment of interest and principal when
due.
WARRANTS AND RIGHTS
Warrants and rights give the holder the right to purchase a predetermined number
of shares of common stock at a fixed price during a specified period of time.
Unlike convertible debt securities or preferred stock, warrants and rights do
not pay a fixed dividend. Investments in warrants and rights involve certain
risks, including the possible lack of a liquid market for resale, potential
price fluctuations as a result of speculation or other factors, and the
possibility that the price of the underlying security fails to reach a level at
which the warrant or right can be prudently exercised. In the event the warrant
or right expires without being exercised, the Fund may incur a loss for its
entire investment therein.
SHORT-TERM INVESTMENTS
The Fund normally will hold a small portion of its assets in U.S. dollar
denominated money market securities, including repurchase agreements, commercial
paper, and bank obligations. The investments allow the Fund flexibility to meet
redemptions and pay expenses, as well as to control the timing of new
investments. For temporary or defensive purposes, the Fund may invest without
limitation in such securities.
BANK OBLIGATIONS. The Fund may acquire certificates of deposit, bankers'
acceptances and time deposits. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earn a specified return. Bankers' acceptances are negotiable
drafts or bills of exchange, normally drawn by an importer or exporter to pay
for specific merchandise, which are "accepted" by a bank; meaning in effect that
the bank unconditionally agrees to pay the face value of the instrument on
maturity. In addition, the Fund may make interest-bearing time deposits or
other interest-bearing deposits in commercial or savings banks. Time deposits
are non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate. These dollar denominated bank
obligations will be from domestic or foreign banks or financial institutions
having capital, surplus and undivided profits in excess of $100 million based on
latest published reports, or less than $100 million if the principal amount of
such bank obligations are fully insured by the U.S. government.
A Fund holding instruments of foreign banks or financial institutions may be
subject to additional investment risks that are different in some respects from
those incurred by a fund that invests only in debt obligations of U.S. domestic
issuers. Such risks include future political and economic developments,
possible imposition of withholding taxes by the particular country in which the
issuer is located on interest income payable on the securities, possible seizure
or nationalization of foreign deposits, possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities. See
"Foreign Investments" for other general risks.
Domestic and foreign banks are subject to different governmental regulations
with respect to the amount and types of loans which may be made and interest
rates which may be charged. In addition, the
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profitability of the banking industry depends largely upon the availability and
cost of funds for the purpose of financing lending operations under prevailing
money market conditions. General economic conditions, as well as exposure to
credit losses arising from possible financial difficulties of borrowers, play an
important part in the operations of the banking industry.
Domestic banks, as a result of federal and state laws and regulations, are
required to maintain specified levels of reserves and are limited in the amount
which they can loan to a single borrower. These banks are subject to other
regulations designed to promote financial soundness. However, such laws and
regulations do not necessarily apply to foreign bank obligations that the Fund
may acquire.
See "Foreign Investments" for other general risks.
COMMERCIAL PAPER, SHORT-TERM NOTES AND OTHER SHORT-TERM CORPORATE OBLIGATIONS.
The Fund may invest a portion of its assets in investment grade commercial paper
and short-term notes. Commercial paper consists of unsecured promissory notes
issued by corporations. Issues of commercial paper and short-term notes
normally will have fixed rates of return and maturities of less than nine
months, although such instruments may have maturities of up to one year.
Investment grade commercial paper and short-term notes purchased by the Fund
will consist of issues rated at the time of purchase "A-2" or higher by Standard
& Poor's Rating Group ("S&P"), "Prime-1" or "Prime-2" by Moody's Investors
Services ("Moody's"), or similarly rated by another nationally recognized
statistical rating organization or, if unrated, be determined by Berkeley
Capital Management ("Berkeley" or the "Advisor") to be of comparable quality.
These rating symbols are described in Appendix A.
INVESTMENT COMPANY SECURITIES. The Fund may under certain circumstances invest
a portion of its assets in money market mutual funds. The Investment Company
Act of 1940 (the "Investment Company Act") prohibits a Fund from investing more
than 5% of the value of its total assets in any one investment company, or more
than 10% of the value of its total assets in investment companies as a group.
The Investment Company Act also restricts a fund's investment in any investment
company to 3% of the voting securities of such investment company. An
investment in a money market mutual fund will involve payment by the Fund of its
pro rata share of advisory and administrative fees charged by such fund which
will be in addition to those charged by the Fund.
GOVERNMENT OBLIGATIONS
The Fund may make short-term investments in U.S. government and agency
obligations. Such obligations include: Treasury bills, notes, bonds and
certificates of indebtedness. The issuers of such investments may include,
but are not limited to Government National Mortgage Association ("GNMA"),
Farmers Home Administration, Federal Home Loan Bank, Federal Farm Credit
Bank, Federal National Mortgage Association, Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association ("SLMA").
Some of these obligations, such as those of the GNMA, are supported by the full
faith and credit of the U.S. government. Other obligations are supported by the
right of the issuer to borrow from the U.S. Treasury, or are supported by the
discretionary authority of the U.S. government to purchase the agency's
obligations. SLMA issues are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government sponsored instrumentalities if it
is not obligated to do so by law.
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ZERO COUPON SECURITIES
The Fund may invest in zero coupon securities which are issued by the U.S.
Treasury. Zero coupon treasury securities are U.S. treasury notes and bonds
which have been stripped of its unmatured interest coupons and receipts or
certificates representing interests in such stripped debt obligations or
coupons. A zero coupon security pays no interest to its holder during its life
and usually trades at a deep discount from its face or par value. It may be
subject to greater market value fluctuations in response to changing interest
rates than debt obligations of comparable maturities which make current
distributions of interest.
MORTGAGE-RELATED SECURITIES
The Fund may invest in mortgage-related securities. Mortgage-related
securities are derivative interests in pools of mortgage loans made to U.S.
residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of
mortgage loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations. The Fund may
invest in debt securities that are secured with collateral consisting of U.S.
mortgage-related securities, and in other types of U.S. mortgage-related
securities.
The underlying mortgage loans in a pool may have maturities of up to 30
years, although the actual average life of the pool certificates typically
will be substantially less because the mortgages will be subject to normal
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In
periods of falling interest rates, the rate of prepayment tends to increase,
thereby shortening the actual average life of the pool certificates.
Conversely, when interest rates are rising, the rate of prepayments tends to
decrease, thereby lengthening the actual average life of the certificates.
Accordingly, it is not possible to predict accurately the average life of a
particular pool.
FOREIGN INVESTMENTS
DEPOSITARY RECEIPTS. The Fund may invest in American Depositary Receipts
("ADRs"), which may be sponsored or unsponsored. ADRs are negotiable receipts
administered by a U.S. bank or trust company acting as a depositary that
represents interest in securities issued by a foreign corporation. In general,
depositary receipts are issued in registered form designed for use in the U.S.
securities market. Depositary receipts may not be denominated in the same
currency as the underlying securities into which they may be converted.
Depositary receipts may be issued pursuant to sponsored or unsponsored programs.
In sponsored programs, an issuer has made arrangements to have its securities
traded in the form of despositary receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored programs are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a sponsored
program. Accordingly, there may be less information available regarding issuers
of securities underlying unsponsored programs and there may not be a correlation
between such information and the market value of the depositary receipts.
Depositary receipts also involve the risks of other investments in foreign
securities, as discussed below. For purposes of the Fund's investment policies,
the Fund's investments in depositary receipts will be deemed to be investments
in the underlying securities.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign securities
involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the U.S. economy in
such respects as: growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency, diversification and
balance of payments position. The internal politics of certain foreign
countries may not be as stable as those of the U.S. Governments in certain
foreign countries also may continue to participate to a significant degree,
in its respective economies, through ownership or regulation. Action by
these governments could have a significant effect on market prices of
securities and payment of interest, and could include restrictions on
foreign investment, nationalization, expropriation of goods or imposition
of taxes. The economies of many foreign countries are heavily dependent
upon international trade and accordingly are affected by the trade policies
and economic conditions of its trading partners. Enactment by these
trading partners of protectionist trade legislation could have a
significant adverse effect upon the securities markets of such countries.
CURRENCY FLUCTUATIONS. Since the underlying security of a depositary
receipt may be denominated in a foreign currency, a change in the value of
any such currency against the U.S. dollar will result in a corresponding
change in the U.S. dollar value of the Fund's foreign assets denominated
in that currency. Such changes will also affect the Fund's income. The
value of the Fund's assets may
4
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also be affected significantly by currency restrictions and exchange
control regulations enacted from time to time.
