As filed with the Securities and Exchange
Commission on November 28, 1997
Registration No. 33-8441
File No. 811-4824
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 14 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 16 [x]
BAILARD, BIEHL & KAISER FUND GROUP
(Exact name of registrant as specified in charter)
950 Tower Lane, Suite 1900
Foster City, California 94404-2131
(Address of principal executive offices)
Registrant's telephone number, including area code: (800) 882-8383
THOMAS E. BAILARD, Chairman
BAILARD, BIEHL & KAISER FUND GROUP
950 Tower Lane, Suite 1900
Foster City, California 94404-2131
(Name and address of agent for service of process)
Copies to:
ANDRE W. BREWSTER, ESQ.
HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN, A PROFESSIONAL CORPORATION
Three Embarcadero Center, 7th Floor
San Francisco, CA 94111-4065
Approximate date of proposed public offering: As soon as practicable after the
effective date of this registration statement.
It is proposed that this filing will become effective (check
appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On __(date)____, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] On January 27, 1998, pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On __(date)____, pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933:
An indefinite number of shares of Registrant's common stock are being registered
by this post-effective amendment to Registrant's registration statement in
accordance with Rule 24f-2 under the Investment Company Act of 1940. The
non-refundable fee required by paragraph (a)(3) of Rule 24f-2 has already been
paid to the Commission. Registrant's most recent Rule 24f-2 Notice was filed on
or about December 15, 1997.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number and Caption in
Form N-1A Registration Statement..................................... Caption in Prospectus
- -------------------------------- ---------------------
<S> <C> <C>
1. Cover Page .................................................. Outside Cover Page.
2. Synopsis .................................................... Costs and Expenses of Fund Borne by
Shareholders.
3. Condensed Financial Information ............................. Financial Highlights; Performance
Information.
4. General Description
of Registrant ............................................... The Fund; What is the Fund's
Investment Objective?; What are the
Fund's Investment Policies?; Investment
Practices; What Risk Factors Should I Be
Aware Of?; What Else Should I Know
About the Fund?; Appendix A,
Corporate Bond and Commercial Paper
Ratings; Appendix B, Hedging and
Other Transactions.
5. Management of the Fund ...................................... Who Is the Fund's Investment Adviser?
5A. Management's Discussion of Fund Performance ................. Not Applicable.
6. Capital Stock and
Other Securities ............................................ How Do I Purchase Shares?; How Do I
Exchange or Redeem Shares?; What Is
the Fund's Share Price?; What Should I
Know About Distributions and Taxes?;
What Else Should I Know About the Fund?
7. Purchase of Securities
Being Offered ............................................... How Do I Purchase Shares?; What is the
Fund's Share Price?; What Else Should I
Know About the Fund?
8. Redemption or Repurchase .................................... How Do I Exchange or Redeem Shares?
9. Legal Proceedings ........................................... Not Applicable.
</TABLE>
i
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<TABLE>
<CAPTION>
Item Number and Caption in Caption in Statement of
Form N-1A Registration Statement Additional Information
- -------------------------------- ----------------------
<S> <C> <C>
10. Cover Page .................................................. Outside Cover Page.
11. Table of Contents ........................................... Table of Contents.
12. General Information and History ............................. Not Applicable.
13. Investment Objectives
and Policies ................................................ Investment Objectives, Policies and
Restrictions.
14. Management of the Fund ...................................... Management.
15. Control Persons and Principal
Holders of Securities ....................................... Shareholder Information.
16. Investment Advisory and Other
Services .................................................... Management; Investment Advisory and
Other Services.
17. Brokerage Allocation and Other Practices .................... Portfolio Transactions and Brokerage
Commissions.
18. Capital Stock and Other Securities .......................... Investment Objectives, Policies and
Restrictions; Net Asset Value for
Purchase, Exchange and Redemption of
Shares.
19. Purchase, Redemption and Pricing
of Securities Being Offered ................................. Net Asset Value for Purchase, Exchange
and Redemption of Shares.
20. Tax Status .................................................. Tax Aspects.
21. Underwriters ................................................ Investment Advisory and Other Services.
22. Calculation of Performance Data.............................. Performance Data.
23. Financial Statements......................................... Financial Statements.
</TABLE>
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Bailard, Biehl & Kaiser Diversa Fund
(A No-Load Fund With No 12b-1 Plan)
Prospectus
The Bailard, Biehl & Kaiser Diversa Fund (the "Fund") is designed to achieve an
above average total return (the sum of income and capital gains) with below
average risk through investment in up to six classes of assets: United States
(domestic) stocks, domestic bonds, domestic cash equivalents, international
stocks, international bonds and international cash equivalents.
This Prospectus contains the basic information that you should know about the
Fund before investing and should be retained for future reference. A Statement
of Additional Information containing further information about the Fund has been
filed with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference. A copy of the Statement of Additional Information may
be obtained without charge by writing directly to us or by calling us at (800)
882-8383.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION IS
JANUARY 27, 1998, AS EACH MAY BE SUPPLEMENTED FROM TIME TO TIME.
Fund Information: Shareholder Services:
Bailard, Biehl & Kaiser Diversa Fund Chase Global Funds Services Company
950 Tower Lane, Suite 1900 P.O. Box 2798
Foster City, California 94404 Boston, Massachusetts 02208
(800) 882-8383 (800) 541-4366
(617) 557-8000
(Massachusetts residents)
<PAGE>
TABLE OF CONTENTS
Costs and Expenses of Fund Borne by Shareholders...............................3
The Fund.......................................................................3
Financial Highlights...........................................................4
What is the Fund's Investment Objective?.......................................6
What are the Fund's Investment Policies?.......................................6
Investment Practices...........................................................9
What Risk Factors Should I Be Aware of?.......................................12
How Do I Purchase Shares?.....................................................15
How Do I Exchange or Redeem Shares?...........................................16
What is the Fund's Share Price?...............................................18
What Should I Know About Distributions and Taxes?.............................19
Who is the Fund's Investment Adviser?.........................................21
What Else Should I Know About the Fund?.......................................22
Performance Information.......................................................23
Administrative Services.......................................................23
Transfer Agent and Custodian..................................................23
Experts.......................................................................24
Corporate Bond and Commercial Paper Ratings..................................A-1
Hedging and Other Transactions...............................................B-1
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Fund or its distributor or investment adviser.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction or to any
person to whom it is unlawful to make such offer in such jurisdiction.
2
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Costs and Expenses of Fund Borne by Shareholders
Shareholder Transaction Expenses
Sales Load Imposed on Purchases........................................... None
Sales Load Imposed on Reinvested Dividends................................ None
Deferred Sales Load....................................................... None
Redemption Fees........................................................... None
Exchange Fees............................................................. None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees........................................................... 0.95%
12b-1 Fees................................................................ None
Other Expenses............................................................ 0.89%
Total Fund Operating Expenses............................................. 1.84%
Example:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment, assuming
1) 5% annual return and 2) redemption at
the end of each time period: $19 $58 $100 $216
</TABLE>
The purpose of the table set forth above is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. Use of a 5% annual return in the example is
mandated by the Securities and Exchange Commission and is not intended to be
representative of past or future performance of the Fund. The example should not
be considered a representation of past or future expenses. Actual expenses may
be greater or less than those shown. Redemptions by wire transfer are subject to
a $10 wire charge. For more information regarding the fees and expenses of the
Fund, see "Who is the Fund's Investment Adviser?" herein.
The Fund
The Bailard, Biehl & Kaiser Diversa Fund (the "Fund") is a diversified series of
the Bailard, Biehl & Kaiser Fund Group, an open-end management investment
company organized as a Massachusetts business trust. The Fund is sold without a
sales load, which means there is no charge to you when you buy or redeem your
shares, and no fee is charged to shareholders for the distribution of the Fund's
shares. Mutual funds like the Fund provide investors with a means to pool their
money so they can take advantage of diversification and professional investment
management.
3
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Bailard, Biehl and Kaiser, Inc., the Fund's adviser (the "Adviser"), has offered
investment management services since 1970. It managed securities portfolios with
total holdings of approximately $1,059 billion in market value as of October 3,
1997.
Financial Highlights
The following information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report for the most recent five years is included
in the Fund's annual report to shareholders for the fiscal year ended September
30, 1997. Portions of the Fund's annual report to shareholders for the year
ended September 30, 1997 are incorporated by reference into the Statement of
Additional Information. This information should be read in conjunction with the
other financial statements and notes thereto included in the annual report.
The following information is based upon past results and may not be indicative
of the future performance of the Fund. Further information about the performance
of the Fund is included in the Fund's annual report to shareholders for the
fiscal year ended September 30, 1997. A copy of the annual report is available,
upon request and without charge, by calling the Fund's Investor Services
Department at (800) 882-8383, or writing to the following address: Bailard,
Biehl & Kaiser Fund Group, 950 Tower Lane, Suite 1900, Foster City, California
94404.
4
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Bailard, Biehl & Kaiser Diversa Fund
Financial Highlights
<TABLE>
<CAPTION>
For a share outstanding throughout the year:
For the year ended September 30,
-------------------------------------------------------------------------------------------
1997(1) 1996 1995(1) 1994(1) 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.39 $ 13.20 $ 12.01 $ 12.68 $ 10.93 $ 10.64 $ 9.71 $11.26 $ 10.55 $ 11.70
--------------------------------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income 0.40(1) 0.31 0.38(1) 0.26(1) 0.39 0.34 0.44 0.42 0.61 0.52
Net Realized/Unrealized Gain (Loss) on
Securities and Foreign Currency 1.92 0.96 1.13 (0.66) 1.66 0.30 0.90 (1.52) 0.76 (1.03)
--------------------------------------------------------------------------------------------
Total from Investment Operations 2.32(1) 1.27 1.51 (0.40) 2.05 0.64 1.34 (1.10) 1.37 (0.51)
--------------------------------------------------------------------------------------------
Less Distributions:
From Net Investment Income (0.42) (0.32) (0.26) (0.05) (0.30) (0.35) (0.41) (0.45) (0.66) (0.35)
From Net Realized Gains (1.38) (0.76) (0.06) (0.22) -- -- -- -- -- (0.29)
--------------------------------------------------------------------------------------------
Total Distributions (1.80) (1.08) (0.32) (0.27) (0.30) (0.35) (0.41) (0.45) (0.66) (0.64)
--------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 13.91 $ 13.39 $ 13.20 $ 12.01 $ 12.68 $ 10.93 $ 10.64 $ 9.71 $ 11.26 $ 10.55
============================================================================================
Total Return 19.14% 10.09% 12.83% (3.18%) 19.05% 6.16% 13.97% (10.19%) 13.56% (3.97%)
Ratios/Supplemental Data:
Net Assets, End of Year (000's) $37,471 $36,566 $40,688 $46,047 $49,584 $50,487 $57,546 $9,420 $103,864 $105,719
Ratio of Expenses to Average Net
Assets 1.84% 1.99% 1.85% 1.82% 1.70% 1.90% 1.46% 1.34% 1.26% 1.26%
Ratio of Net Investment Income to
Average Net Assets 1.87% 2.09% 2.97% 2.03% 2.88% 2.75% 3.01% 3.60% 5.24% 5.13%
</TABLE>
- --------
(1) Net investment income per share has been computed before adjustments
for book/tax differences.
5
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio Turnover Rate 66% 68% 166% 137% 96% 94% 254% 235% 100% 89%
Average Commission Rate Paid(2) $0.0347 $0.0344 -- -- -- -- -- -- -- --
</TABLE>
(2) Represents average commission rate paid per share on purchases and
sales of equity securities by the Fund, as computed under an SEC rule effective
with the Fund's 1996 fiscal year. Prior period rates have not been presented as
permitted by the rule.
6
<PAGE>
What is the Fund's Investment Objective?
The Fund's objective is to achieve an above average total return with below
average risk through multiple asset allocation. The Fund's performance with
respect to return and risk will be measured against that of other funds
investing in multiple classes of assets. By investing in up to six classes of
assets (United States (domestic) stocks, domestic bonds, domestic cash
equivalents, international stocks, international bonds, and international cash
equivalents) and adjusting the level of investment it maintains in these classes
in response to changing market conditions, the Fund hopes to provide this unique
combination of risk and return. The Fund is intended to serve as the core or
foundation portfolio for investors because of its investment in several classes
of assets.
All investments, including mutual funds, have risks, and no investment is
suitable for all investors. Accordingly, there is no guarantee that the Fund
will achieve its investment objective, and investors should consult with their
financial and other advisers concerning the suitability of this investment for
their own particular circumstances. The Fund anticipates that its net asset
value will fluctuate.
What are the Fund's Investment Policies?
Asset allocation is the most important area of investment concern for the Fund.
For its private clients, the Adviser has been actively engaged in asset
allocation among three of the classes of assets since 1971, among five of the
classes since 1979 and among all of the asset classes since 1987. The Fund's
asset allocation policy is based on the following three principles:
o Investment in Multiple Classes of Assets. Holdings of domestic stocks could
range from 0% to 65% of Fund assets. Holdings of domestic bonds, domestic
cash equivalents, international stocks, international bonds and
international cash equivalents each could range from 0% to 50% of Fund
assets.
o Analysis of Expected Returns and Other Factors. The Adviser will perform an
asset allocation review at least semi-annually. The recommended asset mix
will be reviewed to help ensure that, based on the Adviser's forecasted
returns, the Fund's assets could undergo such scenarios as high inflation
or recession without significant losses when measured over a four-year
period.
o Response to Market Conditions. The Fund will shift its emphasis among as
many as six classes of assets, as well as various industry sectors, as
financial trends and economic conditions change. The Fund will overweight
sectors that the Adviser believes are undervalued and in the early stages
of an upward move, and will underweight those that appear to be overvalued
and beginning to weaken. Actual asset allocations are intended to change
gradually over any market cycle.
In conducting its asset allocation review, the Adviser undertakes a complex
quantitative and economic analysis of potential relative returns for each asset
category. As part of this analysis, the Adviser considers future economic
circumstances and assesses the probable performance of each asset class. The
historic volatility and risk characteristics of each asset are also considered.
Based on its analysis, the Adviser determines an appropriate asset allocation.
The six classes of assets in which the Fund will invest are the following:
Domestic Stocks. The Fund will invest in the common and preferred equity
securities of U.S.-based companies whose activities will normally represent
at least eight of the following eleven economic sectors (each of which
includes several industry groups): basic industry, capital goods,
communication services, consumer cyclicals, consumer staples, energy and
natural resources (including precious metal-related securities), finance
(including real estate securities), health care, high technology,
transportation and
7
<PAGE>
utilities. The Fund anticipates that no more than a third of this class
will be invested in companies operating in any one sector, although the
Fund may exceed this guideline from time to time. The Fund may also invest
in the equity securities of U.S.-based investment companies. Such
securities will be considered domestic stocks even though the portfolios of
such companies may include other types of assets, including assets
represented by the five other classes. The Fund will invest in stocks that
are listed on an exchange or that are traded over the counter.
Domestic Bonds. The Fund will invest in domestic bonds and debt securities,
including mortgage and asset-backed securities. Approximately 80% of this
portion of the Fund's portfolio will be invested in U.S. Government
securities and other issues rated at least Aa in quality by Moody's
Investors Service, Inc. ("Moody's") or AA in quality by Standard & Poor's
Corporation ("S&P"). Up to 10% of this class may be invested in securities
rated Baa or BBB in quality by these services, respectively. Unrated
securities will be considered for investment when the Adviser believes that
the financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves, limits the
risk to the Fund to a degree comparable to that of rated securities which
are consistent with the Fund's objectives and policies. See "What Risk
Factors Should I Be Aware of? -- Lower-Rated Bonds." For a description of
ratings by Moody's and S&P, see Appendix A.
Domestic Cash Equivalents. The Fund will invest in cash or cash equivalents
consisting of repurchase agreements, issues of the U.S. Government and its
agencies and instrumentalities (including Treasury bills, notes and bonds),
U.S. banks (including certificates of deposit, securities backed by letters
of credit, bankers' acceptances and fixed time deposits) and other domestic
institutions (including commercial paper) with maturities of less than one
year and with a quality comparable to that indicated by at least an A-3
rating by S&P. The Fund will not invest in time deposits maturing in over
seven days in an amount exceeding 10% of its total assets.