MARKET CHARACTERISTICS. The Advisor expects that most foreign securities
in which the Fund invests will be purchased through U.S. markets. However,
the value of the Fund's positions also may be adversely impacted by delays
in its ability to act upon economic events occurring in foreign markets
during non-business hours in the U.S.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities,
and less financial information available on issuers than is available in
the U.S.
TAXES. The interest or dividend payable on certain foreign securities
may be subject to foreign withholding taxes, thus reducing the net amount
of income available for distribution to the Fund's shareholders. A
shareholder who may be subject to U.S. federal income taxes may be entitled
to claim a credit or deduction for U.S. federal income tax purposes for his
proportionate share of such foreign taxes paid by the Fund.
In considering whether to invest in the securities of a foreign company, the
Advisor considers such factors as the characteristics of the particular company,
differences between economic trends and the performance of securities markets
within the U.S. and those within other countries, and also factors relating to
the general economic, governmental and social conditions of the country or
countries where the company is located. The extent to which the Fund will be
invested in foreign companies and countries and depositary receipts will
fluctuate from time to time within the limitations described in the Prospectus,
depending on the Advisor's assessment of prevailing market, economic and other
conditions.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Currently, the Fund does not intend to participate in currency options or
futures transactions. This restriction is not a "fundamental restriction" and
may be changed by the Trustees of the Fund if the change is consistent with the
overall investment objective and policies of the Fund.
PURCHASING PUT AND CALL OPTIONS. The Fund is authorized to purchase covered put
and call options with respect to securities which are otherwise eligible for
purchase by the Funds and with respect to various stock indices subject to
certain restrictions. The Fund will engage in trading of such derivative
securities exclusively for hedging purposes.
When the Fund purchases a put option, it acquires the right to sell the
underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). For purposes of the following examples, American
style options are used. Purchasing put options may be used as a Fund investment
strategy when the Advisor perceives significant short-term risk, but substantial
long-term appreciation for the underlying security. The put option acts, in
theory, as an insurance policy protecting against significant downward price
movement while allowing full participation in any upward movement. For example,
if the Fund holds a stock which the Advisor thinks has strong fundamentals but
for some reason may be weak in the near term, the Fund may purchase a put option
on such security, thereby acquiring the right to sell such security at a certain
strike price throughout the term of the option. The Fund will exercise the put
only if the price of such security falls below the strike price of the put.
When exercised, the difference between the put's strike price and the
securities' market price less transaction costs will be the amount the Fund will
be able to use
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to offset a decline in the underlying security. If during the period of the
option the market price for the underlying security remains at or above the
put's strike price, the put will expire worthless, representing a loss to the
Fund of the price paid for the option plus transaction costs. If the price of
the underlying security increases the realized profit the Fund realizes from the
sale of the security will be reduced by the premium paid for the put option less
any amount for which the put may be sold.
When the Fund purchases a call option, it acquires the right to purchase the
underlying security at a specified price at any time during the term of the
option. The purchase of a call option could be used to hedge against losses
that could occur if the Fund has a short position in the underlying security and
the security thereafter increases in price. The Fund will exercise a call
option only if the price of the underlying security is above the strike price by
the time of exercise. If during the option period the market price for the
underlying security remains at or below the strike price of the call option, the
option will expire worthless, representing a loss of the price paid for the
option, plus transaction costs. If the call option has been purchased to hedge
a short position of the Fund in the underlying security and the price of the
underlying security thereafter falls, the profit the Fund realizes on the cover
of the short position in the security will be reduced by the premium paid for
the call option less any amount for which such option may be sold.
An option may be sold by a purchaser prior to its expiration, when it has
remaining value, through a "closing sale transaction." The transaction is
accomplished by selling an option of the same series as the option previously
purchased. In general, the Fund will purchase only those options for which the
Advisor believes there is an active secondary market to facilitate closing
transactions.
WRITING CALL OPTIONS. The Fund may write covered call options. A call option
is "covered" when the Fund owns the security underlying the call or has an
absolute right to acquire the security without additional cash consideration or,
if additional cash consideration is required, cash or cash equivalents in such
amount as are held in a segregated account by the Fund's custodian. The writer
of a call option receives a premium for the obligation of delivering the
underlying security against payment of the strike price upon exercise of the
option. The Fund may write a covered call option on a security held in its
portfolio if the underlying security's price is anticipated to decline or remain
relatively stable. This strategy allows the fund to increase its yield or
offset a decline on the security by the amount of the premium. If the price of
the security remains unchanged or declines, the Fund may let the call option
expire, thus retaining the entire premium. If the price of the security rises,
the Fund may terminate its obligation through a closing transaction, which is
accomplished by buying an option of the same series as the option previously
written. A writer may not effect a closing purchase transaction after it has
been notified of the exercise of an option.
The Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option.
The Fund will realize a loss from a closing transaction if the cost of the
closing transaction is more than the premium received from writing the option.
However, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss to
the Fund resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security owned by the
Fund.
STOCK INDEX OPTIONS. The Fund may purchase put and call options with respect to
the S&P 500 and other stock indices. Such options may be used as a hedge
against changes resulting from market conditions in the values of securities
held in the Fund's portfolio or which it intends to purchase or sell.
6
<PAGE>
The distinctive characteristics of options on stock indices create certain risks
that are not generally present with stock options. The value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock. The stock market movements will influence whether the Fund
will realize a gain or loss on the purchase or sale of an index option.
Accordingly, successful use of options on a stock index are subject to the
Advisor's ability to correctly predict movements in the direction of the stock
market. This ability requires different skills and techniques than anticipating
changes in the price of individual stocks.
Index prices may be distorted if trading of certain stocks included in the index
is interrupted. Trading of index options also may be interrupted in certain
circumstances, such as if trading were halted in a substantial number of stocks
included in the index. Were this to occur, the Fund would not be able to close
out options it held, which could result in substantial losses to the Fund. It is
the policy of the Fund to purchase index options only if the Advisor believes
the index includes a sufficient number of stocks to minimize the likelihood of a
trading halt in the index.
RISKS OF INVESTING IN OPTIONS. There are several risks associated with options
transactions on securities and indices. Options may be more volatile than the
underlying instruments and, therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying security. There are also significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its objective.
In addition, a liquid secondary market for particular options may be absent for
reasons which include: insufficient trading interest in certain options;
restrictions imposed by an exchange; trading halts; suspensions or other
restrictions; unusual or unforeseen circumstances interrupting normal operations
on an exchange; or, one or more exchanges, for economic or other reasons, decide
or are compelled to discontinue the trading of options or a particular class or
series of options in which event the secondary market on that exchange would
cease to exist.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with respect to its securities.
Pursuant to a repurchase agreement, the Fund acquires securities from a
financial institution, such as bank or broker-dealer, subject to the seller's
agreement to repurchase securities at a mutually agreed upon date and price.
The repurchase price generally equals the price paid by the Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the underlying security). Securities subject to repurchase
agreements will be held by the Fund's custodian or in the Federal Reserve
Book-Entry System. The seller under a repurchase agreement will be required to
maintain the value of the underlying securities at not less than 102% of the
repurchase price under the agreement. If the seller defaults on its repurchase
obligation, the Fund holding the repurchase agreement will suffer a loss to the
extent that the proceeds from a sale of the underlying securities is less than
the repurchase price under the agreement. Bankruptcy or insolvency of such a
defaulting seller may cause the Fund's rights with respect to such securities to
be delayed or limited. The Fund will enter into repurchase agreements only with
financial institutions deemed to be creditworthy by the Advisor. Repurchase
agreements are considered to be loans under the Investment Company Act.
BORROWING
The Fund is authorized to borrow money from time to time for temporary,
extraordinary or emergency purposes in order to meet redemption requests in
amounts up to one-third of the value of its total assets at the time of such
borrowings. Borrowing by the Fund involves special risk considerations that may
not be
7
<PAGE>
associated with other Funds having similar objectives and policies. Since
substantially all of the Fund's assets fluctuate in value, whereas the interest
obligation resulting from borrowing will be fixed, the asset value per share of
the Fund may tend to increase more when its portfolio securities increase in
value and to decrease more when its portfolio securities decrease in value than
would otherwise be the case if the Fund did not borrow funds. In addition,
interest costs on borrowings may fluctuate with changing market rates of
interest and may offset partially or exceed the return earned on borrowed funds.
Under adverse market conditions, the Fund may be required to sell securities to
meet interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
ILLIQUID SECURITIES
The Fund may invest no more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The Advisor will monitor the amount of
illiquid securities in the Fund's portfolio, under the supervision of the Board
of Trustees, to ensure compliance with the Fund's investment restrictions.