International Stocks. The Fund will purchase international stocks, normally
in at least five of the 18 largest investment markets of the world as
defined by the EAFE Index, a broad-based index of international market
returns published by Morgan Stanley & Co. The Fund may also invest a
portion of its international stock portfolio in emerging markets. The
Fund's international stock holdings will be invested in roughly the same
eleven economic sectors that it uses to invest in domestic stocks. The Fund
anticipates that no more than one-third of its international stock
portfolio will be invested in any one sector, although the Fund may exceed
this guideline from time to time. The Fund's international stocks will
include international stocks traded domestically or abroad through American
Depository Receipts, Global Depository Receipts or International Depository
Receipts ("ADRs," "GDRs" and "IDRs," respectively). The Fund may also
invest in the equity securities of foreign investment companies. Such
securities will be considered international stocks even though the
portfolios of such companies may include other types of assets, including
assets represented by the five other classes.
International Bonds. The Fund may purchase international bonds and debt
securities, including mortgage and asset-backed securities. Ordinarily, the
Fund invests at least 65% of its international fixed-income assets in at
least three countries other than the United States. The Fund may also
invest a portion of its international bond portfolio in emerging markets.
Although Moody's or S&P ratings are not available for all international
bonds, the Fund will invest in those international bonds that are deemed by
the Adviser to be of a quality comparable to domestic bonds rated at least
Baa or BBB in quality by Moody's or S&P, respectively. The Fund's
international bonds will include securities issued by foreign governments,
supra-national entities and foreign companies.
8
<PAGE>
International Cash Equivalents. The Fund may invest in non-U.S.
dollar-denominated debt securities that are considered to be of comparable
quality by the Adviser to the domestic cash equivalents portfolio and which
mature in one year or less. The Fund's investments will consist of: (1)
debt obligations issued or guaranteed by a foreign sovereign government or
one of its agencies or political subdivisions; (2) debt obligations issued
or guaranteed by supra-national organizations such as the World Bank; (3)
debt obligations of foreign banks and bank holding companies; (4) foreign
corporate debt securities; (5) debt obligations of domestic banks and
corporations issued in foreign currencies; (6) foreign commercial paper;
and (7) repurchase agreements involving these securities.
The above investment policies may be changed by the Board of Trustees
without shareholder approval.
Limiting Investment Risks. The Fund seeks to limit the risk of investment
losses by adhering to the investment restrictions described below. These
investment restrictions can be changed only with the approval of a vote of
a "majority of the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. A complete list of the restrictions on
the Fund's investment activities is set forth in the Statement of
Additional Information. The Fund will not:
1. Invest in securities of any one issuer (other than cash and cash
items, and securities of the United States Government and its agencies
and instrumentalities), if immediately after and as a result of such
investment more than 5% of the value of the Fund's total assets would
be invested in the securities of such issuer.
2. Invest more than 25% of the value of its total assets in the
securities of companies primarily engaged in any one industry (other
than the United States Government and its agencies and
instrumentalities).
3. Acquire more than 10% of the outstanding voting securities of any one
issuer.
4. Invest in companies for the purpose of exercising control or
management.
5. Purchase or sell real property; provided that the Fund will invest in
publicly traded securities secured by real estate or interests therein
or issued by companies which invest in real estate or interests
therein.
6. Purchase or sell commodities or commodity contracts or invest in put,
call, straddle or spread options or in interests in oil, gas or other
mineral exploration or development programs; provided, however, that
the Fund may invest in precious metals, in the securities of companies
that explore for, extract, process or deal in precious metals and in
asset-based securities related to precious metals. In addition, this
policy will not prevent the purchase, ownership or sale of warrants or
other rights where the grantor of the warrants is the issuer of the
underlying securities ("grantor warrants"); provided that the Fund
will not purchase a grantor warrant if, as a result thereof, the
aggregate market value of all purchased grantor warrants then owned
exceeds 5% of the total assets of the Fund or 2% of the total assets
of the Fund in the case of warrants which are not listed on the New
York Stock Exchange or the American Stock Exchange. Moreover, and
notwithstanding this restriction, the Fund may purchase and sell
foreign currencies on a current basis and may engage in interest rate,
foreign currency and market hedging transactions, including investing
in, writing and purchasing forward contracts, options, futures
contracts and options on futures contracts on debt securities,
financial indices and foreign currencies.
7. Issue senior securities or borrow money, except that the Fund may
borrow from a bank as a temporary measure for extraordinary or
emergency purposes in amounts not exceeding 5% of its total assets,
and except that the Fund may obtain such credit as may be necessary
for the clearance of purchases or sales of securities. For the purpose
of this restriction, neither margin or collateral arrangements with
respect
9
<PAGE>
to forward contracts, options, futures contracts or options on futures
contracts, nor the purchase or sale of forward contracts, options,
futures contracts or options on futures contracts, are deemed to be
the issuance of a senior security or borrowing.
8. Mortgage, pledge or in any other manner transfer any of its assets as
security for any indebtedness, except to secure borrowings described
above or to obtain such credit as may be necessary for the clearance
of purchases or sales of securities. For the purpose of this
restriction, margin or collateral arrangements with respect to forward
contracts, options, futures contracts and options on futures
contracts, are not deemed to be a pledge of assets.
9. Purchase any securities on margin or effect short sales, except that
the Fund may obtain such credit as may be necessary for the clearance
of purchases or sales of securities. The deposit by the Fund of
initial or variation margin in connection with forward contracts,
options, futures contracts and options on futures contracts will not
be considered the purchase of a security on margin.
10. Engage in the business of underwriting securities issued by others, or
purchase illiquid securities, i.e. securities subject to contractual
restrictions on disposition or legal restrictions on disposition in
all of the principal markets where traded, repurchase agreements
maturing in over seven days or securities that are not otherwise
readily marketable, if such purchase will result in more than 10% of
the value of its total assets then being invested in such illiquid
securities.
11. Make loans of money or securities to any person or firm, except
through the purchase of debt securities in accordance with the Fund's
investment objectives and policies.
Portfolio Trading
The Fund may engage in short-term trading if the disposition of securities
held for a short period is deemed to be advisable. Higher portfolio
turnover results in increased brokerage costs and may result in the
realization of short-term gains that are taxed to stockholders as ordinary
income. See "What Should I Know About Distributions and Taxes."
Investment Practices
The Fund is authorized to employ certain investment practices to attempt to
minimize the risk to the Fund from adverse changes in currency exchange or
interest rates, or market conditions, or as a substitute for an underlying
securities or currency position ("Hedging Transactions"). Hedging
Transactions may consist of forward foreign currency exchange contracts
("Forward Contracts"), put and call options ("Options"), futures contracts
("Futures Contracts"), and put and call options on futures contracts
("Options on Futures Contracts") on debt securities, financial indices and
foreign currencies. The Fund may also conduct foreign currency exchange
transactions on a spot basis at the rate prevailing in the foreign currency
exchange market. These practices involve certain risks, which are
summarized below under "What Risk Factors Should I Be Aware Of? -- Hedging
Transactions." For a more detailed description of the uses, risks and costs
of Hedging Transactions, see Appendix B. In addition, certain provisions of
the Internal Revenue Code may limit the extent to which the Fund may enter
into Hedging Transactions. See "What Should I Know About Distributions and
Taxes? -- Hedging and Other Transactions."
Generally, Hedging Transactions involving foreign currencies may directly
hedge, indirectly hedge or cross-hedge the currency risk associated with a
particular transaction or position. The Fund may directly hedge a currency
risk when it believes that the currency in which a particular portfolio
security is denominated may suffer a substantial adverse movement against
the U.S. Dollar. For example, to directly
10
<PAGE>
hedge a position, the Fund could sell an amount of such foreign currency,
or buy an amount of the U.S. Dollar, approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency.
Indirect hedges are similar to direct hedges, except that in an indirect
hedge, the Fund hedges a portfolio security's currency risk with a
different, or proxy, currency that is expected to trade closely to the
portfolio security's underlying currency. Indirect hedges will be used when
the Fund believes that the currency risk associated with a portfolio
position can be hedged more effectively through the purchase or sale of the
proxy currency due to better liquidity, lower transaction costs and/or
relative currency expectations.
The Fund may enter into a cross-hedge when it believes that the currency in
which a particular portfolio security is denominated may suffer a
substantial adverse movement against a currency other than the U.S. Dollar.
If one currency is expected to decrease against another currency, the Fund
may sell the currency expected to weaken and buy the currency expected to
strengthen. The Fund may also initiate a foreign currency position that
increases the exposure of the Fund to that currency. Typically, this would
be done when the Fund likes the currency of a country but not the stocks or
bonds of that country. To offset an underweight (or no) securities position
in that country, the Fund may add a foreign currency position that is
larger than the securities position. Under such circumstances, the Fund's
foreign currency position in a country will not exceed that of its neutral
weighting for the country.
Generally, to hedge a risk associated with or as a substitute for a market,
economic sector or industry, the Fund may enter into Options, Futures
Contracts or Options on Futures Contracts involving financial indices
(including stock, bond, and U.S. and foreign securities indices). A
financial index is a composite of the market prices of the securities that
make up the index. An index may be broad based (comprised of many
securities and designed to be representative of an overall market, e.g.,
the CAC-40 Index of French securities) or narrow based (designed to be
representative of a particular industry or market sector, e.g., the Morgan
Stanley Global Utilities Index). An index may also be composed of U.S.
securities (e.g., the S&P 500 Stock Index) or foreign securities (e.g., the
International Market Index) or a combination of both (e.g., the Morgan
Stanley World Index). Financial indices are used as the underlying value of
Options, Futures Contracts and Options on Futures involving financial
indices.
The Fund will not engage in a transaction involving Forward Contracts or
Futures Contracts, and will not write Options or Options on Futures
Contracts unless its position is "covered" by an offsetting position or
transaction, or liquid assets equal to the amount of the Fund's contingent
obligations are held by the Fund's custodian in a segregated account. For a
more detailed description of cover transactions, see Appendix B.
Forward Contracts. A Forward Contract is an obligation to purchase or sell
a specific currency for an agreed price at a future date and is
individually negotiated and privately traded by currency traders and their
customers. The precise matching of the Forward Contract amounts and the
value of the securities involved will not generally be possible since the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between
the date the Forward Contract is entered into and the date it matures.
Forward Contracts may limit potential gain from a positive change in the
relationship between currencies, and unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had
not engaged in such contracts.
Options. The Fund may purchase and write call and put Options on debt
securities, financial indices and foreign currencies. Call Options on debt
securities and foreign currencies give the holder the right, in exchange
for a premium, to buy the underlying security or currency at a stated price
while the counterparty is obligated, upon exercise, to sell such security
or currency. Put Options on debt securities and foreign currencies give the
holder the right, in exchange for a premium, to sell the underlying
security or currency at a stated price while the counterparty is obligated,
upon exercise, to buy such security or currency. An
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Option on a financial index is similar to an Option on a security or
foreign currency, except that exercise of the Option results in the payment
of a cash settlement instead of the purchase or sale of securities that
underlie the index. The amount of the cash settlement depends on the change
in the value of the index underlying the Option.
The purchase of an Option may constitute an effective hedge against
fluctuations in currency exchange or interest rates, or changes in market
conditions, although, in the event of movements adverse to the Fund's
position, the Fund may forfeit the entire amount of the premium plus
related transaction costs. The writing of Options constitutes only a
partial hedge, up to the amount of the premium received, and the Fund could
be required to purchase or sell debt securities, foreign currencies, or
other assets at disadvantageous rates, thereby incurring losses.
Options written or purchased by the Fund will be traded on U.S. and foreign
exchanges or, provided a sufficiently liquid secondary market exists,
over-the-counter markets. Over-the-counter Options purchased by the Fund
and the value of securities used to cover over-the-counter Options written
by the Fund will be deemed to be illiquid subject to the Fund's policy
limits on investments in illiquid securities.
Futures Contracts. Generally, a Futures Contract is an exchange traded
contract for the purchase or sale for future delivery of the underlying
asset. A sale of a Futures Contract on a debt security or foreign currency
is the acquisition of a contractual obligation to deliver the security or
currency called for by the contract at a specified price in a fixed
delivery month. A purchase of a Futures Contract on a debt security or
foreign currency means the acquisition of a contractual obligation to
acquire the security or currency called for by the contract at a specified
price in a fixed delivery month. A Futures Contract on a financial index,
like an Option on a financial index, results in the payment of a cash
settlement instead of the delivery of the securities that underlie the
index. The amount of the cash settlement depends on the change in the value
of the index underlying the Futures Contract. The successful use of Futures
Contracts will usually depend on the Fund's ability to correctly predict
currency exchange and interest rate movements and market conditions. Should
rates or markets move in an unexpected manner, the Fund may not achieve the
anticipated benefits of Futures Contracts or may realize losses. Losses
from Futures Contracts are potentially unlimited.
Options on Futures Contracts. Call Options on Futures Contracts give the
holder the right, in exchange for a premium, to take the position of a
buyer in a specified Futures Contract while the counterparty is obligated,
upon exercise, to take the position of a seller in that Futures Contract.
Put Options on Futures Contracts give the holder the right, in exchange for
a premium, to take the position of a seller in a specified Futures Contract
while the counterparty is obligated, upon exercise, to take the position of
a buyer in that Futures Contract. Depending on the pricing of an Option on
a Futures Contract compared to either the price of the Futures Contract
upon which it is based or the price of the underlying asset, an Option on a
Futures Contract may entail more or less risk than ownership of the Futures
Contract upon which it is based or the underlying asset. Options on Futures
Contracts hedge positions and transactions in a manner similar to Options.
For more information on the uses and limits of Options on Futures
Contracts, see "Options."
Spot Transactions. The Fund also engages in foreign currency exchange
transactions on a spot (i.e., current) basis in connection with the
investment of cash balances held by the Fund outside of the United States.
The purpose of these cash balances is to provide liquidity for operations.
The Fund expects to invest its cash balances primarily in bank accounts or
similar investments denominated in foreign currencies in lieu of
dollar-denominated bank accounts or investments. This should permit the
Fund to profit from declines in the value of the dollar during periods when
the dollar is declining relative to the foreign currencies in which its
cash balances are invested. There is, however, no guarantee that the
Adviser will correctly anticipate currency fluctuations. Accordingly, if
the Fund's cash balances are maintained in investments denominated in
foreign currencies during periods when the value of the dollar is
appreciating
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relative to those foreign currencies, the Fund will experience losses. The
Fund will also incur service charges in connection with each currency
conversion.
What Risk Factors Should I Be Aware of?
Foreign Securities. Of the total value of the world's stock markets,
approximately two-thirds consists of non-U.S. securities. As a consequence,
the Fund believes it is important to include some of these securities in
its investment assets. However, there are special risks attendant to
investment in foreign securities.
Many of the foreign securities held by the Fund will not be registered
with, nor will the issuers be subject to the reporting requirements of, the
U.S. Securities and Exchange Commission. There is generally less public
information available about foreign companies and less governmental
regulation and supervision of foreign issuers, markets and brokers. The
issuers of foreign securities may be subject to different accounting
standards from domestic securities. Foreign securities often trade with
less frequency and volume than domestic securities and, therefore, tend to
be less liquid and exhibit greater price volatility. In foreign countries
there is the possibility of expropriation or confiscatory taxation,
exchange restrictions, limitations on the removal of assets, political and
economic instability and diplomatic developments affecting investments by
domestic companies. Investments in foreign securities generally involve
greater costs than domestic investments, including the cost of currency
conversions and higher brokers' commissions and custodial fees. In
investing in foreign securities, the Fund will consider all these factors,
but even such consideration cannot eliminate all risk.