Historically, illiquid securities have included private placements, restricted
securities, securities which are not otherwise readily marketable and repurchase
agreements having a maturity of longer than seven days. Private placements and
restricted securities are securities which have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and are purchased
directly from the issuer or in the secondary market. Mutual funds typically do
not hold a significant amount of illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the securities' marketability and the Fund might be
unable to dispose of illiquid securities promptly or at reasonable prices. The
Fund also might have to register restricted securities in order to dispose of
them, resulting in additional expense and delay. Adverse market conditions
could impede such a public offering of securities.
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market through which the unregistered security may be
readily resold. The fact that there are contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative of
the liquidity of such investments. If such securities are subject to purchase
by institutional buyers in accordance with Rule 144A as promulgated by the
Commission under the Securities Act, the Trust's Board of Trustees has
determined that such securities are not illiquid securities notwithstanding its
legal or contractual restrictions on resale. In all other cases, however,
securities subject to restrictions on resale will be deemed illiquid.
INVESTMENT TECHNIQUES AND PROCESSES
The Advisor's investment techniques and processes, which it has used in managing
institutional portfolios for many years, are described in the Prospectus under
"Investment Strategy" and "Principal Investments." In making decisions with
respect to equity securities for the Fund, growth over time is the Advisor's
underlying goal, and the Advisor emphasizes this strategy through investment in
securities of companies with above average yields. Its investment techniques
attempts to identify stocks with values which might currently be depressed.
Investments of the Fund's portfolio are diversified. With respect to at least
75% of the Fund's assets, the Fund may invest no more than 5% of its total
assets in the securities of any one issuer.
8
<PAGE>
INVESTMENT RESTRICTIONS
The Trust, on behalf of the Fund, has adopted the following fundamental policies
that cannot be changed without the affirmative vote of a majority of the
outstanding shares of the Fund (as defined in the Investment Company Act).
Except for the numbered limitations set forth below, the investment policies and
limitations described in this Statement of Additional Information are not
fundamental policies, and may be changed without consent of shareholders.
All percentage limitations set forth below apply immediately after a purchase or
initial investment, and any subsequent change in any applicable percentage
resulting from market fluctuations will not require elimination of any security
from the Fund.
The Fund may not:
1. Borrow money, except as a temporary measure for extraordinary or
emergency purposes in order to meet redemption requests, and then only
in an amount up to one-third of the value of its total assets. Any such
borrowing will be effected only if immediately thereafter there is an
asset coverage of at least 300% of all borrowings. The Fund will not
borrow for leverage purposes or purchase securities or make investments
while borrowings exceed 5% of the Fund's net assets. Any borrowings by
the Fund will be collateralized. If for any reason the current value of
the total assets of the Fund falls below an amount equal to three times
the amount of indebtedness, the Fund will, within three days (excluding
Sundays and holidays), reduce its indebtedness to the extent necessary.
2. Except as required in connection with permissible hedging activities,
purchase any securities on margin or underwrite securities, except that the
Fund may (a) obtain such short-term credit as may be necessary for the
clearance of purchases and sales of securities, (b) make margin deposits in
connection with otherwise permitted options transactions, and (c)
participate as part of a group in bidding or by bidding alone, for the
purchase of permissible investments directly from an issuer or selling
shareholders for the Fund's own portfolio, and except to the extent that
the Fund may be deemed an underwriter under the Securities Act by virtue of
disposing of portfolio securities.
3. Concentrate 25% or more of the value of its total assets in any one
industry; provided, however, that this restriction does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities. For purposes of this restriction, the Fund generally
relies on the U.S. Office of Management and Budget's Standard Industrial
Classification.
4. Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks of an issuer are each considered as one
class for purposes of this restriction.
5. Issue senior securities, except as permitted under the Investment Company
Act; provided, however, that the Fund may engage in otherwise permitted
transactions involving options.
6. Invest for the purpose of exercising control or management of another
issuer.
9
<PAGE>
7. Underwrite securities issued by others except to the extent it may be
deemed to be an underwriter under the federal securities laws, in
connection with the disposition of securities from its investment
portfolio.
8. Invest in commodities or commodity contracts, futures contracts, real
estate or real estate limited partnerships; although the Fund may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate, commodities or commodity contracts, and
except that the Fund may enter into option contracts for hedging purposes.
9. With respect to 75% of its total assets, invest in the securities of any
one issuer (other than the U.S. government and its agencies and
instrumentalities) if immediately after and as a result of such investment
more than 5% of the total assets of the Fund would be invested in such
issues. There are no limitation with respect to the remaining 25% of its
total assets.
In order to change any restriction which is a fundamental policy, approval must
be obtained from the Fund's shareholders; this would require the affirmative
vote of the lesser of (i) 67% or more of the Fund's outstanding voting
securities that are represented at the meeting, if more than 50% of the
outstanding voting securities of the Fund are represented or (ii) more than 50%
of the Fund's outstanding voting securities.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT PRIOR SHAREHOLDER APPROVAL.
The Fund does not currently intend to:
1. Invest more than 15% of its net assets in illiquid securities. This policy
includes securities which the Fund cannot sell or dispose of in the
ordinary course of business at approximately the amount at which it values
such securities within seven calendar days.
2. Lend assets, other than portfolio securities, except by purchasing debt
securities and engaging in repurchase agreements. Portfolio securities may
be loaned only if collateralized at least 100% and marking-to-market daily.
The Fund, however, does not currently intend to lend portfolio securities
during the current fiscal year.
3. Purchase securities of companies that derive more than 15% of its gross
revenues from security related activities, except as permitted by Rule
12d3-1 under the Investment Company Act.
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to: pursue the objective of
the Fund in relation to movements in general market conditions; invest money
obtained from the sale of Fund shares; reinvest proceeds from the sale of
portfolio securities; and meet redemptions of Fund shares. Fund transactions
may increase or decrease the investment performance of the Fund depending upon
the Advisor's ability correctly to time and execute them.
The Advisor, in effecting purchases and sales of securities for the Fund, seeks
to obtain best price and execution. Subject to the supervision of the Board of
Trustees, the Advisor selects broker-dealers used by the Fund primarily on the
basis of the quality and reliability of services provided, including execution
capability and financial responsibility as agent. The Fund may utilize Berkeley
International Securities
10
<PAGE>
Corporation, an affiliate of the Advisor, in connection with a purchase or sale
of securities when the Advisor believes that the charge for the transaction does
not exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Trust's Board of Trustees.
Subject to the foregoing policies, the Fund may use Berkeley International
Securities Corporation as a broker to execute portfolio transactions. In
accordance with the provisions of Section 17(e) of the Investment Company Act
and Rule 17e-1 promulgated thereunder, the Trust has adopted certain procedures
which are designed to provide that commissions payable to Berkeley International
Securities Corporation are reasonable and fair as compared to the commissions
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on securities or options exchanges
during a comparable period of time. In determining the commissions to be paid
to Berkeley International Securities Corporation, it is the policy of the Fund
that such commissions will be, in the judgment of the Advisor, (i) at least as
favorable as those which would be charged the Fund by other qualified
unaffiliated brokers having comparable execution capability, and (ii) at least
as favorable as commissions contemporaneously charged by Berkeley International
Securities Corporation on comparable transactions for its most favored
unaffiliated customers, except for any customers of Berkeley International
Securities Corporation considered by a majority of the Trustees who are not
interested persons to be not comparable to the Fund. The Fund does not deem it
practicable and in its best interest to solicit competitive bids for commission
rates on each transaction. However, consideration is regularly given to
information concerning the prevailing level of commissions charged on comparable
transactions by other qualified brokers. The Board of Trustees reviews the
procedures adopted by the Trust with respect to the payment of brokerage
commissions at least annually to ensure their continuing appropriateness, and
determines, on at least a quarterly basis, that all such transactions during the
preceding quarter were effected in compliance with such procedures.
The Fund also has adopted certain procedures, pursuant to Rule 10f-3 under the
Investment Company Act, which must be followed any time the Fund purchases or
otherwise acquires, during the existence of an underwriting or selling
syndicate, a security of which Berkeley International Securities Corporation is
an underwriter or member of the underwriting syndicate. The Board of Trustees
of the Trust will review such procedures at least annually for their continuing
appropriateness and determine, on at least a quarterly basis, that any such
purchases made during the preceding quarter were effected in compliance with
such procedures.
The Fund does not effect securities transactions through brokers in accordance
with any formula, nor does it effect securities transactions through such
brokers solely for selling shares of the Fund. However, as stated above,
Berkeley International Securities Corporation may act as one of the Fund's
brokers in the purchase and sale of portfolio securities, and other brokers who
execute brokerage transactions as described above may from time to time effect
purchases of shares of the Fund for their customers.