The Fund may invest in the securities of issuers and companies located in
countries having developing or emerging markets or economies. While these
investments provide diversification and offer the opportunity for higher
returns, they generally involve significantly more volatility and risk than
their developed country counterparts. Emerging market countries tend to
have less mature economies and less stable political systems. Such
countries may also have restrictions on foreign ownership or the
registration of assets. In addition, the securities markets of emerging
market countries tend to have less liquidity, higher transaction costs,
less sophisticated settlement practices and less regulatory protection for
investors than their developed country counterparts.
The Fund may invest in securities issued by the governments of foreign
countries (or agencies or subdivisions thereof), and many, if not all, of
the foregoing considerations apply to such investments as well. In
addition, the Fund may invest in ADRs, GDRs and IDRs. A purchaser of an
unsponsored ADR, GDR or IDR may have limited voting rights and may receive
less information about the issuer of the underlying security than with a
sponsored ADR, GDR or IDR.
Dividends payable on the Fund's foreign securities may be subject to
foreign withholding taxes, thus reducing the net amount of income available
for distribution to the Fund's shareholders. Tax treaties exist with
certain countries which reduce the tax on U.S. taxpayers. See "What Should
I Know About Distributions and Taxes?"
Currency Exchange Rates. The value of the assets of the Fund invested in
international stocks, bonds, cash and cash equivalents as measured in U.S.
dollars may be affected favorably or unfavorably by fluctuations in
currency rates and exchange control regulations (including, but not limited
to, action by a foreign government to devalue its currency, thereby
effecting a possibly substantial reduction in the U.S. dollar value of the
Fund's investments in that country). The Fund is authorized to employ
certain hedging techniques to minimize this risk. However, to the extent
such techniques are not employed or to the extent such techniques do not
fully protect the Fund against adverse changes in exchange rates, decreases
in the value of the currencies of the countries in which the Fund invests
relative to the U.S. dollar will result in a
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corresponding decrease in the U.S. dollar value of the Fund's assets
denominated in those currencies. On the other hand, to the extent hedging
techniques are used to reduce currency risk, the Fund will not participate
in increases in the value of the currencies of the countries in which the
Fund invests. Further, the Fund may incur costs in connection with
conversions between various currencies. Foreign exchange dealers (including
banks) realize a profit based on the difference between the prices at which
they are buying and selling various currencies. Thus, a dealer or bank
normally will offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire immediately
to resell that currency to the dealer. Moreover, fluctuations in exchange
rates may decrease or eliminate income available for distribution and may
change the tax treatment of any distribution. For example, if foreign
exchange losses exceed other investment company taxable income during a
taxable year, the Fund might not be able to or might determine not to make
ordinary income distributions, or distributions made before the losses were
realized would be recharacterized as a return of capital to shareholders
for United States income tax purposes, rather than as an ordinary income,
thereby reducing each shareholder's basis in his Fund shares.
Lower-Rated Bonds. Bonds that are rated Baa by Moody's or BBB by S&P, and
equivalent unrated bonds, are medium grade obligations that are still
considered investment grade bonds. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case for higher grade bonds.
Such bonds lack outstanding investment characteristics and may have
speculative charateristics as well. The Fund does not have a policy with
respect to the retention of a bond whose rating falls below Baa or BBB,
respectively. The Fund will address such circumstances on a case by case
basis.
Real Estate Securities. The Fund may invest in equity securities of real
estate related companies (i.e., companies at least 50% of whose assets
consist of real property held for sale or investment or at least 50% of
whose products or services are provided to the real estate industry), real
estate investment trusts, and real estate limited partnerships, all of
which securities will be publicly traded, primarily on an exchange (except
that the Fund will only invest in limited partnerships whose securities are
listed on the New York Stock Exchange or the American Stock Exchange). The
Fund may also invest in securities of companies unrelated to the real
estate industry but that have significant real estate holdings believed to
be undervalued relative to the price of the company's securities.
Although the Fund's investments in real estate will be limited to publicly
traded securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein, the Fund may be
subject to risks associated with direct ownership of real estate. These
include declines in the value of real estate, risks related to general and
local economic conditions and increases in interest rates.
Other risks associated with real estate investments include the fact that
equity and mortgage real estate investment trusts are dependent upon
management skill, are not diversified, and are therefore subject to the
risk of financing single projects or a limited number of projects. They are
also subject to heavy cash flow dependency, defaults by borrowers and self
liquidation.
Additionally, equity real estate investment trusts may be affected by any
changes in the value of the underlying property owned by the trusts, and
mortgage real estate investment trusts may be affected by the quality of
any credit extended.
Precious Metal-Related Securities. The Fund may invest in the equity
securities of companies that explore for, extract, process or deal in
precious metals (e.g., gold, silver, palladium and platinum). Such
securities may be purchased when the Fund believes that they are
attractively priced in relation to the value of a company's precious
metal-related assets or when the value of precious metals is expected to
benefit from inflationary pressure or other economic, political or
financial uncertainty or instability.
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<PAGE>
The investment of the Fund's assets in precious metal-related securities
may involve additional investment risks. The prices of precious
metal-related securities have historically been subject to high volatility
and may depend on financial conditions and the creditworthiness of the
issuer in addition to the value of the underlying asset. The earnings and
financial condition of precious metal-related companies may be adversely
affected by volatile precious metal prices.
Repurchase Agreements. Repurchase agreements represent agreements in which
the Fund acquires securities from a seller who agrees to repurchase such
securities at a later date at a specified time and price. The securities
acquired by the Fund will be U.S. Treasury securities, and the Fund will
enter into repurchase agreements only with registered broker-dealers and
with domestic banks or other financial institutions regulated by the FDIC
and having total assets in excess of $10 billion. The seller's obligation
to repurchase is fully collateralized with other securities in which the
Fund can invest. The value of the collateral, including accrued interest,
will be marked to market daily. The Fund's right to liquidate its
collateral in the event of a default by the seller could involve certain
costs, losses on delays, and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase are less than the repurchase
price, the Fund could suffer a loss. If the value of the collateral should
decrease below the resale price of the securities acquired, including
accrued interest, additional collateral is required to be deposited.
Hedging Transactions. Hedging Transactions cannot eliminate all risks of
loss to the Fund and may prevent the Fund from realizing some potential
gains. The projection of short-term currency exchange and interest rates
and other market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain. Among the
risks of Hedging Transactions are: incorrect prediction of the movement of
currency exchange and interest rates and other market conditions; imperfect
correlation of currency movements in cross-hedges and indirect hedges;
imperfect correlation in the price movements of Futures Contracts and
Options on Futures Contracts with the assets on which they are based; lack
of liquid secondary markets and the inability to effect closing
transactions; costs associated with effecting such transactions; inadequate
disclosure and/or regulatory controls in certain markets; counterparty
default with respect to transactions not executed on an exchange; trading
restrictions imposed by governments, or securities and commodities
exchanges; and governmental actions affecting the value or liquidity of
currencies, securities and indices. Hedging Transactions may be effected in
foreign markets or on foreign exchanges and are subject to the same types
of risks that affect foreign securities. See "Risk Factors -- Foreign
Securities."
Indirect hedges and cross-hedges are more speculative than other hedges
because they are not directly related to the position or transaction being
hedged. With respect to indirect hedges, movements in the proxy currency
may not precisely mirror movements in the currency in which portfolio
securities are denominated. Accordingly, the potential gain or loss on an
indirect hedge may be more or less than if the Fund had directly hedged a
currency risk. Similar risks are associated with foreign currency
cross-hedge transactions. In a cross-hedge, the foreign currency in which a
portfolio security is denominated is hedged against another foreign
currency, rather than the U.S. Dollar. Cross-hedges may also create a
greater risk of loss than other Hedging Transactions because they may
involve hedging a currency risk through the U.S. Dollar rather than
directly to the U.S. Dollar or another currency. Moreover in some cases,
the Fund's exposure to a foreign currency will be greater than its exposure
to the securities of that country.
In order to help reduce certain risks associated with Hedging Transactions,
the Board of Trustees has adopted the requirement that Forward Contracts,
Options, Futures Contracts and Options on Futures Contracts be used as a
hedge or as a substitute for an underlying securities or currency position
and not for speculation. In addition to this requirement, the Board of
Trustees has adopted the following percentage restrictions on the use of
Options, Futures Contracts and Options on Futures Contracts:
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(i) The Fund will not write a put or call Option if, as a result thereof,
the aggregate value of the assets underlying all such Options
(determined as of the date such Options are written) would exceed 25%
of the Fund's net assets.
(ii) The Fund will not purchase a put or call Option or Option on a Futures
Contract if, as a result thereof, the aggregate premiums paid on all
Options or Options on Futures Contracts held by the Fund would exceed
20% of the Fund's net assets.
(iii)The Fund will not enter into any Futures Contract or Option on a
Futures Contract if, as a result thereof, the aggregate margin
deposits and premiums required on all such instruments would exceed 5%
of the Fund's net assets.
In order to help reduce the risk of counterparty default in Forward
Contracts and Options traded over-the-counter, the Fund will only enter
into such transactions with registered broker-dealers, or with banks or
other financial institutions regulated by the FDIC or having assets in
excess of $1 billion, in each case having a net worth of at least $20
million. For a more detailed discussion of the uses, risks and costs of
Hedging Transactions, see Appendix B.
Investment Company Securities. The Fund's purchase of securities of another
investment company results in the layering of expenses such that
shareholders of the Fund not only will bear the expenses of the Fund but
also will indirectly bear a proportionate share of the expenses of the
other investment company. The Fund will not invest more than 5% of its
total assets in any investment company or more than 10% of its total assets
in investment companies as a group and it will not purchase the securities
of any investment company that is sponsored or managed by the Adviser.
How Do I Purchase Shares?
Shares of the Fund are offered at net asset value, without any sales
charge, on a continuous basis directly by the Fund or through a
broker-dealer. If shares of the Fund are purchased through a broker-dealer,
a service fee may be charged by the broker-dealer. If shares of the Fund
are purchased directly from the Fund without the intervention of a
broker-dealer, no such fee will be imposed. Certain Fund services may not
be available to shares held in the name of a broker-dealer or other
nominee.
The minimum initial investment in the Fund is $5,000 and each subsequent
investment must be at least $100. The minimum initial investment
requirement for employees and officers of the Adviser and their relatives,
and Trustees of the Trust, is $2,000 and each minimum subsequent investment
is $100. Fund shares may also be purchased by various types of retirement
plans, including individual retirement accounts ("IRAs") of individuals who
would otherwise be eligible to invest in the Fund. The minimum initial and
subsequent investments of such plans correspond to the minimum requirements
for such individuals. The Adviser sponsors the Bailard, Biehl & Kaiser IRA
for individuals wishing to establish an IRA. For information concerning the
Bailard, Biehl & Kaiser IRA, call (800) 882-8383. The Fund reserves the
right to waive, reduce or increase the minimum investment for initial and
subsequent investments.
The Fund reserves the right to refuse any application to purchase its
shares. Resale of Fund shares (other than by redemption) may be restricted
in certain jurisdictions. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
As a condition of this offering, if a purchase is canceled because your
check or wire transfer does not clear, you will be responsible for any loss
the Fund or the Adviser incurs. If you are already a shareholder, the
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<PAGE>
Fund can redeem shares from your account to reimburse the Fund or the
Adviser for any loss. In addition, you may be prohibited or restricted from
making future purchases in the Fund.
Shares may be purchased directly from the Fund by completing the
Shareholder Application Form included at the end of this Prospectus and
sending it, together with a check (payable to the order of the Fund), to
Chase Global Funds Services Company ("CGFSC"), P.0. Box 2798, Boston,
Massachusetts 02208 or (for express delivery) 73 Tremont Street, Boston,
Massachusetts 02108-3913. (CGFSC is an affiliate of The Chase Manhattan
Bank, N.A.) Additional Shareholder Application Forms can be obtained from
the Fund at 950 Tower Lane, Suite 1900, Foster City, California 94404.
Shares of the Fund may also be purchased by wire by calling CGFSC at (800)
541-4366 (617/557-8000 for Massachusetts residents) to receive a wire
reference control number and notify CGFSC of your incoming bank wire. A
properly completed application must be sent to CGFSC at the above address
before bank-wired investments can be redeemed. Moreover, any shareholder
who fails to submit an application form containing a correct taxpayer
identification number will be automatically subject to backup tax
withholding on distributions at a 31% rate. Instruct your bank (which may
charge for this service) to wire a specified amount (via the Federal
Reserve Bank) to:
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081-1000
ABA #021000021
DDA #910-2-733160
Attn:
Bailard, Biehl & Kaiser Diversa Fund
Shareholder's Name:______________
Account Number:__________
Wire Reference Control Number:
A bank-wired investment is considered received when CGFSC has been notified
that the bank wire has been credited to the Fund's account.
You may purchase additional shares of the Fund at any time by mailing or
wiring funds in the manner and subject to the minimums described above.
Please remember to include your Bailard, Biehl & Kaiser Diversa Fund
account number on your check or as part of your wiring instructions.
When an investor makes an initial investment, an account will be opened on
the books of the Fund and a confirmation will be sent of the opening of the
account. Thereafter, whenever a transaction takes place in the account,
such as a purchase of additional shares, exchange or redemption of shares,
payment of distributions or deposit or withdrawal of shares represented by
certificates, the investor will receive a confirmation statement giving
complete details of the transaction. In addition, the statement will show
the details of each transaction in the account during the year. Issuance
and delivery of certificates is unnecessary and holders of shares are
thereby relieved of the responsibility of safekeeping, although
certificates will be issued, without charge, to requesting shareholders.
The number of shares that may be purchased will depend upon the applicable
net asset value in effect at the time orders are properly received. Such
net asset value is the net asset value of the Fund next determined after
receipt of a proper request.
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The Fund has authorized one or more brokers to accept purchase and
redemption orders, and to designate other intermediaries to accept such
orders, on its behalf. The Fund will be deemed to have received a purchase
or redemption order when an authorized broker or designee accepts the
order. Orders will be priced at the fund's net asset value next determined
after they are accepted by the authorized broker or designee.
How Do I Exchange or Redeem Shares?
You may exchange or redeem all or a portion of your shares of the Fund at
any time, without incurring any charges, by mail or by telephone. If you
exchange or redeem your shares through a broker-dealer, there may be a
charge imposed for such services.
Exchange Privilege. You may exchange your Fund shares for shares of the
Bailard, Biehl & Kaiser International Equity Fund (the "Equity Fund") or
the Bailard, Biehl & Kaiser International Bond Fund (the "Bond Fund") on
the basis of the relative net asset values per share of the Fund and the
Equity Fund or Bond Fund next computed after receipt by CGFSC of your
proper written or telephone request. Written requests should be directed to
CGFSC at the address indicated under "How Do I Purchase Shares?". Telephone
requests should follow the procedures described under "Telephone
Transactions". Exchanges can only be made between accounts with identical
account registrations.
Before making an exchange, you should read the Equity Fund's or Bond Fund's
Prospectus, which may be obtained by contacting the Fund at 950 Tower Lane,
Suite 1900, Foster City, California 94404, (800) 882-8383. Any exchange of
shares is, in effect, a redemption of shares of the Fund and a purchase of
shares of the Equity Fund or Bond Fund. Accordingly, for Federal income tax
purposes, an exchange is a taxable event, and a gain or loss may be
realized. Exchanges can only be made in states where shares of the Equity
Fund or Bond Fund are qualified for sale, and the dollar amount of an
exchange must meet the initial or subsequent minimum investment
requirements of the Equity Fund or Bond Fund. The Fund does not place any
limit on the number of exchanges that may be made, and neither the Fund nor
the Equity Fund or Bond Fund charges a fee for effecting an exchange. The
Fund reserves the right to reject any exchange request and to modify or
terminate the exchange privilege at any time.
Regular Redemption Procedure. You have the right to redeem shares by
transmitting to CGFSC, at the address indicated under "How Do I Purchase
Shares", either the related certificates and a stock power in good order
for transfer, or if no certificates have been issued, a written request for
redemption. Redemption will be made at the net asset value next computed
after receipt by CGFSC of the necessary documents in good order. See
"Purchase of Shares" for procedures for acceptance of redemption orders by
authorized brokers and their designees.