When the execution and price offered by two or more broker-dealers are
comparable, the Advisor may, in its discretion, utilize the services of
broker-dealers that provide it with investment information and other research
resources. Such resources may also be used by the Advisor when providing
advisory services to other investment advisory clients, including mutual funds.
When the execution and price offered by two or more broker-dealers are
comparable, the Advisor may, in its discretion, utilize the services of
broker-dealers that provide it with investment information and other research
resources. Such resources may also be used by the Advisor when providing
advisory services to other investment advisory clients, including mutual funds.
11
<PAGE>
In valuing brokerage services, the Advisor makes a judgment as to which
broker-dealers are capable of providing the most favorable net price (not
necessarily the lowest commission) and the best execution in a particular
transaction. Best execution connotes not only general competence and
reliability of a broker-dealer, but specific expertise and efforts of a
broker-dealer in overcoming the anticipated difficulties and fulfilling the
requirements of particular transaction. The problems of execution and the
required skills and effort vary greatly among transactions.
In valuing research services, the Advisor makes a judgment as to the usefulness
of research and other information provided by a broker-dealer to the Advisor in
managing the Fund's investment. In some cases, the information (e.g., data for
recommendations concerning particular securities) relates to the specific
transaction placed with the broker-dealer, but for the greater part, the
research consists of a wide variety of information concerning companies,
industries, investment strategy and economic, financial, and political
conditions and prospects, useful to the Advisor in advising the Fund. The Fund
may pay a higher commission to those broker-dealers which provide brokerage and
research services to the Advisor than that charged by other broker-dealers, if
the Advisor determines in good faith that the amount of the commission is
reasonable in relation to the value of those services in terms either of the
particular transaction, or in terms of the overall value to the Fund and to any
other accounts over which the Advisor exercises investment discretion.
The reasonableness of brokerage commissions paid by the Fund in relation to
transaction and research services received is evaluated by the Advisor on an
ongoing basis. The general level of brokerage charges and other aspects of the
Fund's transactions are reviewed periodically by the Trust's Board of Trustees.
The Advisor is the principal source of information and advice to the Fund and
is responsible for making and initiating the execution of investment
decisions for the Fund. The Advisor believes that it is important, in
performing its responsibilities to the Fund, to receive and evaluate the
broad spectrum of economic and financial information that many broker-dealers
customarily have furnished in connection with brokerage transactions.
Therefore, in compensating broker-dealers for services provided, it is in the
interest of the Fund to take into consideration the value of the information
received for its use in advising the Fund. The extent, if any, to which the
obtaining of such information may reduce the expenses of the Advisor in
providing management services to the Fund is not readily determinable. In
addition, other clients of the Advisor, including other funds, also might
benefit from the information obtained for the Fund, in the same manner that
the Fund also might benefit from information obtained by the Advisor in
performing services for others.
The Advisor ordinarily will place orders for the purchase and sale of
over-the-counter securities on a principal rather than agency basis with a
principal market maker unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained. Purchases of Fund securities from
underwriters may include a commission or concession paid by the issuer to the
underwriter and purchases from broker-dealers may include a spread between the
bid and ask prices. Subject to the requirement of best execution, the sale of
Fund shares may also be considered as a factor in the selection of
broker-dealers to execute the Fund's transactions.
Investment decisions for the Fund are reached independently from those for other
accounts managed by the Advisor. Such other accounts may also make investments
in instruments or securities at the same time as the Fund. On occasions when
the Advisor determines the purchase or sale of a security to be in the best
interest of the Fund as well as of other clients, the Advisor, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
so purchased or sold in an attempt to obtain the most favorable price or lower
brokerage commissions and the most efficient execution. In such event,
allocation
12
<PAGE>
of the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Advisor in the manner it considers to be the
most equitable under the circumstances and consistent with its fiduciary
obligations to the Fund and to its other participating clients. In some cases
this procedure may affect the size or price of the position obtainable for the
Fund.
MANAGEMENT OF THE TRUST
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their principal occupations during the
past five years and affiliations, if any, with the Advisor or Berkeley
International Securities Corporation are as follows:
<TABLE>
<CAPTION>
Principal Occupation
Name Age Position with the Trust for the Past Five Years
---- --- -------------------------------- ---------------------------------------
<S> <C> <C> <C>
Debra McGinty-Poteet* 43 Chairman of the Board of Trustees Executive Vice President and Chief
225 Broadway and President Operating Officer, North American Trust
San Diego, CA 92101-5030 Co. (1997-present); formerly, Senior
Vice President and Managing Director,
Bank of America Funds Management (1986-
1997)
Cindee Beechwood* 43 Trustee, Treasurer, and Principal Assistant Group Financial Controller,
Financial Officer London Pacific Group Limited, a financial
services holding company, and
Controller, Berkeley Capital Management
(1992-present); Financial and Operations
Principal, Berkeley International
Securities Corporation (1997-present)
Wendy J. Beller* 35 Compliance Officer Director of Compliance, Berkeley Capital
Management and Berkeley International
Securities Corporation (1997-present);
formerly, Contract Compliance Officer,
Chancellor LGT Asset Management and GT
Global, Inc., (1996-1997) prior thereto,
Assistant Compliance Director, Robertson
Stephens & Company LLC, an investment
banking firm (1993-1996)
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C>
Bryan W. Brown 52 Trustee Financial and technological systems
950 Hayman Place consultant (1992-present); formerly,
Los Altos, CA 94024 Chief Financial Officer, Bailard, Biehl &
Kaiser, Inc. (1980-1992)
William R. Sweet 60 Trustee Retired; formerly, Executive Vice
81 Mt. Tiburon Road President, Union Bank of California
Tiburon, CA 94920 (formerly known as The Bank of California)
(1985-1996)
Barnett Teich 74 Trustee Retired; formerly consultant (1987-1989);
78280 Willowrich Drive prior thereto, First Vice President,
Palm Desert, CA 92211 Lehman Management Co., Inc. (1958-1986)
Danell J. Doty* 35 Vice President and Secretary Vice President Operations, Berkeley
Capital Management (1995-present) and
Operations Manager, Berkeley
International Securities Corporation
(1991-present)
Joseph C. Neuberger* 34 Assistant Secretary Vice President and Manager of Fund
615 East Michigan St. Administration and Compliance, Firstar
Milwaukee, WI 53202 Trust Company (1994-present); formerly,
Manager, Arthur Andersen LLP (1984-1994)
Dana L. Armor 29 Assistant Secretary Trust Officer and Compliance
615 East Michigan St. Administrator, Firstar Trust Company
Milwaukee, WI 53202 (1992-present)
</TABLE>
*These individuals are interested persons of the Trust as defined in
Section 2(a)(19) of the Investment Company Act. Ms. Beechwood, Ms. Beller and
Ms. Doty are employed by the Advisor.
The address of each individual listed above, unless otherwise indicated, is
650 California Street, Suite 2800, San Francisco, California 94108.
14
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE(1)
---------------------
Aggregate Total Compensation
Compensation From Registrant and Fund
Name, Position From Registrant(1) Complex Paid to Directors(1)
-------------- ------------------- ----------------------------
<S> <C> <C>
Debra McGinty-Poteet, None None
Trustee
Cindee Beechwood, Trustee None None
Barnett Teich, Trustee $2,000 $2,000
Bryan W. Brown, Trustee $2,000 $2,000
William R. Sweet, $2,000 $2,000
Trustee
(1) Estimated for current fiscal year.
</TABLE>
INVESTMENT ADVISOR
Berkeley Capital Management serves as the Fund's investment advisor pursuant to
an Investment Management Agreement (the "Agreement") effective June 3, 1998
between it and the Trust on behalf of the Fund. The Advisor is registered as an
investment advisor under the Investment Advisers Act of 1940, as amended, and
currently provides investment advisory services to institutional and other
investors. As of December 31, 1997, the Advisor had assets totaling
approximately $1.6 billion under discretionary management utilizing several
investment strategies.
The Agreement will be in effect as to the Fund's management for a two-year term
from its effective date, and thereafter will continue in effect for one-year
terms, subject to annual approval by: (1) the Trust's Board of Trustees or (2) a
vote of the majority (as defined in the Investment Company Act) of the
outstanding voting securities of the Fund. In either event, the continuance
must also be approved by a majority of the Trust's Board of Trustees who are not
parties to the Agreement, or interested persons (as defined in the Investment
Company Act) of any such party, by vote cast in person at a meeting called for
the purpose of voting on such approval. The Agreement may be terminated at any
time upon 60 day's notice by either party, or by a majority vote of the
outstanding shares of the Fund, and will terminate automatically upon assignment
(as defined in the Investment Company Act).
Pursuant to the Agreement, the Advisor is entitled to receive from the Fund an
annual fee, payable monthly, of 0.50% of the Fund's average daily net assets.
The Agreement allows the Advisor to voluntarily waive its fees payable under
the Agreement and to reimburse all or a portion of the Fund's expenses. The
Agreement further provides that the Advisor may seek reimbursement of any
reductions made to its management fee and any payments by the Advisor of
operating expenses that the Fund is obligated to pay within the three-year
period following such reduction or payment, subject to the following conditions.
First, any reimbursement is subject to the Fund's ability to effect such
reimbursement and remain in compliance with any applicable expense limitations
in place at that time. Second, the Advisor must specifically request the
reimbursement from the Board of Trustees. Third, the Board of Trustees
15
<PAGE>
must approve such reimbursement as appropriate and not inconsistent with the
best interests of the Fund and the shareholders at the time such reimbursement
is requested.
SHAREHOLDER SERVICES AGREEMENT
The Advisor has entered into a Shareholder Services Agreement with the Trust on
behalf of the Fund. Pursuant to the Shareholder Services Agreement, the Advisor
will provide, or will arrange for others to provide, certain specified
shareholder services to shareholders of the Fund. As compensation for the
provision of such services, the Fund will pay the Advisor a fee of up to 0.25%
of the Fund's average daily net assets on an annual basis, payable monthly. The
Advisor will pay certain banks, trust companies, broker-dealers, and other
institutions (each a "Participating Organization") out of the fees the Advisor
receives from the Fund under the Shareholder Services Agreement to the extent
that the Participating Organization performs shareholder servicing functions for
the Fund with respect to shares of the Fund owned from time to time by customers
of the Participating Organization. In certain cases, the Advisor may also pay a
fee, out of its own resources and not out of the service fee payable under the
Shareholder Services Agreement, to a Participating Organization for providing
other administrative services to its customers who invest in the Fund.
Pursuant to the Shareholder Services Agreement, the Advisor will provide or
arrange with a Participating Organization for the provision of the following
shareholder services: responding to shareholder inquiries; processing purchases
and redemptions of the Fund's shares, including reinvestment of dividends;
assisting shareholders in changing dividend options, account designations, and
addresses; transmitting proxy statements, annual reports, prospectuses, and
other correspondence from the Fund to shareholders (including, upon request,
copies, but not originals, of regular correspondence, confirmations, or regular
statements of account) where such shareholders hold shares of the Fund
registered in the name of the Advisor, a Participating Organization, or their
nominees; and providing such other information and assistance to shareholders as
may be reasonably requested by such shareholders.
The Advisor may also enter into agreements with Participating Organizations that
process substantial volumes of purchases and redemptions of shares of the Fund
for their customers. Under these arrangements, the Transfer Agent will
ordinarily maintain an omnibus account for a Participating Organization and the
Participating Organization will maintain sub-accounts for its customers for whom
it processes purchases and redemptions of shares.
EXPENSES
The Trust pays the expenses of its operations, including: the fees and expenses
of independent accountants, legal counsel, custodian, fund accountant, transfer
agent and the administrator; the cost of reports and notices to shareholders;
the cost of calculating net asset value; registration fees; the fees and
expenses of qualifying the Trust and its shares for distribution under federal
and state securities laws; and membership dues in the Investment Company
Institute or any similar organization.
PRINCIPAL UNDERWRITER
Pursuant to an Underwriting Agreement, Berkeley International Securities
Corporation (the "Principal Underwriter") is the principal underwriter for
shares of the Fund and is the Trust's agent for the purpose of the continuous
offering of the Fund's shares. The Principal Underwriter is an affiliate of the
Advisor. The Fund pays the cost for the prospectuses and shareholder reports to
be prepared and delivered to existing shareholders. The Principal Underwriter
pays such costs when the described materials are used in
16
<PAGE>
connection with the offering of shares to prospective investors and for
supplementary sales literature and advertising. The terms of continuation,
termination and assignment under the Underwriting Agreement are identical to
those described above with respect to the Agreement.
CUSTODIAN, FUND ACCOUNTANT, TRANSFER AGENT AND ADMINISTRATOR
Pursuant to certain agreements, Firstar Trust Company has been appointed to
serve as the Fund's Custodian, Fund Accountant, Transfer Agent and
Administrator. The address of Firstar Trust Company is P.O. Box 701, Milwaukee,
Wisconsin 53201.
INDEPENDENT ACCOUNTANTS AND REPORTS TO SHAREHOLDERS
The Trust's independent accountants, Price Waterhouse LLP, audit and report
on the annual financial statements of the Fund and review the Fund's federal
income tax return. Price Waterhouse LLP may also perform other professional
accounting, auditing, tax and advisory services when engaged to do so by the
Trust. Shareholders will be sent audited annual and unaudited semi-annual
financial statements. The address of Price Waterhouse LLP is 100 East
Wisconsin Avenue, Suite 1500, Milwaukee, Wisconsin 53202.
LEGAL COUNSEL
The validity of the shares of beneficial interest offered hereby has been
passed upon by Paul, Hastings, Janofsky & Walker LLP, 345 California Street,
San Francisco, California 94104.
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DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income
and net capital gains. In determining amounts of capital gains to be
distributed, any capital loss carryovers from prior years will be offset against
capital gains of the current year. Unless a shareholder elects cash
distributions on the Shareholder Account Application form, or submits a written
request to the Fund at least five full business days prior to the record date
for a distribution, the distributions will be credited to the shareholder's
account in additional shares of the Fund. This distribution will be based on
the net asset value per share at the close of business on the day following the
record date for such distribution.
FEDERAL INCOME TAXES
It is the policy of the Fund to qualify for, and to elect to be taxed, as a
"regulated investment company" by meeting the requirements of Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). The Fund expect to
eliminate or reduce to a nominal amount the federal income tax to which it is
subject by following this policy.
In order to qualify as a regulated investment company, the Fund must, among
other things, meet certain quarterly and annual tests. On a quarterly basis the
Fund must diversify its holdings so that at the end of each quarter of its
taxable year (i) at least 50% of the market value of the Fund's total assets is
represented by cash or cash items, U.S. government securities, securities of
other regulated investment companies and other securities limited, in respect of
any one issuer, to a value not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities of any
one issuer (other than U.S. government securities) or of two or more issuers
that the Fund controls, within the meaning of the Code, and that are engaged in
the same, similar or related trades or businesses. Annually the Fund must (1)
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
equity and fixed income securities or other income derived with respect to its
business of investing in equity and fixed income securities; and the Fund must
distribute annually at least (a) 90% of its "investment company taxable income"
(as that term is defined in the Code) and (b) 90% of the excess of its (i)
tax-exempt interest income over (ii) certain deductions attributable to that
income (with certain exceptions), for its taxable year. The Fund intends to
make sufficient distributions to shareholders to meet these requirements. If
the Fund qualifies as a regulated investment company, it will not be subject to
federal income tax on the part of its net investment income and net realized
capital gains, which it distributes to shareholders.
If the Fund fails to distribute in a calendar year (regardless of whether it has
a non-calendar taxable year) at least 98% of its (i) ordinary income for such
year; and (ii) capital gain net income for the year ending October 31 (or later
if the Fund is permitted so to elect and so elects), plus any retained amount
from the prior year, the Fund will be subject to a nondeductible 4% excise tax
on the undistributed amounts. The Fund intends to make distributions sufficient
to avoid imposition of this excise tax.
Any distributions declared by the Fund in October, November or December to
shareholders of record during those months and paid during the following January
are treated, for tax purposes, as if they were received by each shareholder on
December 31 of the year declared. The Fund may adjust its schedule for the
reinvestment of distributions for the month of December to assist in complying
with the reporting and minimum distribution requirements of the Code.
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<PAGE>
Any distributions by the Fund of long-term capital gain will be taxable to
the shareholders as long-term capital gain, regardless of how long a
shareholder has held the Fund's shares. The maximum Federal Capital Gains
rate for individuals is 28% with respect to capital assets held for more than
12 months, but not more than 18 months, and 20% with respect to capital
assets held more than 18 months. The maximum capital gain rate for corporate
shareholders is the same as the maximum tax rate for ordinary income. If a
shareholder disposes of shares at a loss before holding such shares for
longer than six months, the loss will be treated as a long-term capital loss
to the extent the shareholder received a capital gain dividend on the shares.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder: (1) who fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) who provides an incorrect taxpayer identification number; (3) who
is subject to withholding for failure to report properly to the Internal Revenue
Service all payments of interest or dividends; or (4) who fails to provide a
certified statement that he or she is not subject to backup withholding. This
backup withholding is not an additional tax and any amounts withheld may be
credited against the shareholder's ultimate U.S. tax liability.