"Good order" means that certificates and stock powers must be endorsed by
the record owner(s) exactly as the shares are registered and, for
redemptions in excess of $50,000, the signature(s) must be accompanied by a
signature guarantee. A signature guarantee is a widely accepted way to
protect shareholders and the Fund by verifying the signature on the
request. Signature guarantees should not be qualified in any way, whether
by date or otherwise. Signatures must be guaranteed by an "Eligible
Guarantor Institution" and not by a notary public or any other person or
entity. An "Eligible Guarantor Institution" means a bank, trust company,
broker, dealer, municipal or government securities broker or dealer, credit
union, national securities exchange, registered securities association,
clearing agency or savings association that is a participant in the
Securities Transfer Agents Medallion Program ("STAMP") endorsed by the
Securities Transfer Association. In some cases, "good order" may require
the furnishing of additional documents. In the event that you need
assistance in determining which documents are required in order to effect a
redemption, you may contact CGFSC at (800) 541-4366 for assistance.
Because the net asset value per share of the Fund fluctuates (reflecting
the market value of the assets owned by the Fund), the amount you receive
for your shares may be more or less than the amount you paid for them.
Checks for redemption payments normally will be mailed within seven days
after receipt of redemption requests. If you request that the redemption
proceeds be wired directly into a bank account, the transfer agent will
deduct a wire charge of $10 from the proceeds to cover the additional
expense.
Systematic Withdrawal Plan. A Systematic Withdrawal Plan (SWP) may be
established by a new or existing shareholder if the shares in his account,
when valued at the current net asset value, equal $10,000 or more.
Shareholders who elect to establish a SWP Account will be mailed a
semimonthly, monthly or
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<PAGE>
quarterly check in a stated amount, not less than $100. Depending on the
SWP option chosen, shares sufficient to satisfy the stated amount will be
automatically redeemed on or about the third and/or eighteenth day of the
payment period and a check for the stated amount will be mailed by CGFSC to
the shareholder as soon thereafter as practicable. A transaction fee of $2
per check will be deducted from the proceeds. Withdrawals may result in a
gain or loss for tax purposes, may reduce principal and may eventually use
up all of the shares in the account.
Payments will be terminated by CGFSC on receipt of satisfactory evidence of
the death or incapacity of the shareholder, but until it has received such
evidence, CGFSC will not be liable for any payments made in accordance with
the SWP. The shareholder or the Fund may terminate the SWP account at any
time upon notice to the other.
General Conditions of All Redemptions. The right to redeem may be suspended
and the payment of the redemption price deferred during any period when the
New York Stock Exchange is closed, during periods when trading on the
Exchange is restricted as determined by the Securities and Exchange
Commission, for any period during which an emergency (as determined by the
Commission) exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets or
for such other periods as the Commission may by order permit for the
protection of investors. In addition, if shares have been recently issued
to a shareholder and payment was made by check, the Fund will effect the
redemption, but will hold the proceeds thereof until the check for the
purchase of such shares has cleared, unless the shares were purchased with
a cashier's or certified check.
Special Redemption Procedure. The Fund may redeem the shares of any
shareholder who ceases to hold shares in the Fund having an aggregate net
asset value above $1,000. Shareholders will be given at least 30 days'
written notice of any redemption effected in accordance with this
paragraph.
Telephone Transactions. You may establish telephone exchange and redemption
privileges if you have checked the appropriate box and supplied the
necessary information on the Shareholder Application Form accompanying this
Prospectus. You may then exchange and redeem shares of the Fund by
telephoning CGFSC at (800) 541-4366 (or, from outside the U.S., (617)
557-8000) prior to the regular closing of the New York Stock Exchange
(generally 4:00 p.m. New York time) on a day when the New York Stock
Exchange is open. Redemptions by telephone must be at least $1,000 and may
not exceed $150,000. Exchange and redemption requests received by CGFSC
before the regular closing will be processed that day. Otherwise processing
will occur on the next business day.
Interruptions in telephone service may mean that you will be unable to
effect a transaction by telephone when desired. When telephone transactions
are difficult to implement, you should mail or send by overnight delivery a
written request to CGFSC. By making telephone exchanges or redemptions you
may be giving up a measure of security that you may have had if such
transactions had been in writing. The Fund and CGFSC will employ reasonable
procedures to confirm that instructions communicated by telephone are
genuine. The Fund and CGFSC may be liable for any losses due to
unauthorized or fraudulent instructions if such procedures are not
followed. For your protection, CGFSC records all telephone calls. Exchanges
can only be made between accounts with identical registrations and only if
your account registration has not changed within 30 days. Redemption
proceeds are sent only to shareholders at their registered address or to a
bank account previously designated by the shareholder. It is also the
Fund's policy to mail a written confirmation to you at your address of
record within five business days after any telephone transaction. The Fund
or CGFSC may refuse to honor any telephone transaction request if the Fund
or CGFSC believes, for any reason, that the request is unauthorized. You
will be promptly notified of any refused telephone transaction request.
Neither the Fund nor CGFSC will be liable for following telephone
instructions that CGFSC reasonably believes to be genuine. Since you may
bear the risk of loss in the event of an unauthorized telephone
transaction, you should verify the accuracy of telephone transactions
immediately upon receipt of the written confirmation.
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<PAGE>
Telephone transaction procedures may be modified or suspended without
notice during periods of drastic economic or market changes, and may be
modified or terminated on 60 days' notice to stockholders at any time.
Shares held by a Keogh plan or IRA and shares issued in certificate form
are not eligible for telephone exchange or redemption.
What is the Fund's Share Price?
The net asset value per share, on which purchase and redemption prices are
based, is determined by dividing the total market value of the Fund's
assets, less its liabilities, by the number of shares outstanding. Net
asset value is calculated as of the regular closing of the New York Stock
Exchange (generally 4:00 p.m. New York time) on each day the Exchange is
open for trading. Because certain securities of the Fund may be traded on
foreign markets that are open when the New York Stock Exchange is closed,
the value of the net assets of the Fund may be significantly affected on
days when no net asset value is calculated. The price at which a purchase
or redemption is effected will be based on the next net asset value
calculated after the receipt of a properly completed order. The method used
by the Fund for determining the net asset value of its shares is explained
in more detail in the Statement of Additional Information.
What Should I Know About Distributions and Taxes?
The Board of Trustees of the Fund will determine the amounts to be
distributed to the holders of shares and the time or times such
distributions will be made. Currently, it is contemplated that all or a
portion of net investment income, if any, will be distributed quarterly,
and that any remaining net investment income and any net realized capital
gains will be distributed annually, generally in December. The amount of
net investment income to be distributed, and the characterization of Fund
distributions for tax purposes, may be affected, among other factors, by
foreign currency exchange losses, as described below.
Distributions of net income and capital gains, if any, will be credited to
your account in full or fractional shares at their net asset value on the
distribution date unless you elect to receive your distributions in cash,
by check or wire. Cash distributions will also be paid out on the
distribution date.
For the fiscal year ended September 30, 1997, the Fund believes that it has
qualified as a "regulated investment company" ("RIC") under Subchapter M of
the Internal Revenue Code of 1986 (the "Code") and intends to be able to
continue to so qualify in future years. Qualification as a RIC allows the
Fund to qualify for "pass-through" treatment under the federal income tax
laws, which means the Fund, subject to certain conditions and requirements,
will not be subject to United States federal income tax on amounts it
distributes to shareholders. Accordingly, the Fund plans to distribute
substantially all of its net investment income and net realized capital
gains to its shareholders.
RICs are subject to a nondeductible 4% excise tax on the excess (if any) of
the "required distribution" for a calendar year over the "distributed
amount" for such year. To avoid imposition of such tax, a RIC generally
will have to distribute in each calendar year at least 98% of its ordinary
income for such calendar year and at least 98% of its capital gains for the
12-month period ending on October 31 of such year. The Fund intends to make
sufficient distributions each year to avoid imposition of the excise tax.
Distributions of the Fund's net investment income and net realized
short-term capital gains are generally taxable to the Fund's shareholders
as ordinary income. Distributions paid from long-term capital gains will
generally be taxable as long-term capital gains, regardless of the holding
period of the Fund shares. The Fund will inform shareholders of the source
and nature of the distributions at the time they are paid. Events
subsequent to a dividend or distribution may cause the dividend or
distribution to be recharacterized, in whole or in part, for U.S. federal
income tax purposes. For example, if the fund incurs foreign currency
losses that eliminate its tax-basis "earnings and profits", then
distributions made during the year may be recharacterized as return of
capital distributions for U.S. income tax purposes, rather than income
20
<PAGE>
distributions, thereby reducing each shareholder's basis in his Fund
shares.
Prior to purchasing shares of the Fund, the impact of declared dividends or
declared capital gains distributions should be carefully considered. Any
such dividends or capital gains distributions paid shortly after a purchase
of shares by an investor prior to the record date will have the effect of
reducing the per share net asset value of his shares by the amount of the
dividends or distributions. Such dividends or capital gains distributions,
although in effect a return of principal are subject to taxes, calculated
at ordinary income or long-term capital gains rates.
Dividends and distributions paid out of the Fund's income and gains will be
taxable to shareholders whether received in cash or reinvested in
additional shares. Any loss recognized upon the sale of shares held for six
months or less will be treated as a long-term capital loss to the extent of
any distributions of long-term capital gains during the period the shares
were held. Dividends and distributions payable to shareholders of record as
of a date in October, November or December of any year will be deemed to
have been paid by the Fund and received by shareholders on December 31 if
the dividends are paid by the Fund at any time during the following
January.
Hedging and Other Transactions. The Fund is currently authorized to engage
in Forward Contracts and to invest in or write Options, Futures Contracts
and Options on Futures Contracts to hedge against changes in interest and
foreign currency exchange rates and market movements and as a substitute
for an underlying investment. Certain of these transactions may be "Section
1256 contracts." Gains or losses on Section 1256 contracts generally are
treated as 60% long-term and 40% short-term ("60/40") capital gains or
losses. Also, any Section 1256 contracts that are held by the Fund at the
end of a taxable year (and, generally, for purposes of the 4% excise tax,
on October 31 of each year) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is generally treated as a 60/40 gain or loss.
Generally, any Hedging Transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may
affect the character of gains or losses realized by the Fund. For example,
Hedging Transactions may convert gains which would otherwise be taxable as
long-term capital gain into short-term capital gain, which is taxed as
ordinary income when distributed to shareholders. In addition, any losses
realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses
are realized. Because the straddle rules are complex and their
interpretation unclear, the tax consequences to the Fund of Hedging
Transactions are uncertain.
The Fund may make one or more of the elections available under the Code
that are applicable to straddles. If the Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from
the affected straddle positions will be determined under rules that vary
according to the elections made. The rules applicable under certain of the
elections may operate to accelerate the recognition of gains or losses from
the affected straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and that will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased as
compared to a fund that did not engage in Hedging Transactions.
In addition, under the "conversion transaction" provisions of the Code,
certain gains derived from the Fund's hedging or other activities may be
recharacterized as ordinary income for federal income tax purposes. While
some regulations have been issued under these provisions, the application
of these provisions is expected to be further defined by additional
regulations to be issued by the Treasury Department. The Adviser will take
these provisions, regulations and any subsequent regulations into account
in assessing the hedging and other strategies of the Fund.
20
<PAGE>
The diversification and income requirements applicable to the Fund's assets
and other restrictions imposed on the Fund by the Code may limit the extent
to which the Fund will be able to engage in transactions in precious
metals, Forward Contracts, Options, Futures Contracts or Options on Futures
Contracts.
Currency Fluctuations -- "Section 988" Gains or Losses. Under the Code,
gains or losses attributable to fluctuations in exchange rates that occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Gains or losses
with respect to Forward Contracts and certain Options, Futures Contracts
and Options on Futures Contracts are generally treated as ordinary income
or loss, although an election is available under certain circumstances that
would result in capital gain or loss treatment. In addition, gains or
losses on the disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security and the date of disposition
are generally treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase
or decrease the amount of the Fund's investment company taxable income to
be distributed to its shareholders as ordinary income, rather than
increasing or decreasing the amount of the Fund's capital gains or losses.
Certain Foreign Tax Consequences. Foreign securities such as those to be
purchased by the Fund may be subject to foreign taxes, which could reduce
the yield on such securities, although a shareholder otherwise subject to
United States federal income taxes may be entitled to claim a credit or
deduction for such tax purposes, subject to certain limitations. The
Statement of Additional Information provides additional details on these
tax aspects.
The foregoing is a general and abbreviated summary of tax consequences of
investment in the Fund. Additional details concerning federal and foreign
tax consequences are contained in the Statement of Additional Information.
Investors are urged to consult their own tax advisers to determine the
effect of investment in the Fund upon their individual tax situations.
Who is the Fund's Investment Adviser?
In accordance with Massachusetts law and the Declaration of Trust, the
Board of Trustees has absolute and exclusive control over the Fund assets
and the business of the Fund. The Board is authorized, however, to enter
into an investment advisory or management agreement with an investment
adviser pursuant to which the adviser would furnish the Fund with certain
services, including management, investment and research services.
Accordingly, while the Board of Trustees of the Fund has overall management
responsibility for the Fund, Bailard, Biehl & Kaiser, as the Adviser,
manages day-to-day operations pursuant to a Management Agreement. Under the
Management Agreement, the Adviser directs the purchase and sale of
securities in the Fund's investment portfolio in accordance with the Fund's
investment objective and policies.
Peter M. Hill and Arthur A. Micheletti have been primarily responsible for
the asset allocation decisions regarding the Fund's portfolio since 1995.
Mr. Hill directs the team of investment professionals that focuses on each
asset category of the Fund. Mr. Hill has been Co-President of the Adviser
since 1992, was appointed Chief Investment Officer in 1995 and has
additional responsibilities for institutional portfolio management
functions. From 1984 to 1992, Mr. Hill was Executive Vice President and a
portfolio manager for the Adviser. He is also Chairman and a Director of
the Bailard, Biehl & Kaiser International Fund Group, Inc. Mr. Micheletti
has been primarily responsible for the bond and cash equivalent portions of
the portfolio since 1992. Mr. Micheletti has been with the Adviser and has
managed international and domestic fixed-income portfolios since 1981. Mr.
Micheletti was a Vice President, portfolio manager and investment analyst
for the Adviser from 1981 to 1992, and has been a Senior Vice President and
investment strategist and the Chief Economist since 1992.
21
<PAGE>
In placing orders for the Fund's portfolio securities, the Adviser is
required to give primary consideration to obtaining the most favorable
price and efficient execution. Within the framework of this policy, the
Adviser will consider the research and investment information and related
services, such as price quotations, provided by brokers or dealers who
effect or are parties to portfolio transactions for the Fund or the
Adviser's other clients. The Adviser does not use any of its affiliates or
affiliates of the Fund to execute portfolio transactions. The Fund,
however, may purchase equity and debt securities of brokers or dealers that
execute its portfolio transactions.
Under the Management Agreement, the Adviser pays the following expenses
incurred in the Fund's day-to-day management: office space and facilities
used by the Adviser, salaries and expenses of personnel of the Adviser and
certain costs associated with the sale of the Fund's shares. For the
services and facilities it provides, the Adviser receives a monthly fee
calculated at an annual rate equal to .95% of the average net assets of the
Fund up to $75 million, .80% of the next $75 million, and .65% of the
average net assets in excess of $150 million. While the initial rate is
higher than the rate charged by most other advisers, the Fund believes that
it is justified by the complexity of the services provided by the Adviser.
For the fiscal year ended September 30, 1997, the total fees paid to the
Adviser amounted to $350,110, or approximately 0.95% of the Fund's average
net assets.
The Fund bears the balance of the expenses incurred in its operations,
including costs incurred in complying with federal and state securities
laws, fees of counsel and independent auditors, compensation of the
Transfer Agent and the Custodian, taxes, interest, brokerage commissions,
costs of shareholder communications and valuation expenses. The Fund's
total expenses for the fiscal year ended September 30, 1997 were $678,105,
which constituted approximately 1.84% of the Fund's average net assets for
such period.
As an accommodation to the Fund, from time to time Bailard, Biehl & Kaiser
directly pays certain expenses of the Fund (such as insurance premiums,
Trustees' fees, and fees relating to state securities law filings) for
which Bailard, Biehl & Kaiser is later reimbursed by the Fund.
Disbursements by Bailard, Biehl & Kaiser on behalf of the Fund and their
subsequent reimbursement by the Fund are effected only upon the prior
approval of an officer of the Trust.
The Adviser commenced business as a registered investment advisor in 1970
and was incorporated as a California corporation in 1972. The principal
place of business of the Adviser is 950 Tower Lane, Suite 1900, Foster
City, California 94404. The Adviser is a wholly owned subsidiary of BB&K
Holdings, Inc., a California corporation. The Adviser also acts as
investment adviser to the Bailard, Biehl & Kaiser International Equity Fund
and the Bailard, Biehl & Kaiser International Bond Fund series of the
Bailard, Biehl & Kaiser International Fund Group, Inc., an open-end
management investment company. As of October 3, 1997 the Adviser managed
portfolios with total holdings of approximately $1,059 billion in market
value.
What Else Should I Know About the Fund?
The Fund is a diversified series of the Bailard, Biehl & Kaiser Fund Group,
an open-end management investment company organized in August 1986 as a
Massachusetts business trust (the "Trust"). The Trust is authorized to
issue an unlimited number of shares in one or more series. Currently, the
Fund is the only series within the Trust. Additional series may be added,
but the Trust has no immediate plans to do so.
The Distributor of the Fund's shares is BB&K Fund Services, Inc., a
registered broker-dealer and a wholly owned subsidiary of BB&K Holdings,
Inc. The principal business address of BB&K Fund Services, Inc. is 950
Tower Lane, Suite 1900, Foster City, California 94404. BB&K Fund Services,
Inc. receives no commission or compensation for acting as the Fund's agent
in the continuous public offering of the Fund's
22
<PAGE>
shares.
Each share in the Fund is entitled to participate equally in dividends and
distributions of the Fund, including the distribution of assets upon
liquidation of the Fund. When issued, the shares will be fully paid and
non-assessable and will have no preemptive, conversion or exchange rights.
Shareholders of the Fund are entitled to one vote per share. The shares
have noncumulative voting rights, which means that holders of more than 50%
of the shares voting for the election of Trustees can elect all of the
Trustees if they choose to do so. In such an event, the holders of the
remaining shares so voting will not be able to elect any Trustees. The
Trustees may be removed by a vote of not less than two-thirds of the
outstanding shares of the Fund. The Fund is not required to hold annual
meetings for the election of Trustees or otherwise. Special meetings may be
called by the Board of Trustees or by holders of 25% of the shares entitled
to vote. In addition, holders of 10% of the Fund's shares may call a
meeting for the purpose of voting on the question of the removal of a
Trustee. The Fund will assist in shareholder communications with respect to
any meeting duly called by the holders of its shares. In the event that the
Trust issues additional series, shareholders of the Fund will vote with
shareholders of the other funds within the Trust, except with respect to
matters affecting only the rights of a particular fund.
Under certain circumstances, shareholders of the Fund may be held
personally liable for the obligations of the Trust. The Declaration of
Trust provides that shareholders will not be subject to any personal
liability for the acts or obligations of the Trust and that every written
agreement, obligation or other undertaking made or issued by the Trust will
contain a provision to the effect that the shareholders are not personally
liable thereunder. The Declaration of Trust provides for indemnification
out of the Fund's assets against claims against such shareholders as
shareholders of the Trust and any legal and other expenses incident
thereto. Accordingly, the risk of any shareholder incurring financial loss
beyond his investment due to personal liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations. The
Adviser believes that, in view of the above, the risk of personal liability
to shareholders is remote.
Performance Information
From time to time, the Fund may advertise its total return. This figure is
based upon historical earnings and is not intended to indicate future
performance. "Total return" refers to the average annual rate of return of
an investment based on its public offering price and reflects all income
earned by the Fund, any appreciation or depreciation of the Fund's assets
and all expenses incurred by the Fund for the stated period. This figure is
computed by calculating to the end of a specified period the percentage
change in value of an investment of $1,000, assuming reinvestment of all
income and capital gain distributions.
The Fund may include comparative performance information in advertising or
marketing its shares. Such performance information may include data from
market indices, industry publications, business periodicals, rating
services and other sources.
Administrative Services
The Trust, on behalf of the Fund, has entered into an Administration
Agreement (the "Administration Agreement") with Investment Company
Administration Corporation ("ICAC"). Pursuant to such agreement, ICAC
provides certain administrative services in connection with the management
of the Fund's operations. Such services include: (i) assisting the Fund's
accountants in preparing financial reports, (ii) assisting the Fund's
attorneys in preparing amendments to the Fund's registration statement, any
proxy materials and other forms and reports to be filed with the SEC, (iii)
preparing periodic reports to stockholders, (iv) monitoring compliance with
the Fund's investment policies and restrictions, and (v) other
administrative matters. As compensation for such services, the Fund pays
ICAC an annual fee of $32,500.
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Transfer Agent and Custodian
Transfer agent services are provided by Chase Global Funds Services Company
("CGFSC"), P.O. Box 2798, Boston, Massachusetts 02208, an affiliate of The
Chase Manhattan Bank, N.A. As Transfer Agent, CGFSC maintains records of
shareholder accounts, processes purchases and redemptions of shares, acts
as dividend and distribution paying agent and performs other related
shareholder functions. CGFSC also files applications under state law to
register the Fund's shares for sale.
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, is the Fund's Custodian. As Custodian, it holds the securities in
the Fund's portfolio and other assets for safekeeping. Foreign securities
owned by the Fund will also be held by various subcustodians in conformity
with Section 17(f) of the Investment Company Act of 1940 and the rules
thereunder.
Experts
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing audit services,
including review and consultation in connection with various filings by the
Trust with the Securities and Exchange Commission and tax authorities.
The information under "Financial Highlights" in this Prospectus and the
financial statements as of September 30, 1997 incorporated by reference
into the Statement of Additional Information have been so included in
reliance upon the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
24
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APPENDIX A
Bond and Commercial Paper Ratings
BONDS
Moody's Investors Service, Inc. ("Moody's"). Bonds rated Aaa by Moody's are
judged by Moody's to be of the highest quality by all standards. Together
with bonds rated Aa, they comprise what are generally known as high-grade
bonds. Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large as those of Aaa bonds, or fluctuations of
protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds that are rated A by Moody's
possess many favorable investment attributes and are to be considered as
upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest
a susceptibility to impairment sometime in the future.
Moody's Baa rated bonds are medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and may have speculative characteristics as well. They are
still considered investment grade bonds.
Standard & Poor's Corporation ("S&P"). Bonds rated AAA are considered by
S&P to be the highest grade obligations, and the capacity to pay interest
and principal is extremely strong. Bonds rated AA by S&P are judged by S&P
to have a very strong capacity to pay interest and principal and differ
only in a small degree from issues rated AAA. Bonds rated A by S&P have a
strong capacity to pay principal and interest, although they are somewhat
more susceptible to the adverse effects of changes in circumstances and
economic conditions.
S&P's BBB rated bonds, or medium-grade category bonds, are regarded as
having adequate capacity to pay principal and interest. Whereas BBB bonds
normally exhibit adequate protection parameters, adverse economic
conditions or changes in circumstances are more likely to lead to a
weakened capacity to pay interest and principal. They are still considered
investment grade bonds.
Commercial Paper
Moody's. The Prime rating is the highest commercial paper rating assigned
by Moody's. Issuers within this Prime category may be given ratings 1, 2 or
3, depending on their capacity for repayment. Issuers rated Prime-1 (or
supporting institutions) have a superior ability for repayment of senior
short-term debt obligations. Prime 1 repayment ability will often be
evidenced by the issuer's leading market position in well-established
industries, high rates of return on funds employed, conservative
capitalization structures with moderate reliance on debt, and ample asset
protection. Also, a Prime-1 issuer may have broad margins in earnings
coverage of fixed financial charges, high internal cash generation and a
well established access to a range of financial markets and assured sources
of alternative liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong capacity
for repayment of senior short-term debt obligations. Issuers rated Prime-2
will evidence many of the characteristics of Prime-1 issuers,
A-1
<PAGE>
although to a lesser degree. Earnings trends and coverage ratios are sound
but more subject to variation. Capital characteristics may be more affected
by external conditions. Ample alternative liquidity is maintained.
A-2
<PAGE>
Issuers rated Prime-3 (or supporting institutions) have an acceptable capacity
for repayment. The effects of industry characteristics and market composition
may be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements. Adequate alternative
liquidity is maintained.
S&P. Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. Issues rated A are regarded as having
the greatest capacity for timely payment. Issues in this category are further
refined with the designations 1, 2, and 3 to indicate the relative degree of
safety. Issues rated A-1 have a very strong degree of safety regarding timely
payment. Issues rated A-2 have a strong capacity for timely payment. However,
the relative degree of safety is not as overwhelming as for issues designated
A-1. Issues rated A-3 have a satisfactory capacity for timely payment. They are,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
A-3
<PAGE>
APPENDIX B
Hedging and Other Transactions
Forward Contracts. The Fund may enter into forward foreign currency
exchange contracts to attempt to minimize the risk to the Fund from adverse
changes in currency exchange rates and as a substitute for an underlying
currency position ("Forward Contracts"). All Forward Contracts will be covered.
In the case of a Forward Contract obligating the Fund to purchase a foreign
currency (a "long position"), the Fund may establish a segregated account
containing liquid assets ("Liquid Assets") equal to the purchase price of the
Forward Contract due on the settlement date (less any margin on deposit). Liquid
Assets include cash, U.S. Government securities and other securities determined
by the Adviser to be liquid in accordance with guidelines adopted by the Board
of Trustees. Alternatively, the Fund may cover a long position by purchasing a
put option on the same Forward Contract with a strike price as high or higher
than the price of the Forward Contract held by the Fund (or, if lower than the
price of the Forward Contract held by the Fund, the Fund may segregate Liquid
Assets equal to the difference).
In the case of a Forward Contract obligating the Fund to sell a foreign currency
(a "short position"), the Fund may segregate Liquid Assets equal to the market
value of the currency underlying the Forward Contract (less any margin on
deposit, but not less than the market price at which the short position was
established). Alternatively, the Fund may cover the Forward Contract by (i)
entering into an offsetting position or transaction, (ii) owning the currency
underlying the Forward Contract or (iii) holding a call option permitting the
Fund to purchase the same Forward Contract at a price no higher than the price
at which the short position was established (or, if higher, the Fund may
segregate Liquid Assets equal to the difference).
Options on Debt Securities and Foreign Currencies. The Fund may write covered
call and put options and purchase call and put options ("Options") on debt
securities and foreign currencies that are traded on United States and foreign
exchanges and over-the-counter, to attempt to minimize the risks to the Fund
from adverse changes in currency exchange and interest rates, and market
conditions and as a substitute for an underlying securities or currency
position.
For example, a decline in the value of a foreign currency in which portfolio
securities are denominated will reduce the value of such securities in U.S.
Dollars, even if their value in the foreign currency remains constant. In order
to protect against such reductions in the value of portfolio securities, the
Fund may purchase put Options on the foreign currency. If the value of the
foreign currency does decline, the Fund will have the right to sell such
currency for a fixed amount and will thereby offset, in whole or in part, the
adverse effect on its portfolio that otherwise would have resulted.
Conversely, when the Fund predicts an increase in the value of a currency in
which securities to be acquired are denominated, the Fund may purchase call
Options on the foreign currency. The purchase of such Options could offset, at
least partially, the effects of the adverse movements in exchange rates.
However, the benefit to the Fund derived from purchases of Options will be
reduced by the amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to the extent
predicted, the Fund could sustain losses that would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
The Fund may also purchase Options on debt securities to hedge against interest
rate changes that adversely affect the value of a portfolio security. For
example, when the Fund anticipates a decline in the market value of a portfolio
security due to rising interest rates, it may purchase put Options on the
security. If the value of the security does decline, the Fund will have the
right to sell the security for a fixed amount and will thereby offset, in whole
or in part, the adverse effect that would otherwise have been caused by rising
interest rates.
Where the Fund predicts a change in the market value of a security to be
acquired that would increase the cost of such security, the Fund may purchase
call Options thereon. The purchase of such Options could offset, at least
partially, the effect of declining interest rates. The use of Options to hedge
against adverse movements in interest rates is subject to the same limitations
and risks of loss as the use of Options to hedge against adverse movements in
exchange rates.
The Fund may write put and call Options for the same types of hedging purposes.
For example, when the
B-1
<PAGE>
Fund anticipates a decline in the value of foreign currency-denominated
securities due to adverse fluctuations in exchange rates it could, instead of
purchasing a put Option, write a call Option on the relevant currency. If the
expected decline occurs, the Option will most likely not be exercised and the
diminution in value of portfolio securities will be fully or partially offset by
the amount of the premium received. Similarly, instead of purchasing a call
Option to hedge against an anticipated increase in the cost of securities to be
acquired, the Fund could write a put Option on the relevant currency that, if
rates move in the manner projected, will expire unexercised and allow the Fund
to hedge such increased cost up to the amount of premium. The writing of an
Option constitutes only a partial hedge up to the amount of the premium, and
only if interest or exchange rates move in the expected direction. If this does
not occur, the Option may not be offset by the amount of the premium. Through
the writing of Options, the Fund may also be required to forego all or a portion
of the benefits that might otherwise have been obtained from favorable movements
in interest or exchange rates.
All put and call Options written by the Fund will be covered. The Fund may cover
a put Option by (i) establishing a segregated account containing Liquid Assets
equal to the strike price of the put Option written by the Fund (less any margin
on deposit), (ii) selling short the security or currency underlying the put
Option at the same or higher price than the strike price of the put Option
written by the Fund (or, if lower, the Fund may segregate Liquid Assets equal to
the difference), or (iii) purchasing a put Option with a strike price the same
as or higher than the strike price of the put Option sold by the Fund (or, if
lower, the Fund may segregate Liquid Assets equal to the difference).
The Fund may cover a call Option by (i) segregating Liquid Assets equal to the
market value of the security or currency underlying the call Option (less any
margin on deposit) but not less than the strike price of the call Option, (ii)
owning the security or currency underlying the Option or (iii) purchasing a
separate call Option on that security or currency with a strike price no higher
than the strike price of the Option sold by the Fund (or, if higher, the Fund
may segregate Liquid Assets equal to the difference).
If the Fund, as the writer of an Option, wishes to terminate its obligation, it
may effect a closing purchase transaction. This is accomplished by buying an
Option of the same series as the Option previously written. The effect of the
purchase is that the Fund's position will be canceled. However, a writer may not
effect a closing purchase transaction after being notified of the exercise of an
Option. Likewise, where the Fund holds an Option, it may liquidate its position
by effecting a closing sale transaction. This is accomplished by selling an
Option of the same series as the Option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the Option or is more
than the premium paid to purchase the Option; the Fund will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the Option or is less than the premium paid to purchase
the Option. Because increases in the market price of a call Option will
generally reflect increases in the market price of the underlying security or
currency, any loss resulting from the purchase of a call Option to close out a
previously written call Option is likely to be offset in whole or in part by
appreciation of the Fund's portfolio securities denominated in such currency.
Options on Financial Indices. The Fund may write covered put and call Options
and purchase put and call Options on financial indices to attempt to minimize
the risks to the Fund from adverse changes in interest rates and market
conditions and as a substitute for an underlying investment. Options on
financial indices are similar to Options on debt securities and foreign
currencies. For additional information on the risks and benefits of Options on
financial indices, see "Options on Debt Securities and Foreign Currencies."
Call Options on indices written by the Fund will be covered (i) by segregating a
portfolio of securities
B-2
<PAGE>
substantially replicating the movement of the index, (ii) by holding a call
Option on the same index with a strike price no higher than the strike price of
the Option written by the Fund or (iii) in such other manner as may be in
accordance with the rules of the exchange on which the Option is traded and
applicable laws and regulations.