The foregoing discussion relates only to federal income tax law as applicable
to U.S. citizens or residents. Foreign shareholders (i.e. nonresident alien
individuals and foreign corporations, partnerships, trusts and estates)
generally are subject to U.S. withholding tax at the rate of 30% (or a lower
tax treaty rate) on distributions derived from net investment income and
short-term capital gains. Distributions to foreign shareholders of long-term
capital gains and any gains from the sale or disposition of shares of the
Fund generally are not subject to U.S. taxation, unless the recipient is an
individual who is present in the United States for a period or periods
aggregating 183 days or more during the taxable year. Different tax
consequences may result if the foreign shareholder is engaged in a trade or
business within the U.S. In addition, the tax consequences to a foreign
shareholder entitled to claim the benefits of a tax treaty may be different
than those described above. Distributions by the Fund may also be subject to
state, local and foreign taxes, and its treatment under applicable tax laws
may differ from the U.S. federal income tax treatment.
FEDERAL INCOME TAX TREATMENT OF OPTIONS. Certain option transactions have
special tax implications for the Fund. Listed nonequity options, including
options on currencies, will be considered to have been closed out at the end
of the Fund's taxable year, and any gains or losses will be characterized as
60% long-term capital gain or loss and 40% short-term capital gain or loss
regardless of the holding period of the option. Gains or losses on unlisted
currency options will not be subject to this treatment and will generally
result in ordinary income or loss. In addition, losses on purchased puts and
written covered calls, excluding "qualified covered call options" on equity
securities to the extent they do not exceed the unrealized gains on the
securities or currencies covering the options, may be subject to deferral
until the securities or currencies covering the options have been sold. The
holding period of the securities covering these options will be deemed not to
begin until the option is terminated. The holding period of the security
covering an "in-the-money-qualified covered call" option on an equity
security will not include the period of time the option is outstanding. Loss
on written covered calls and purchased puts on securities, excluding certain
"qualified covered call" options on equity securities, may be long-term
capital losses, if the security covering the option was held for more than
twelve months prior to the writing of the option.
The information above is only a summary of some of the tax considerations
generally affecting the Fund and its shareholders. No attempt has been made to
discuss individual tax consequences and this discussion should not be construed
as applicable to all shareholders' tax situations. Investors should consult its
own tax advisers to determine the suitability of the Fund and the applicability
of any state, local, or foreign taxation. Paul, Hastings, Janofsky & Walker
LLP has expressed no opinion in respect thereof. Foreign shareholders should
consider, in particular, the possible application of U.S. withholding taxes on
certain
19
<PAGE>
taxable distributions from the Fund at rates up to 30% (subject to reduction
under certain income tax treaties).
SHARE PRICE CALCULATION
The Fund is open for business, and the Fund's net asset value ("NAV") is
calculated, on every day the New York Stock Exchange (the "Exchange") is open
for trading. The Exchange is closed on the following days: New Year's Day,
Presidents' Day, Martin Luther King's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The close of
trading and the determination of NAV will coincide with the close of business of
the Exchange (normally considered 4:00 p.m. Eastern Time). When the Exchange is
closed or when trading is restricted or suspended for any reason other than its
customary weekend or holiday closings, or under emergency circumstances
determined by the SEC to merit such action, the Fund will determine NAV at its
close of business, the exact time of which will coincide with the closing of the
Exchange. If there is such a restriction or suspension, any shareholder may
withdraw any demand for redemption or any tender of shares which has been
received by the Transfer Agent during any such period, applicable NAV of which
would but for such restriction or suspension be calculated as of a time during
such period.
Securities listed or traded on the Exchange ("Listed Securities") are valued at
the last quoted sale price on that exchange prior to the time when the Fund's
assets are valued. Securities listed on the over-the-counter market are valued
at the last sales price. If there is no sale of a particular security, it is
valued at the mean between the bid and ask price.
A security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security
by the Advisor. Listed securities that are not traded on a particular day, and
securities regularly traded in the over-the-counter market, are valued at the
price within the limits of the latest available current bid and ask prices
deemed by the Advisor best to reflect a fair value.
In instances where the price of a security determined above is deemed by the
Advisor not to be representative, the security is valued in such a manner
prescribed by the Board of Trustees to reflect the security's fair value.
Long-term debt obligations are valued at the mean of representative quoted bid
and ask prices for such securities. If such prices for a particular obligation
are not available, the obligation will be valued at prices for securities of
comparable maturity, quality, and type. However, when the Advisor deems it
appropriate, prices obtained for the day of valuation from a bond pricing
service will be used. Short-term debt obligations with remaining maturities in
excess of 60 days are valued at the mean of representative quoted bid and ask
prices for such securities or, if such prices are not available, such securities
are valued using the prices for securities of comparable maturity, quality, and
type.
Options are valued at the last sale price on the exchange on which they are
listed, unless no sales of such options have taken place that day, in which case
they will be valued at the mean between its closing bid and ask prices. If an
option exchange closes later than 4:00 p.m. Eastern Time, the options traded on
it are valued based on the sale price, or on the mean between the bid and ask
prices, as the case may be, as of 4:00 p.m. Eastern Time. When the seller
writes a call, an amount equal to the premium received is included as an asset
and an equivalent deferred credit is included as a liability. If a call written
by the Fund is exercised, the proceeds are increased by the premium received, If
a call expires, the Fund has a gain in the amount of the premium; if the Fund
enters into a closing purchase transaction, the Fund will
20
<PAGE>
have a gain or loss depending on whether the premium was more or less than the
cost of the closing transaction. If a put held by the Fund is exercised, the
amount the Fund receives on sale of the underlying investment is reduced by the
amount of premium paid by the Fund.
As noted in the Prospectus, the purchase and redemption prices of the Fund's
shares are based upon the Fund's NAV per share. The Fund determines its NAV per
share by subtracting the Fund's liabilities (including accrued expenses and
dividends payable) from its total assets (the value of the securities the Fund
holds plus cash and the value of other assets, including income accrued but not
yet received) and dividing the result by the total number of shares outstanding.
PERFORMANCE INFORMATION
As noted in the Prospectus, the Fund may from time to time quote various
performance figures to illustrate the Fund's past performance. It may also
occasionally cite statistics to reflect the volatility or risk of the Fund.
The Fund's "Average Annual Total Return" or "Standardized Return" is calculated
as follows: Standardized Return ("T") is computed by using the value at the end
of the period ("V") of a hypothetical initial investment of $1,000 ("P") over a
period of years ("n") according to the following formula as required by the SEC:
P(1 + T)(n)=EV (the ending redeemable value of initial investment). The
following assumptions will be reflected in computations made in accordance
with this formula: (1) reinvestment of dividends and distributions at net
asset value on the reinvestment date as determined by the Board of Trustees;
and (2) complete redemption at the end of the period.
The Fund's "Aggregate Total Return" or "Non-Standardized Return," is calculated
for a specified period of time by assuming the investment of $1,000 in Fund
shares, further assuming the reinvestment of all dividends and distributions
made to Fund shareholders in additional Fund shares at net asset value.
Percentage rates of return are then calculated by comparing this assumed initial
investment to the value of the hypothetical account at the end of the period for
which Non-Standardized Return is quoted. The Fund does not take sales charges
into account in calculating Non-Standardized Return, and the inclusion of such
charges would reduce such return.
The Fund's investment results will vary from time to time depending upon market
conditions, the composition of the Fund and operating expenses of the Fund, so
that current or past total return should not be considered a representation of
what an investment in the Fund may earn in any future period. These factors and
possible differences in the methods used in calculating investment results
should be considered when comparing the Fund's investment results with those
published for other investment companies and other investment vehicles. The
Fund and the Principal Underwriter may from time to time compare the Fund with
the following:
1. The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g., for
clothing, shelter, fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services
that people buy for day-to-day living).
2. Data and mutual fund rankings and comparisons published or prepared by
Lipper Analytical Data Services, Inc. ("Lipper"), Morningstar Inc.
("Morningstar"), Micropal, Inc. ("Micropal"), CDA Investment Technologies,
Inc. ("CDA"), Wiesenberger Investment Company Services ("Wiesenberger")
and/or other companies that rank or compare mutual funds by overall
21
<PAGE>
performance, investment objectives, assets, expense levels, periods of
existence and/or other factors. In this regard, the Fund may be compared
to its "peer group" as defined by Lipper, Morningstar, Micropal, CDA,
Wiesenberger, and/or other firms, as applicable or to specific funds or
groups of funds within or without such peer group.