The Fund will cover put Options on indices by (i) segregating Liquid Assets
equal to the Option's exercise price, (ii) holding a put Option on the same
index with a strike price no higher than the strike price of the put Option
written by the Fund or (iii) in such other manner as may be in accordance with
the rules of the exchange on which the Option is traded and applicable laws and
regulations.
The Fund will receive a premium for writing a put or call Option that will
increase the Fund's gross income in the event the Option expires unexercised or
is closed out at a profit. If the value of an index on which the Fund has
written a call Option falls or remains the same, the Fund will realize a profit
in the form of the premium received (less transaction costs) that will offset
all or a portion of any decline in the value of the securities it owns. If the
value of the index rises, however, the Fund will realize a loss in its call
Option position, which will reduce the benefit of any unrealized appreciation in
the Fund's securities holdings. By writing a put Option, the Fund assumes the
risk of a decline in the index. To the extent that the price changes of
securities owned by the Fund correlate with changes in the value of the index,
writing covered put Options on indices will increase the Fund's losses in the
event of a market decline, although such losses will be offset in part by the
premium received for writing the Option.
Futures Contracts on Debt Securities, Financial Indices and Foreign Currencies.
The Fund may enter into exchange-traded contracts for the purchase or sale for
future delivery of debt securities, financial indices and foreign currencies to
attempt to minimize the risk to the Fund from adverse changes in currency
exchange and interest rates, and market conditions and as a substitute for an
underlying securities or currency position ("Futures Contracts").
The acquisition or sale of Futures Contracts is designed to protect the Fund
from fluctuations in currency exchange and interest rates, and market movements
without actually buying or selling the underlying currencies or securities. For
example, if the Fund owns long-term bonds, and interest rates were expected to
increase, the Fund might enter into a Futures Contract for the sale of debt
securities. Such a sale would have much the same effect as selling an equivalent
value of long-term bonds owned by the Fund. If interest rates did increase, the
value of the debt securities in the portfolio would decline, but the value of
the Futures Contract to the Fund would increase at approximately the same rate,
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have. The Fund could accomplish similar results by selling bonds
with long maturities and investing in bonds with short maturities. However,
since the futures market generally is more liquid than the cash market, the use
of Futures Contracts as an investment technique allows the Fund to maintain a
defensive position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to attempt to hedge against anticipated purchases of
long-term bonds at higher prices. Since the fluctuations in the value of Futures
Contract should be similar to that of long-term bonds, the Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had been established. At that time, the
Futures Contract could be liquidated and the Fund could then buy long-term bonds
on the cash market.
All Futures Contracts to which the Fund is a party will be covered. A Futures
Contract obligating the Fund to purchase a security, financial index or currency
is covered if the Fund segregates, in a special account with the Custodian,
Liquid Assets equal to the price of the Futures Contract due on the settlement
date (less any margin on deposit). The Fund may also cover a long position by
purchasing a put Option on the same Futures Contract with an exercise price as
high or higher than the price of the Futures Contract held by the
B-3
<PAGE>
Fund (or, if lower, the Fund may segregate Liquid Assets equal to the
difference).
A Futures Contract in which the Fund has the position of a seller is covered if
the Fund segregates Liquid Assets equal to the market value of the security,
index or currency underlying the Futures Contract (less any margin on deposit,
but not less then the market price at which the position was established).
Alternatively, the Fund may cover such a Futures Contract by (i) owning the
security or currency underlying the Futures Contract, or, in the case of a
financial index, segregating a portfolio of securities substantially replicating
the movement of the index or (ii) holding a call Option permitting the Fund to
purchase the same Futures Contract at a price no higher than the price at which
the position was established (or, if higher, the Fund may segregate Liquid
Assets equal to the difference).
If the Fund enters into a Futures Contract, it will be subject to initial and
variation margin requirements. At the time a Futures Contract is purchased or
sold, the Fund must allocate cash or securities as an initial margin deposit
("initial margin"). It is expected that initial margin will be approximately
1-1/2% to 5% of a Futures Contract's face value. A Futures Contract is valued
("marked to market") daily. The Fund will be required to increase its margin
deposit ("variation margin") when the value of a Futures Contract decreases and,
conversely, the Fund will receive payment for any increase in the Futures
Contract's value.
At the time of delivery of securities pursuant to such a contract, adjustments
may be made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some (but not many) cases, securities called for by a Futures Contract may
not have been issued when the contract was written.
Although Futures Contracts, by their terms, call for the actual delivery or
acquisition of an asset, in most cases the contractual obligation is fulfilled
(or "offset") before the expiration date of the Futures Contract without having
to make or take delivery of the underlying asset. Offset of a Futures Contract
is accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical Futures Contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the underlying asset.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions that may
prevent the Fund from successfully using Futures Contracts. First, all
participants in the futures markets are subject to initial and variation margin
requirements. Rather than meeting variation margin requirements, investors may
close Futures Contracts through offsetting transactions which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures markets depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
make or take delivery, liquidity in the futures markets could be reduced, thus
producing distortion. Third, from the point of view of speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct prediction of general interest and currency exchange rates
or market conditions by the Fund may not result in a successful transaction.
If the Fund's judgment about the general direction of interest or currency
exchange rates or market conditions is incorrect, the Fund's overall performance
would be poorer than if it had not entered into any such contract. If the Fund
has hedged against the possibility of a movement in interest or exchange rates
or market conditions that would adversely affect the price of its portfolio
securities and such rates or markets did not move as anticipated, the Fund would
lose part or all of the benefit of the increased value of its securities that it
has hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund had insufficient cash and were unable
to effect a closing transaction, it might have to sell securities from its
portfolio to meet daily variation margin requirements. Such sales of
B-4
<PAGE>
securities may, but will not necessarily, be at increased prices that reflect
the rising market. The Fund may also have to sell securities at a time when it
may be disadvantageous to do so.
Options on Futures Contracts on Debt Securities, Financial Indices and Foreign
Currencies. The Fund may purchase and write options on Futures Contracts to
attempt to minimize the risk to the Fund from adverse changes in currency
exchange and interest rates, and market conditions and as a substitute for an
underlying securities or currency position ("Options on Futures Contracts").
A call Option on a Futures Contract written by the Fund constitutes a partial
hedge against declining prices of the asset that is deliverable upon exercise of
the Futures Contract. If the price of the Futures Contract at expiration of the
Option is below the exercise price, the Fund will retain the full amount of the
Option premium, which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio. A put Option on a Futures Contract written by
the Fund or constitutes a partial hedge against increasing prices of the asset
that is deliverable under the Futures Contract. If the price of the Futures
Contract at expiration of the Option is higher than the exercise price, the Fund
will retain the full amount of the Option premium, which provides a partial
hedge against an increase in the price of securities that the Fund intends to
purchase.
If a put or call Option on a Futures Contract that the Fund has written is
exercised, the Fund will incur a loss, which will be reduced by the amount of
the premium the Fund received. Depending on the degree of correlation between
changes in the value of its portfolio securities and changes in the value of its
futures positions, the Fund's losses from Options on Futures Contracts may be
reduced or increased by changes in the value of its portfolio securities.
All Options on Futures Contracts written by the Fund will be covered. In the
case of the sale of a call Option on a Futures Contract, the Fund may cover by
(i) entering into a long position on the same Futures Contract at a price no
higher than the strike price of the call Option on the Futures Contract (or, if
higher, the Fund may segregate Liquid Assets equal to the difference), (ii)
owning the security or currency underlying the Futures Contract on which the
Fund holds the Option, or, with respect to a financial index, a portfolio of
securities substantially replicating the movement of the index, or (iii) holding
a separate call Option permitting the Fund to purchase the same Futures Contract
at a price no higher than the strike price of the call Option on the Futures
Contract sold by the Fund (or, if higher, the Fund may segregate Liquid Assets
equal to the difference.)
In the case of the sale of a put Option on a Futures Contract obligating the
Fund to buy a Futures Contract, the Fund may establish a segregated account
containing Liquid Assets equal to the settlement value of the Futures Contract
underlying the Option on a Futures Contract. Alternatively, the Fund may cover
the Option on a Futures Contract by holding a put Option permitting the Fund to
sell the same Futures Contract at a price the same as or higher than the strike
price of the put Option sold by the Fund (or, if lower, the Fund may segregate
Liquid Assets equal to the difference).
The amount of risk the Fund assumes when it purchases an Option on a Futures
Contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of such an
option also entails the risk that changes in the value of the underlying Futures
Contract will not be fully reflected in the value of the option purchased.
Additional Risks of Forward Contracts, Options on Debt Securities and Foreign
Currencies, Options on Financial Indices, Futures Contracts and Options on
Futures Contracts.
Hedging transactions may be effective to protect the Fund against certain
changes in interest and currency
B-5
<PAGE>
exchange rates or market movements. However, such transactions do not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline.
The Fund's ability to hedge all or a portion of its portfolio through
transactions in Forward Contracts, Options, Futures Contracts and Options on
Futures Contracts depends on the degree to which price movements in underlying
currencies and securities correlate with price movements in the relevant portion
of the Fund's portfolio. In addition, the use of Futures Contracts and Options
on Futures Contracts involves the risk of imperfect correlation of movements in
the prices of Futures Contracts and Options on Futures Contracts, and movements
in the prices of the underlying assets. If the price of a Futures Contract or an
Option on a Futures Contract moves more or less than the price of the hedged
asset, the Fund will experience a gain or loss that may not be completely offset
by movements in the price of the asset that is the subject of the hedge.
The Fund may cover index Options that it has written, index Futures Contracts to
which it is a party, and Options on index Futures Contracts that it has written
through the segregation of a portfolio of securities that substantially
replicates the movement of the underlying index. The portfolio of securities
used to cover such transactions may not match the actual composition of the
index. In that event, the Fund will not be fully covered and would be subject to
a risk of loss in the event of adverse changes in the value of the index.
The Fund's ability to engage in transactions involving Options, Futures
Contracts and Options on Futures Contracts will depend on the degree to which
liquid secondary markets in such instruments exist. Reasons for the absence of a
liquid market include the following: (i) there may be insufficient trading
interest in a particular instrument; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of Options, Futures Contracts or Options on Futures
Contracts; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation ("OCC"), which effects the settlement of exchange traded
Options, may not at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of a particular
instrument (or a particular class or series of such instrument). There can be no
assurance that a liquid secondary market will exist for any particular
investment at any specific time. Thus it may not be possible for the Fund to
close certain of its positions.
The costs to the Fund of hedging transactions vary among the various hedging
techniques and also depend on such factors as the security, currency or index
involved, market conditions and the length of the contract or option period.
Forward Contracts are usually conducted on a principal basis, and no fees or
commissions are therefore involved. However, the Fund will incur brokerage
commissions and related transaction costs when it purchases, writes or invests
in Options, Futures Contracts and Options on Futures Contracts. Furthermore, the
Fund's ability to engage in hedging transactions may be limited by tax
considerations.
Forward Contracts and Options on foreign currencies are not traded on markets
regulated by the Commodity Futures Trading Commission ("CFTC") or (with the
exception of certain Options traded on national securities exchanges) by the
Securities and Exchange Commission ("SEC"), but are traded through financial
institutions acting as market-makers. In an over-the-counter trading
environment, many of the protections afforded to exchange participants are not
available. For example, there are no daily price fluctuation limits, and adverse
market movements could therefore continue to an unlimited extent over a period
of time. Although the purchaser of an Option cannot lose more than the amount of
the premium plus related transaction costs, this
B-6
<PAGE>
entire amount could be lost. Moreover, because the performance of
over-the-counter Options and Forward Contracts is not guaranteed by the OCC or
any other settlement agency, there is a risk of counterparty default. The Option
writer and the trader of Forward Contracts could also lose amounts substantially
in excess of his or her initial investments, due to the margin and collateral
requirements associated with such positions.
Options traded on national securities exchanges are within the jurisdiction of
the SEC, as are other securities traded on such exchanges. As a result, many of
the protections provided to traders on organized exchanges are available with
respect to such transactions. In particular, all Options entered into on a
national securities exchange are cleared and guaranteed by the OCC, thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
Options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
Exchange-traded Options involve certain risks not presented by the
over-the-counter market. For example, exercise and settlement of such Options
must be made exclusively through the OCC, which has established banking
relationships in certain foreign countries for that purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions or taxes would
prevent the orderly exercise or settlement of such Options, or would result in
undue burdens on the OCC or its clearing members, impose special procedures on
exercise and settlement, such as technical changes in the mechanics of delivery,
the fixing of dollar settlement prices or prohibitions on exercise.
The exchanges on which Options, Futures Contracts and Options on Futures
Contracts are traded may impose additional limitations governing the maximum
number of positions on the same side of the market and involving the same
underlying instrument that may be held by a single investor, whether acting
alone or in concert with others (regardless of whether such positions are held
or written on the same or different exchanges or held or written in one or more
accounts or through one or more brokers). In addition, the CFTC and the various
markets have established limits, referred to as "speculative position limits,"
on the maximum net long or net short positions that any person may hold or
control in a particular Futures Contract or Option on a Futures Contract. An
exchange may order the liquidation of positions found to be in violation of
these limits and it may impose other sanctions or restrictions. The Fund does
not believe that these trading and position limits will have an adverse impact
on the strategies for hedging the portfolio of the Fund.
Forward Contracts, Options, Futures Contracts and Options on Futures Contracts
may be traded in foreign markets or on foreign exchanges. Such transactions are
subject to the risk of governmental actions affecting trading in or the prices
of foreign currencies. The value of such positions also could be adversely
affected by, among other things, (i) other foreign political and economic
factors, (ii) lesser availability than in the United States of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and (v) lesser
trading volume.
B-7
<PAGE>
<TABLE>
<S> <C>
Bailard, Biehl & Kaiser Diversa Fund
Shareholder Application Form
Important - Please mail completed forms to: Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208
Note: Please do not use this application to establish a Bailard, Biehl & Kaiser IRA. You may obtain a Bailard, Biehl & Kaiser
IRA application by calling the Bailard, Biehl & Kaiser Fund Group at (800) 882-8383.
I. Investment Information - Minimum initial investment of $5,000.00.
Amount being invested $__________________. Do not send cash. Investments will be paid by (please check one)
[ ] Check or draft made payable to the Fund [ ] Wire through Federal Reserve System
II. Account Registration - Register shares as one of the following: (Please print)
NAME OF INDIVIDUAL NAME(S) OF CO-SHAREHOLDER(S)
------------------------------------------- -----------------------------------------
[ ] Community Property [ ] Tenants in Common ___________________________________________
[ ] Joint Tenants with Rights of Survivorship [ ] Other (specify)________________________________
NAME OF ORGANIZATION OR TRUST _________________________________________________________________
Name(s) of Trustee(s)___________________________________________________________________
Date of Trust __________________________________________________________________________
GIFT OR TRANSFER TO MINOR
______________________________________ as Custodian for ______________________________________ under the
(Custodian's Name) (Minor's Name)
__________________________ Uniform Gift or Transfer to Minor's Act (as applicable in the minor's state of residence).
(Minor's State of Residence)
III. Taxpayer Identification Number (Important Tax Information)
You (as payee) are required by law to provide us (as payer) with your correct taxpayer identification number. Accounts that have a
missing or incorrect taxpayer identification number will be subject to backup withholding at a 31% rate on interest, dividends and
other payments. Backup withholding is not an additional tax. The tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld.
Part 1. Enter your taxpayer identification number. For most individual taxpayers, this is your Social Security number. For
accounts established under the Uniform Gift or Transfer to Minor's Act, this would be the minor's social security number.
Social Security # ___ ___ ___ - ___ ___ - ___ ___ ___ ___ OR Tax ID # ___ ___ - ___ ___ ___ ___ ___ ___ ___
Part 2. Backup Withholding
[ ] Check here if you are NOT subject to backup withholding, either because you have not been notified by the Internal Revenue
Service (IRS) that you are subject to backup withholding as a result of failure to report all interest or dividends or because the
IRS has notified you that you are no longer subject to backup withholding.
IV. Other Account Information
Address: _________________________________________________________________________________________________________________________
Street or P.O. Box Number City State
Zip Code ___________ Home Phone _______________________ Business Phone _________________________ Date of Birth ______________
Marital Status ___________________ Occupation __________________________ State of Residence _______________
Citizen of: [ ] United States [ ] Other (specify) ___________ Do you have other Bailard, Biehl & Kaiser accounts? [ ] Yes [ ] No.
V. Distribution Option - If none is selected, distributions will be reinvested in additional shares. (If you choose to have your
dividends or capital gains sent by wire, please also complete Section VII.)
[ ] Dividends reinvested at net asset value [ ] Dividends paid in cash [ ] Dividends wired
<PAGE>
[ ] Capital gains reinvested at net asset value [ ] Capital gains paid in cash [ ] Capital gains wired
VI. Telephone Exchange and Redemption Option [ ] Yes [ ] No
I/We authorize the Bailard, Biehl & Kaiser Diversa Fund and its agent, Chase Global Funds Services Company, to honor exchange and
redemption requests of between $1,000 and $150,000, by telephone. I/We agree that the Bailard, Biehl & Kaiser Diversa Fund and
Chase Global Funds Services Company will not be liable for losses sustained as a result of acting on telephone instructions that
Chase Global Funds Services Company reasonably believes to be genuine and that such authorization will apply until I/we revoke it.
I/We select one of the following telephone redemption options:
[ ] Please mail telephone redemption proceeds to the name and address in which my/our fund account is registered;
[ ] Please mail or wire telephone redemption proceeds to the commercial bank indicated below. (Please obtain wiring
instructions from your bank before completing the section below.)
VII. Wiring Instructions - Please add the following wiring instructions to my account for distributions and redemption proceeds:
(All wires except for dividend and capital gains distributions will be assessed a $10.00 wiring fee by the transfer agent.)
Bank Name _______________________________________________ Bank ABA Number _______________________________
Bank Address______________________________________________________________________________________________
Street Address City State Zip Code
Nominee Account Name & Number (if applicable)_______________________________________________________________________________
Client Account Name & Number________________________________________________________________________________________________
Please attach a voided check or deposit slip from the account to which the monies are to be mailed or wired.
VIII. Systematic Withdrawal Plan Option
If you select this option, please review the terms and conditions of this plan in the Prospectus. This Application must be
received in good order at least 10 days prior to the first designated payment from the Systematic Withdrawal Plan (SWP) account,
and 10 days prior notice is required before any changes to the instructions in this Application can be implemented.
[ ] I/We hereby authorize the Bailard, Biehl & Kaiser Diversa Fund and its agent, Chase Global Funds Services Company, to
liquidate shares in and withdraw cash from this account beginning ____________, 19 ___, in the amount of $ __________ [ ]
SEMIMONTHLY, on or about the [ ] THIRD or the [ ] EIGHTEENTH, or [ ] MONTHLY, on or about the [ ] THIRD or the [ ] EIGHTEENTH, or
[ ] QUARTERLY, on or about the THIRD or the [ ] EIGHTEENTH, to provide SWP payments, and to mail a check for such amount from
Boston as soon as practicable after the third and/or eighteenth day of the payment period, as applicable, to me or to the
following payee (complete only if different from information previously stated):
Name(s) of Payee _______________________________________________________________________________________
Address ________________________________________________________________________________________________
Street or P.O. Box Number City State Zip Code
IX. Duplicate Statement Authorization
I/We hereby authorize the Bailard, Biehl & Kaiser Diversa Fund and its agent, Chase Global Funds Services Company, to release
information regarding my account to the person listed below:
Name & Title (if applicable) _______________________________________________ Telephone # ____________________
Firm Name (if applicable)________________________________________________________________________________________
Address _________________________________________________________________________________________________________
Street or P.O. Box Number City State Zip Code
X. Investment Representations and Signature(s)
The undersigned represent that the shares subscribed to hereby, and any other shares of the Fund purchased by the undersigned
in the future, will be purchased for the undersigned's own account (or for a trust account described in "Account Registration"
above) and not with a view to or for sale in connection with any distribution of the shares. This representation shall in no way
restrict the undersigned's ability to redeem some or all of the undersigned's shares at any time.
The undersigned certify that I/we have received and read the current Fund Prospectus and agree to be bound by its terms.
Under penalties of perjury, I/we certify that the taxpayer identification number and the statement as to backup withholding
provided in "Taxpayer Identification Number" above are true, correct and complete. The establishment of this account is subject to
acceptance by the Fund.
The Internal Revenue Service does not require your consent to any provision of this document other than the certifications
required to avoid backup withholding.
- ----------------------------------- ------------ ------------------------------------ -----------
Signature Date Signature Date
</TABLE>
<PAGE>
Investment Adviser
Bailard, Biehl & Kaiser, Inc.
950 Tower Lane, Suite 1900
Foster City, California 94404
Transfer Agent
Chase Global Funds Services Company
Boston, Massachusetts
Custodian And Accountant
Brown Brothers Harriman & Co.
Boston, Massachusetts
Counsel
Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation
San Francisco, California
Distributor
BB&K Fund Services, Inc.
950 Tower Lane, Suite 1900
Foster City, California 94404
Independent Accountants
Price Waterhouse LLP
Boston, Massachusetts
IRA Custodian
The Chase Manhattan Bank, N.A
New York, New York
Diversa Fund Trustees And Officers
Thomas E. Bailard, Chairman, Trustee
Burnice E. Sparks, Jr., President, Trustee
Shirley L. Clayton, Trustee
David B. Shippey, Trustee
James C. Van Horne, Trustee
Barbara V. Bailey, Treasurer
Janis M. Horne, Secretary and Chief Compliance Officer
Sofi Kyriakidis, Assistant Secretary and Assistant Treasurer
Investor Services Department
(800) 882-8383
<PAGE>
As filed with the Securities and Exchange
Commission on November 28, 1997
Registration No. 33-8441
File No. 811-4824
================================================================================
Part B
of
Form N-1A
REGISTRATION STATEMENT
BAILARD, BIEHL & KAISER FUND GROUP
================================================================================
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Bailard, Biehl & Kaiser Diversa Fund
950 Tower Lane, Suite 1900
Foster City, California 94404
This Statement of Additional Information is not a Prospectus, but contains
information in addition to that contained in the Prospectus which may be of
interest to some investors. This Statement of Additional Information should be
read in conjunction with the Prospectus dated January 27, 1998. You can request
the Prospectus by writing directly to us at the address above or by calling us
at (800) 882-8383.
Table of Contents
Page
----
Investment Objectives, Policies and Restrictions.............................B-2
Management...................................................................B-5
Right to Use Name............................................................B-8
Investment Advisory and Other Services.......................................B-8
Portfolio Transactions and Brokerage Commissions............................B-10
Net Asset Value for Purchase, Exchange and Redemption of Shares.............B-11
Tax Aspects.................................................................B-12
Shareholder Information.....................................................B-13
Performance Data............................................................B-13
Financial Statements........................................................B-14
This Statement of Additional Information Does Not
Constitute an Offer to Sell Securities.
The date of this Statement of Additional
Information is January 27, 1998.
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Bailard, Biehl & Kaiser Diversa Fund (the "Fund") is designed to achieve an
above average total return (the sum of income and capital gains) with below
average risk through investment in up to six classes of assets: United States
(domestic) cash equivalents, stocks and bonds and international cash
equivalents, stocks and bonds. The Fund's performance with respect to return and
risk will be measured against that of other funds investing in multiple classes
of securities. The specific objectives and policies of the Fund are more fully
described in the Prospectus.
The Fund's investment activities are subject to certain restrictions that are
deemed "fundamental policies." These fundamental policies may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities, which for this purpose means the vote of (a) 67% or more of
the shares of the Fund represented at a meeting where more than 50% of the
Fund's shares are represented, or (b) more than 50% of the outstanding shares of
the Fund, whichever is less. These fundamental policies provide that the Fund
will not:
1. Invest in securities of any one issuer (other than cash and cash items, and
securities of the United States Government and its agencies and
instrumentalities), if immediately after and as a result of such investment
more than 5% of the value of the Fund's total assets would be invested in
the securities of such issuer.
2. Invest more than 25% of the value of its total assets in the securities of
companies primarily engaged in any one industry (other than the United
States Government and its agencies and instrumentalities).
3. Acquire more than 10% of the outstanding voting securities of any one
issuer or invest for the purpose of exercising control.
4. Invest in companies for the purpose of exercising control or management.
5. Purchase or sell real property; provided that the Fund will invest in
publicly traded securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein.
6. Purchase or sell commodities or commodity contracts or invest in put, call,
straddle or spread options or in interests in oil, gas or other mineral
exploration or development programs; provided, however, that the Fund may
invest in precious metals, in the securities of companies that explore for,
extract, process or deal in precious metals and in asset-based securities
related to precious metals. In addition, this policy will not prevent the
purchase, ownership or sale of warrants or other rights where the grantor
of the warrants is the issuer of the underlying securities ("grantor
warrants"); provided that the Fund will not purchase a grantor warrant if,
as a result thereof, the aggregate market value of all purchased grantor
warrants then owned exceeds 5% of the total assets of the Fund or 2% of the
total assets of the Fund in the case of warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange. Moreover, and
notwithstanding this restriction, the Fund may purchase and sell foreign
currencies on a current basis and may engage in interest rate, foreign
currency and market hedging transactions, including investing in, writing
and purchasing forward contracts, options, futures contracts and options on
futures contracts on debt securities, financial indices and foreign
currencies.
7. Issue senior securities or borrow money, except that the Fund may borrow
from a bank as a temporary measure for extraordinary or emergency purposes
in amounts not exceeding
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5% of its total assets and except that the Fund may obtain such credit as
may be necessary for the clearance of purchases or sales of securities. For
the purpose of this restriction, neither margin or collateral arrangements
with respect to forward contracts, options, futures contracts or options on
futures contracts, nor the purchase or sale of forward contracts, options,
futures contracts or options on futures contracts, are deemed to be the
issuance of a senior security or borrowing.
8. Mortgage, pledge or in any other manner transfer any of its assets as
security for any indebtedness, except to secure borrowings described above
or to obtain such credit as may be necessary for the clearance of purchases
or sales of securities. For the purpose of this restriction, margin or
collateral arrangements with respect to forward contracts, options, futures
contracts and options on futures contracts, are not deemed to be a pledge
of assets.
9. Purchase any securities on margin or effect short sales, except that the
Fund may obtain such credit as may be necessary for the clearance of
purchases or sales of securities. The deposit by the Fund of initial or
variation margin in connection with forward contracts, options, futures
contracts and options on futures contracts will not be considered the
purchase of a security on margin.
10. Engage in the business of underwriting securities issued by others, or
purchase illiquid securities, i.e. securities subject to contractual
restrictions on disposition or legal restrictions on disposition in all of
the principal markets where traded, repurchase agreements maturing in over
seven days, or securities that are not otherwise readily marketable, if
such purchase will result in more than 10% of the value of its total assets
then being invested in such illiquid securities.
11. Invest in securities of an issuer which, together with any predecessor, has
been in operation for less than three years if, as a result, more than 5%
of the Fund's total assets would then be invested in such securities.
12. Participate on a joint or a joint and several basis in any trading account
in securities. (The "bunching" or combining of orders for the sale or
purchase of marketable securities with other accounts under the management
of Bailard, Biehl and Kaiser, Inc. ("Bailard, Biehl & Kaiser," or the
"Adviser") to save brokerage costs or achieve an average price among them
is not deemed to result in a securities trading account.)
13. Make loans of money or securities to any person or firm, except through the
purchase of debt securities in accordance with the Fund's investment
objectives and policies.
14. Purchase securities from or sell securities to its officers or directors or
other "interested persons" of the Fund (as defined in the Investment
Company Act of 1940 (the "1940 Act")).
15. Purchase or retain the securities of an issuer if, to the Fund's knowledge,
one or more of the officers or directors of the Fund, or one or more of the
officers or directors of the Adviser, individually own beneficially more
than 1/2 of 1% of the securities of such issuer or together own
beneficially more than 5% of such securities.
Unless otherwise specified, if a percentage restriction on investment or
utilization of assets set forth above is adhered to at the time an investment is
made, a later change in percentage resulting from changing values or a similar
type of event (such as a reduction in the size of the Fund occasioned by the
redemption of shares) will not be considered a violation of the Fund's
investment restrictions.
With respect to the Fund's policy not to invest more than 25% of the value of
its total assets in any one industry, the Fund deems the following eleven
economic sectors, representing the industry groups listed, to be separate
industries:
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Basic Industry Energy and Natural Resources
- -------------- ----------------------------
Aluminum Coal
Chemicals Domestic Oils
Containers Exploration (on and offshore)
Fertilizer Gas Pipelines/Distribution
Paper Gold and Precious Metals
Steel International Oils
Metals
Capital Goods Oil Service
- -------------
Agricultural Machines
Construction Machines Finance
Electricals -------
Machine Tools Banks - NYC
Miscellaneous Capital Goods - Regional
Insurers - Multi
- Casualty
Communication Services - Life
- ----------------------
Telecommunications Finance Companies
Miscellaneous Finance
Real Estate
Consumer Cyclicals Savings and Loan Companies
- ------------------
Advertising
Auto/Parts/Tires
Broadcasting Health Care
Entertainment -----------
Forest Products Drugs
Home Builders/Mobile Home Hospital Management
Home Furnishings/Appliances Hospital Supply
Hotel/Motel
Newspapers High Technology
Publishing ---------------
Restaurants Business Equipment
Retailing-Food, Drug, Department Computer Services
Waste Management Defense Electronics
Electronic-Instrumentation
Electronic-Semiconductors
Electronic Warfare
Consumer Staples
- ----------------
Apparel Transportation
Brewers --------------
Cosmetics Air Freight
Distillers Air Transport
Food Railroads
Photography Trucking
Soft Drinks
Shoes Utilities
Soaps ---------
Textiles Electric
Tobacco Gas Pipelines
Toys Water
In addition, the Investment Company Act of 1940, with certain exceptions,
prohibits the Fund from investing its assets in more than 3% of the outstanding
voting stock of any other investment company, more than 5% of its total value in
any other investment company, more than 10% of its total value in other
investment companies as a group, or, together with other
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<PAGE>
investment companies having the same investment adviser, more than 10% of the
outstanding voting stock of any closed-end investment company, unless the
security is acquired pursuant to a plan of reorganization or a Securities and
Exchange Commission approved offer of exchange.
MANAGEMENT
Trustees and Officers
The names and business addresses of the Trustees and officers of the Trust,
their positions with the Trust and their other principal occupations during the
past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Other Principal
Name and Address with Trust Occupation(s) During Past Five Years
- ---------------- ---------- ------------------------------------
<S> <C> <C>
Thomas E. Bailard(1) Chairman of the Chairman, Chief Executive Officer
950 Tower Lane, Suite 1900 Board, Chief and President of BB&K Holdings,
Foster City, CA 94404 Executive Officer Inc. ("Holdings"). Officer and Director
and Trustee of the Adviser, currently Chairman and
Chief Executive Officer. Chairman of
BB&K Fund Services, Inc., a registered
broker-dealer ("Fund Services").
Chairman of Bailard, Biehl & Kaiser Real
Estate Investment Trust (the "REIT").
Burnice E. Sparks, Jr.(1) President and Director and officer of the Adviser,
950 Tower Lane, Suite 1900 Trustee currently President. Director and
Foster City, CA 94404 Chief Executive Officer of Fund Services
since June 1992. President and Director of
the Bailard, Biehl & Kaiser International Fund
Group, Inc. (the "International Fund
Group").
Janis M. Horne(1) Secretary and Senior Vice President, Investment
950 Tower Lane, Suite 1900 Chief Compliance Officer Counselor and Chief Compliance Officer
Foster City, CA 94404 of the Adviser. Secretary and
Chief Compliance Officer of the
International Fund Group.