3. Standard & Poor's 500 Index, which is a widely recognized index composed of
the capitalization-weighted average of the price of 500 of the largest
publicly traded stocks in the U.S., and the Russell 2000 Index, NASDAQ
Composite Index and the Wilshire 500 Stock Index, which are recognized
indices composed of capitalization-weighted average share prices of smaller
company stocks.
4. Dow Jones Industrial Average.
5. Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc.; Merrill Lynch, Pierce, Fenner &
Smith, Inc.; Bear Stearns & Co., Inc.; Morgan Stanley; and Ibbotson
Associates may be used, as well as information provided by the Federal
Reserve Board. In addition, performance rankings and ratings reported
periodically in national financial publications, including but not limited
to MONEY MAGAZINE, FORBES, BUSINESS WEEK, THE WALL STREET JOURNAL, and
BARRON'S may be used.
From time to time the Fund may, publish information describing the Fund's
largest holdings, and sector allocations. The Fund may also publish information
concerning the average maturity of bond holdings in the Fund.
GENERAL INFORMATION
The Trust is generally not required to hold shareholder meetings. However, as
provided in its Agreement and Declaration of Trust and Bylaws, shareholder
meetings may be called by the Trustees for the purpose of electing Trustees and
for such other purposes as may be prescribed by law, the Declaration of Trust or
the Bylaws, or for the purpose of taking action upon any other matter deemed by
the Trustees to be necessary or desirable.
Each Trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of his
or her successor or until death, resignation, retirement, declaration of
bankruptcy or incompetence by a court of competent jurisdiction, or removal by a
majority vote of the shares entitled to vote (as described below) or of a
majority of the Trustees. In accordance with the Investment Company Act (i) the
Trust will hold a shareholder meeting for the election of trustees when less
than a majority of the trustees have been elected by shareholders, and (ii) if,
as a result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled by a
vote of the shareholders.
The Agreement and Declaration of Trust provides that one third of shares
entitled to vote shall be a quorum for the transaction of business at a
shareholders' meeting, except when a larger quorum is required by applicable
law, by the Bylaws or by the Declaration of Trust, and except that where any
provision of law, of the Declaration of Trust or of these Bylaws permits or
requires that (i) holders of any series shall vote as a series, then a majority
of the aggregate number of shares of that series entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that series;
or (ii) holders of any class shall vote as a class, then a majority of the
aggregate number of shares of that class entitled to vote shall be necessary to
constitute a quorum for the transaction of business by that class. Any lesser
number shall be
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<PAGE>
sufficient for adjournments. Any adjourned session or sessions may be held,
within a reasonable time after the date set for the original meeting, without
the necessity of further notice. The Declaration of Trust specifically
authorizes the Board of Trustees to terminate the Trust (or any of its
investment Funds) by notice to the shareholders without shareholder approval.
As of the date of this Statement of Additional Information, the Advisor owns all
the shares of the Fund.
For further information, please refer to the registration statement and exhibits
for the Trust on file with the SEC in Washington, D.C. and available upon
payment of a copying fee. The statements in the Prospectus and this Statement
of Additional Information concerning the contents of contracts or other
documents, copies of which are filed as exhibits to the registration statement,
are qualified by reference to such contracts or documents.
PURCHASE AND REDEMPTION OF SHARES
The minimum initial investment in the Fund is $1,000 and subsequent investments
of $250 or more may be made. These minimum requirements may be changed at any
time and are not applicable to certain types of investors. Exceptions to the
minimum investment requirements may be made at the discretion of the Advisor
including, without limitation, for employees or affiliates of the Advisor or
investors who are, or are related to or affiliated with, clients of the Advisor.
The Fund will accept investments in cash only in U.S. dollars. The Trust has
elected to commit itself to pay in cash all requests for redemption by any
shareholder of record, limited in amount with respect to each shareholder during
any 90 day period to the lesser of: (i) $250,000, or (ii) one percent of the net
asset value of the Trust at the beginning of such period. Redemptions in excess
of such amounts may be made in kind. The Trust reserves the right in its sole
discretion (i) to suspend the continued offering of the Fund's shares, and (ii)
to reject purchase orders in whole or in part when in the judgment of the
Advisor of the Principal Underwriter such rejection is in the best interest of
the Fund.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not contain all
the information included in the Registration Statement filed with the SEC under
the Securities Act of 1933, as amended, with respect to the securities offered
by the Prospectus.
Certain portions of the Registration Statement have been omitted from the
Prospectus and this Statement of Additional Information pursuant to the rules
and regulations of the SEC. The Registration Statement including the exhibits
filed therewith may be examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
FINANCIAL STATEMENTS
The Fund has recently commenced operations and, therefore, has not yet prepared
Financial Statements for public distribution.
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THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST, THE FUND, OR BY THE PRINCIPAL UNDERWRITER IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE.
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<PAGE>
APPENDIX A -- RATINGS OF INVESTMENT SECURITIES
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers
(or related supporting institutions) of commercial paper with this rating are
considered to have a superior ability to repay short-term promissory
obligations. Issuers (or related supporting institutions) of securities rated
Prime-2 are viewed as having a strong capacity to repay short-term promissory
obligations. This capacity will normally be evidenced by many of the
characteristics of issuers whose commercial paper is rated Prime-1 but to a
lesser degree.
STANDARD & POOR'S CORPORATION
An S&P A-1 commercial paper rating indicates either an overwhelming or very
strong degree of safety regarding timely payment of principal and interest.
Issues determined to possess overwhelming safety characteristics are denoted
A-1+. Capacity for timely payment on commercial paper rated A-2 is strong, but
the relative degree of safety is not as high as for issues designated A-1.
SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS
MOODY'S INVESTORS SERVICE
Short-term notes and variable rate demand obligations bearing the designations
MIG-1/VMIG-1 are considered to be of the best quality, enjoying strong
protection from established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing. Obligations
rated MIG-2/VMIG-2 are of high quality and enjoy ample margins of protection
although not as large as those of the top rated securities.
STANDARD & POOR'S CORPORATION
An S&P SP-1 rating indicates that the subject securities' issuer has a very
strong capacity to pay principal and interest. Issues determined to possess
overwhelming safety characteristics are given a plus (+) designation. S&P's
determination that an issuer has a satisfactory capacity to pay principal and
interest is denoted by an SP-2 rating.
BONDS
MOODY'S INVESTORS SERVICE
Moody's rates the bonds it judges to be of the best quality Aaa. These bonds
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or extraordinarily
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of these issues. Bonds carrying an Aa
designation are deemed to be of high quality by all standards. Together with
Aaa rated bonds, they comprise what are generally known as high grade bonds. Aa
bonds are rated lower than the best bonds because they may enjoy relatively
lower margins of protections, fluctuations of protective elements may be of
greater amplitude or there may be other factors present which make them appear
to be subject to somewhat greater long-term risks.
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STANDARD & POOR'S CORPORATION
AAA is the highest rating assigned by S&P to a bond and indicates the issuer's
extremely strong capacity to pay interest and repay principal. An AA rating
denotes a bond whose issuer has a very strong capacity to pay interest and repay
principal and differs from an AAA rating only in small degree.
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PART C
------------------
OTHER INFORMATION
------------------
<PAGE>
BERKELEY FUNDS
F O R M N-1A
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements -- Statement of Assets and Liabilities as of
October 31, 1997, Notes to Financial Statements and Independent Auditors'
Report on the Money Market Fund are all incorporated by reference to the Annual
Report to Shareholders of the Money Market Fund.
(b) Exhibits:
(1)(A)Agreement and Declaration of Trust(1)
(1)(B)Amendment to Agreement and Declaration of Trust
(2) By-Laws(1)
(3) Voting Trust Agreement -- Not Applicable
(4) Specimen Share Certificate -- Not Applicable
(5) Investment Management Agreement(1)
(6) Underwriting Agreement with Berkeley International Securities
Corporation(1)
(7) Bonus, Profit Sharing, Pension and Other Similar Arrangements
-- Not Applicable
(8) Custodian Agreement(1)
(9)(A)Fund Administration Servicing Agreement(1)
(9)(B)Fund Accounting Servicing Agreement(1)
(9)(C)Transfer Agent Agreement(1)
(9)(D)Shareholder Services Agreement(1)
(10) Opinion and Consent of Counsel
(11) Consent of Independent Accountants -- Not Applicable
(12) Financial Statements Omitted from Item 23 -- Not Applicable
(13) Subscription Agreement(1)
(14) Model Retirement Plan(1)
(15) Rule 12b-1 Plan -- Not Applicable
(16) Performance Calculations(1)
(17) Financial Data Schedule is incorporated by reference to Form
N-SAR filed for the period ended October 31, 1997.
(18) Multiple Class Plan -- Not Applicable
- --------------
(1) Previously filed as an exhibit to Registrant's Registration Statement
(File Nos. 333-16093 and 811-7923) and incorporated herein by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
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Item 26. NUMBER OF HOLDERS OF SECURITIES.
Berkeley Money Market Fund: 2
Berkeley Income Equity Fund: 0
Item 27. INDEMNIFICATION.
Please see Article VI of the Registrant's By-Laws, previously filed as an
Exhibit. Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking:
"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 the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the 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 its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue."
Notwithstanding the provisions contained in the Registrant's By-Laws, in
the absence of authorization by the appropriate court on the merits pursuant to
Sections 4 and 5 of Article VI of said By-Laws, any indemnification under said
Article shall be made by Registrant only if authorized in the manner provided in
either subsection (a) or (b) of Section 6 of said Article VI.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Please see Parts A and B of this Registration Statement for discussion of
the Investment Adviser.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Not Applicable.
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(b) The following information is furnished with respect to the
officers and directors of Berkeley International Securities
Corporation, the Registrant's principal underwriter:
Name Positions and Offices Positions and Offices
with Underwriter with Registrant
- ------------------ --------------------- ---------------------
Robert A. Cornman General Counsel None
Assistant Secretary
Diane E. Worthington Financial/Operations None
Principal
Wendy J. Beller Director of Compliance Compliance Officer
Danell J. Doty Operations Manager Vice President
and Secretary
Michael J. Mayer Director/Chairman None
Cindee Beechwood Financial and Operations Trustee, Treasurer
Principal, CFO Principal Financial Officer
The principal business address of each individual named above is 650
California Street, Suite 2800, San Francisco, California 94108.
(c) Not Applicable.
Item 30. LOCATIONS OF ACCOUNTS AND RECORDS.
The accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
are kept by the Registrant at its offices, 650 California Street, Suite 2800,
San Francisco, California 94108. Firstar Trust Company, 615 E. Michigan
Street, Milwaukee, Wisconsin 53202 is the Registrant's transfer agent,
accounting, custodial, and administration records and maintains records
relating to such activities.
Item 31. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Part A
or Part B of this Registration Statement.
Item 32. UNDERTAKINGS.
(a) Not applicable.
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<PAGE>
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, once such report becomes available, upon request and without
charge.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant certifies that
it meets all the requirements for effectiveness of this Amendment pursuant to
Rule 485(b) under the Securities Act of 1933, as amended, and that the
Registrant has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Francisco, the State of California, on the 3rd
day of June, 1998.
BERKELEY FUNDS
By: /s/ Debra McGinty-Poteet*
-----------------------------
Debra McGinty-Poteet, Chairman,
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
/s/ Debra McGinty-Poteet*
- ----------------------------- Chairman, President June 1, 1998
Debra McGinty-Poteet
/s/ Cindee Beechwood*
- ----------------------------- Trustee, Treasurer, Principal June 1, 1998
Cindee Beechwood Financial Officer
/s/ Bryan W. Brown*
- ----------------------------- Trustee June 1, 1998
Bryan W. Brown
/s/ William R. Sweet*
- ----------------------------- Trustee June 1, 1998
William R. Sweet
/s/ Barnett Teich*
- ----------------------------- Trustee June 1, 1998
Barnett Teich
* By: /s/ Mitchell E. Nichter
- -----------------------------
Mitchell E. Nichter, pursuant to power of attorney previously filed.
C-5
<PAGE>
BERKELEY CAPITAL MANAGEMENT FUNDS
AMENDMENT TO
AGREEMENT AND DECLARATION OF TRUST
OF
BERKELEY CAPITAL MANAGEMENT FUNDS
The undersigned, a Trustee of Berkeley Capital Management Funds, a Delaware
business trust (the "Trust"), pursuant to a resolution adopted by the Board
of Trustees of the Trust, hereby adopt the following amendments to the Trust's
Agreement and Declaration of Trust (the "Declaration of Trust"):
A. The references to "BERKELEY CAPITAL MANAGEMENT FUNDS" on the title
page, the table of contents and on page 1 of the Declaration of Trust
shall be amended to read: "BERKELEY FUNDS."
B. Article I, Section 1 of the Declaration of Trust is hereby amended to
read as follows:
Section 1. Name. This Trust shall be known as BERKELEY FUNDS,
and the Trustees shall conduct business under
that name or any other name they may from time
to time determine.
C. The references to "Berkeley Capital Management Funds" in Article VIII,
Section 9 shall be amended to read: "Berkeley Funds."
and the remainder of the Declaration of Trust shall remain unchanged.
It is the determination of the Trustees that approval of the shareholders of the
Trust is not required by the Investment Company Act of 1940, as amended, or
other applicable law. These amendments are made pursuant to the provisions of
Article VIII, Section 4 of the Declaration of Trust, which empowers the Trustees
to amend the Declaration of Trust.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned, being a trustee of the Trust, has duly
executed this Amendment, dated as of February 11, 1998.
- ---------------------------------
Cindee Beechwood, Trustee
<PAGE>
June 2, 1998
Berkeley Funds
650 California St., Suite 2800
San Francisco, CA 94108
Re: Berkeley Income Equity Fund
Ladies and Gentlemen:
We have acted as counsel to Berkeley Funds, a Delaware business trust
(the "Trust") (formerly "Berkeley Capital Management Funds"), in connection with
Post-Effective Amendments No. 4 and No. 5 to the Trust's Registration Statement
on Form N-1A filed with the Securities and Exchange Commission (the
"Post-Effective Amendments") and relating to the issuance by the Trust of an
indefinite number of $.01 par value shares of beneficial interest (the "Shares")
of one series of the Trust, the Equity Income Fund (the "Fund").
In connection with this opinion, we have assumed the authenticity of
all records, documents and instruments submitted to us as originals, the
genuineness of all signatures, the legal capacity of all natural persons, and
the conformity to the originals of all records, documents, and instruments
submitted to us as copies. We have based our opinion on the following:
(a) the Trust's Agreement and Declaration of Trust dated October
25, 1996 and as amended as of February 11, 1998 (as amended, the "Declaration
of Trust"), and the Trust's Certificate of Trust as originally filed with the
Secretary of State of Delaware on October 28, 1996, and as amended on
February 11, 1998, certified to us by an officer of the Trust as being true
and complete and in effect on the date hereof;
(b) the By-laws of the Trust certified to us by an officer of the
Trust as being true and complete and in effect on the date hereof ;
<PAGE>
Berkeley Income Equity Fund
June 2, 1998
Page 2
(c) resolutions of the Trustees of the Trust adopted at a meeting on
December 12, 1997, authorizing the establishment of the Fund and the issuance of
the Shares;
(d) the Post-Effective Amendments; and
(e) a certificate of an officer of the Trust as to certain factual
matters relevant to this opinion.
Our opinion below is limited to the federal law of the United States
of America and the business trust law of the State of Delaware. We are not
licensed to practice law in the State of Delaware, and we have based our opinion
below solely on our review of Chapter 38 of Title 12 of the Delaware Code and
the case law interpreting such Chapter as reported in Delaware Code Annotated.
We have not undertaken a review of other Delaware law or of any administrative
or court decisions in connection with rendering this opinion. We disclaim any
opinion as to any law other than that of the United States of America and the
business trust law of the State of Delaware as described above, and we disclaim
any opinion as to any statute, rule, regulation, ordinance, order or other
promulgation of any regional or local governmental authority.
Based on the foregoing and our examination of such questions of law as
we have deemed necessary and appropriate for the purpose of this opinion, and
assuming that (i) all of the Shares will be issued and sold for cash at the
per-share public offering price on the date of their issuance in accordance with
statements in the Trust's Prospectus included in the Post-Effective Amendments
and in accordance with the Declaration of Trust, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all applicable
securities laws will be complied with, it is our opinion that, when issued and
sold by the Trust, the Shares will be legally issued, fully paid and
nonassessable.
This opinion is rendered to you in connection with the Post-Effective
Amendments and is solely for your benefit. This opinion may not be relied upon
by you for any other purpose or relied upon by any other person, firm,
corporation or other entity for any purpose, without our prior written consent.
We disclaim any obligation to advise you of any developments in areas covered by
this opinion that occur after the date of this opinion.
<PAGE>
Berkeley Income Equity Fund
June 2, 1998
Page 3
We hereby consent to (i) the reference to our firm as Legal Counsel in
the Prospectus included in the Post-Effective Amendments, and (ii) the filing of
this opinion as an exhibit to Post-Effective Amendment No. 5.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