Barbara V. Bailey(1) Treasurer Treasurer of
950 Tower Lane, Suite 1900 Holdings and Senior Vice President and
Foster City, CA 94404 Treasurer/Secretary of the Adviser since
December 1995. Treasurer of
International Fund Group since September
1996. Secretary of Fund Services and
Treasurer and Secretary of the REIT
since January 1996. Management consultant
from September 1995 to December 1995.
Account Manager/Consultant at Watson
Wyatt Worldwide from December 1994 to
</TABLE>
- -----------------
(1) "Interested person" of the Trust, as defined in the 1940 Act.
<PAGE>
<TABLE>
<S> <C>
September 1995. Vice President and
Manager at Caisse Nationale de Credit
Agricole from July 1991 to April 1994.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Other Principal
Name and Address with Trust Occupation(s) During Past Five Years
- ---------------- ---------- ------------------------------------
<S> <C> <C>
Sofi Kyriakdis(1) Assistant Treasurer Employee of the Adviser since
950 Tower Lane, Suite 1900 and Assistant Secretary November 1995, most recently as
Foster City, CA 94404 Vice President. Assistant
Treasurer and Assistant Secretary
of the International Fund Group since
September 1996. Assistant Treasurer of
the REIT since June 1996. Correspondence
Specialist of Franklin Resources, Inc.
from July 1994 to May 1995.
Shirley L. Clayton(2) Trustee President and Chief Operating Officer
TopoMetrix of TopoMetrix, a manufacturer of
5403 Betsy Ross Drive scanning probe microscopes, since
Santa Clara, CA 95054-1162 January 1996; Chief Financial Officer
from June 1993 to January 1996.
Chief Financial Officer of Cygnus
Therapeutic Systems, Inc., a biotechnology
company, from March 1990 to June 1993.
Director of the International Fund Group.
David B. Shippey(2) Trustee Prior to September 1983 associated
5130 Enterprise Rd. with Saga Corporation, a restaurant
Glen Ellen, CA 95442 and contract food service business, his last
position being Vice President and
Treasurer. Director of the International
Fund Group.
James C. Van Horne(2) Trustee A.P. Giannini Professor of Finance at
Graduate School of Graduate School of Business of
Business Stanford University from September
Stanford University 1976 to the present. From September
Stanford, CA 94305 1975 to August 1976, Deputy Assistant
Secretary of the United States Treasury
Department. Director of Sanwa Bank
California and Montgomery Street Income
Securities, Inc., a registered investment
company. Director of the International
Fund Group.
</TABLE>
- ------------------------------
(1) "Interested person" of the Trust, as defined in the 1940 Act.
(2) Member of the Audit Committee
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<PAGE>
The following table sets forth the compensation paid to the Trust's Trustees
during the fiscal year ended September 30, 1997.
Compensation Table
<TABLE>
<CAPTION>
Name of Person Aggregate Pension or Retirement Estimated Total Compensation
and Position Compensation Benefits Accrued as Annual From Company and
from Trust Part of Trust Expenses Benefits Upon Fund Complex(1)
Retirement Paid to Trustees
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas E. Bailard $0(2) $0 $0 $0
Burnice E. Sparks, Jr. $0(2) $0 $0 $0
$10,000(3) $0 $0 $20,000
Shirley L. Clayton $6,667(3) $0 $0 $20,000
$10,000(3) $0 $0 $20,000
David B. Shippey $6,667(3) $0 $0 $20,000
$10,000(3) $0 $0 $20,000
James C. Van Horne $6,667(3) $0 $0 $20,000
</TABLE>
The Trust and the International Fund Group reimburse each Trustee and Director
for travel and other out-of-pocket disbursements incurred in connection with
attending Board meetings. The Trust and the International Fund Group also
reimburse other travel expenses of Trustees, Directors and officers, including
international travel expenses, incurred incident to the performance of their
duties as Trustees, Directors and officers.
- ---------------
(1) A Fund Complex consists of investment companies that hold themselves
out to investors as related companies for purposes of investment and investor
services, have a common investment adviser or have an investment adviser that is
an affiliated person of the investment adviser of any other investment
companies. The Trust and the International Fund Group are considered to be part
of the same Fund Complex.
(2) Does not include fees paid to the Adviser pursuant to the Management
Agreement as described below under "INVESTMENT ADVISORY AND OTHER SERVICES". 3
(3) Consists of $4,000 annual trustee fee plus $667 for each Board meeting
attended in person.
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<PAGE>
RIGHT TO USE NAME
Bailard, Biehl & Kaiser has granted the Fund the right to use the designation,
"Bailard, Biehl & Kaiser," in its name. The Adviser has reserved the right to
withdraw its consent to the use of such designation by the Fund under certain
conditions and to grant the use of such name to others, including other
investment companies.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund has entered into an Investment Advisory and Management Agreement (the
"Management Agreement") with Bailard, Biehl and Kaiser for investment advisory
and certain portfolio transaction services. Pursuant to the Management
Agreement, the Adviser manages the day-to-day operations of the Fund and directs
the purchase and sale of securities in the Fund's portfolio in accordance with
the Fund's investment objectives and policies.
The Adviser receives a monthly fee calculated at an annual rate equal to .95% of
the average net assets of the Fund up to $75 million, .80% of the next $75
million, and .65% of the average net assets in excess of $150 million. While the
initial rate is higher than the rate charged by most other advisers, the Fund
believes that it is justified by the complexity of the services provided by the
Adviser. For the fiscal years ended September 30, 1995, 1996, and 1997, the
total fees paid to the Adviser amounted to $398,374, $370,980 and $350,110
respectively. The Adviser pays the following expenses incurred in the Fund's
day-to-day management: office space and facilities used by the Adviser, salaries
and expenses of personnel of the Adviser and certain costs associated with the
sale of the Fund's shares.
The Management Agreement may be terminated at any time, without penalty upon 60
days' written notice, by majority vote of the Board of Trustees of the Fund or
by a vote of the holders of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund. The Management Agreement may also be
terminated by the Adviser upon not less than 180 days' written notice to the
Fund and terminates automatically upon its assignment (as defined in the 1940
Act).
The Fund pays all of its own expenses (except for those expressly to be paid by
the Adviser) including without limitation the following: all costs and expenses
incident to the registration, including the maintenance of registration, of the
Fund under the 1940 Act or the qualification of the shares of the Fund for sale
under federal, state or other securities laws; printing or other reproduction
and distribution of any prospectuses and any other documents necessary and
incident to any public offering (other than costs incident to the reproduction
and distribution of prospectuses to prospective new investors and the
advertising of Fund shares, which are payable by the Adviser); charges and
expenses of any registrar or custodian of the Fund; all auditing, accounting,
bookkeeping and record keeping charges and expenses; transfer agent and dividend
agent charges and expenses; all commissions payable on portfolio securities
transactions; all taxes and organizational fees payable by the Fund to any
federal, state or other governmental agencies; the costs of preparing and
printing stock certificates; all expenses of meetings of shareholders and
Trustees and of preparing, printing and mailing proxy statements and any reports
to shareholders; fees and travel expenses of officers and Trustees; fees and
expenses incident to any dividend or distribution reinvestment program; all
charges and expenses of legal counsel for the Fund; fees and expenses incurred
in obtaining rulings, advice or other information or counselling relating to the
taxation of the Fund or its shareholders; all association dues; all interest
payable on Fund borrowings; and all costs of information obtained from sources
other than the Adviser or its affiliated persons (as defined in the 1940 Act)
B-9
<PAGE>
relating to the pricing and valuation of securities.
As an accommodation to the Fund, from time to time Bailard, Biehl & Kaiser
directly pays certain expenses of the Fund (such as insurance premiums, Trustee
fees, and fees relating to state securities law filings) for which Bailard,
Biehl & Kaiser is later reimbursed by the Fund. Disbursements by Bailard, Biehl
& Kaiser on behalf of the Fund and their subsequent reimbursement by the Fund
are effected only upon the prior approval of an officer of the Trust. For the
fiscal year ended September 30, 1997 the Fund reimbursed the Adviser
approximately $53,789.
The Adviser has agreed to reduce the investment management fee payable to it in
any fiscal year by the amount by which the expenses of the Fund exceed the most
stringent limits prescribed by any state in which the Fund's shares are offered
for sale. Currently, only California imposes an expense limitation. California
law requires reimbursement of expenses (up to the amount of fees received) if in
any fiscal year the annual aggregate expenses of the Fund (determined in
accordance with generally accepted accounting principles), exclusive of
interest, taxes, brokerage and excess custodian costs attributable to
investments in foreign securities (as compared to custodian costs that would
have been incurred had the investments been in domestic securities) exceed 2.5%
of the first $30 million of the average net assets of the Fund, or 2% of the
next $70 million, or 1.5% of the remaining average net assets of the Fund.
(Expenditures which are capitalized in accordance with generally accepted
accounting principles applicable to investment companies, including costs
generally incurred in connection with the purchase or sale of portfolio
securities, are not deemed expenses for purposes of the foregoing reimbursement
provisions.) On September 14, 1989 the Fund received an order from the
California Commissioner of Corporations allowing the Adviser to exclude from the
calculation of the Fund's aggregate annual expenses, not only excess foreign
custodian costs, but also the investment management, recordkeeping, legal and
auditing fees attributable to its foreign investments and asset allocation
practices. For the fiscal years ended September 30, 1995, 1996 and 1997 no
expense reimbursement was required. The imposition of an expense limitation by
California or any other state after October 1996 appears to be prohibited by the
National Securities Markets Improvement Act of 1996.
BB&K Fund Services, Inc., 950 Tower Lane, Suite 1900, Foster City, California
94404 ("Fund Services"), serves as the exclusive Distributor for the Fund's
shares pursuant to an agreement with the Fund. Fund Services receives no
commission or compensation for acting as the Fund's agent in the continuous
public offering of the Fund's shares.
The Adviser and the Distributor are wholly owned subsidiaries of BB&K Holdings,
Inc. ("Holdings"). In addition, Thomas E. Bailard and his spouse, Terri, may be
deemed to be controlling persons of the Adviser and the Distributor by virtue of
their beneficial ownership of more than 25% of Holdings' securities as
individuals or as trustees.
As part of the Custodian Agreement, the Fund's Custodian has agreed to act as
the Fund's financial agent, and will maintain certain books and records for the
Fund, perform the calculations necessary to compute the value of the Fund's
investment securities and other assets and the net asset value of the Fund's
shares, confirm all share purchases and redemptions to the Fund's Transfer
Agent, provide financial reports to the Fund necessary to prepare its financial
statements, and provide additional services of a similar nature. For services
rendered by the Custodian in the 1995, 1996, and 1997 fiscal years, the Fund
paid the Custodian $145,700, $174,875 and $151,411, respectively.
B-10
<PAGE>
The Trust, on behalf of the Fund, has entered into an Administration Agreement
dated as of April 1, 1994, as amended, with Investment Company Administration
Corporation.
Officers, directors and employees of the Trust and the Adviser are permitted to
invest in securities for their own account, including securities that may be
purchased or held by the Fund. To address potential conflicts with the interests
of the Fund that might arise from personal securities transactions, both the
Trust and the Adviser have adopted codes of ethics pursuant to Rule 17j-1 under
the 1940 Act. These codes include certain preclearance and reporting procedures
and certain restrictions on contemporaneous and short-term trading and on
purchases of securities in private placements and initial public offerings.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Adviser supervises the allocation of brokerage and reviews the efficiency of
execution and reasonableness of the commissions charged. The primary objective
in placing orders for the purchase and sale of securities for the Fund's
portfolio is to obtain the most favorable net results taking into account such
factors as price, commission (which is negotiated in the case of the U.S. stock
exchange transactions but which is generally fixed in the case of foreign stock
exchange transactions), size of order, difficulty of execution and skill
required of the executing broker or dealer. Securities are ordinarily purchased
from the primary markets, whether over-the-counter or listed, and listed
securities may be purchased in the over-the-counter market if in the judgment of
the Adviser it is the primary market.
Although favorable price and efficient execution of portfolio transactions are
primary considerations, other factors may also be relevant. Accordingly, the
Adviser may, consistent with the Fund's best interest, place orders with brokers
who provide research services, such as analyses of industries or issuers and
statistical or economic information. While allocation of brokerage on this basis
may result in the Fund being charged a higher commission rate on certain
transactions, the Adviser periodically reviews the brokerage commissions paid by
the Fund to ensure their reasonableness in relation to (i) the brokerage
commissions paid by other similarly situated investors and (ii) the value of the
brokerage and research services provided, viewed in terms of either particular
transactions or the overall responsibilities of the Adviser to the Fund.
The extent to which commissions charged by brokers may reflect an element of
value for research services cannot be determined. To the extent that research
services are provided by brokers through whom the Fund places portfolio
transactions, the Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by brokers could be useful to the Adviser in
serving its other clients as well as the Fund; on the other hand, certain
research services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful to it in serving the Fund.
It is not the Fund's practice to allocate portfolio securities business on the
basis of sales of its shares. For the fiscal year ended September 30, 1997, the
Adviser estimates that the Fund paid $66,000 in brokerage commissions involving
$39,900,000 of portfolio transactions, to brokers with whom the Adviser had an
arrangement to receive research or related services.
There are occasions in which portfolio transactions for the Fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other accounts served by the Adviser, some of which accounts have investment
objectives similar to the Fund's investment objective. Although such concurrent
authorizations potentially could be either advantageous or
B-11
<PAGE>
disadvantageous to the Fund, they will be effected only when the Adviser
believes that to do so will be in the best interest of the Fund. When such
concurrent authorizations occur, the objective will be to allocate the
executions in a manner which is deemed equitable by the Adviser to the accounts
involved, including the Fund.
The Adviser does not use any of its affiliates or affiliates of the Fund to
execute portfolio transactions. The Fund, however, may purchase equity and debt
securities of brokers or dealers that execute its portfolio transactions. During
the fiscal year ended September 30, 1997, the Fund did not acquire any
securities issued by the ten brokers (or their parent companies) who executed
the largest dollar amounts of portfolio transactions for the Fund.
During the fiscal years ended September 30, 1995, 1996 and 1997, the Fund paid
brokerage commissions on Fund portfolio securities transactions of approximately
$134,251, $85,971, and $79,880, respectively. The Fund's portfolio turnover rate
for the fiscal years ended September 30, 1995, 1996, and 1997, was 166%, 68% and
66%, respectively. The decrease in brokerage commissions and portfolio turnover
rate in 1996 and 1997 was primarily due to fewer asset allocation changes and
fewer trades in the international stock class of the portfolio.
NET ASSET VALUE FOR PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
The net asset value per share, on which purchase, exchange and redemption prices
are based, is calculated in accordance with the formula and at the times set
forth in the Prospectus. As of the date of this Statement of Additional
Information, the Fund understands that the New York Stock Exchange will be
closed (and, thus, no net asset value will be calculated) on the following U.S.
holidays: New Year's Day, Dr. Martin Luther King, Jr.'s Birthday, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas.
Changes in holdings of portfolio securities are accounted for no later than the
first calculation of net asset value following the trade date (date the order to
buy or sell is executed). Dividends are accounted for on the ex-dividend date
and detachments of securities from other securities are accounted for on the
date of detachment, except that certain dividends or detachments from
international securities are recorded as soon as the Fund is informed of the
ex-dividend or detachment date.
Securities traded on an exchange or on the NASDAQ National Market System are
valued at the closing price on that exchange. If there has been no sale on such
date or if the closing price is not the last sale price, then the security is
valued at the mean of the closing bid and asked prices on such day. Equity
securities that are not traded on an exchange or on the NASDAQ National Market
System are valued at the mean of the closing bid and asked prices.
Short-term debt obligations with a remaining maturity of 60 days or less are
valued at amortized cost. Other debt securities are valued at prices provided by
one or more bona fide market-makers as of the closing of the relevant market.
Options on futures contracts, and exchange traded options other than index
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 their closing bid and asked prices.
Exchange traded index options are valued at the last sale price only if that
price falls on or between the closing bid and asked prices on that day. If the
last sale price
B-12
<PAGE>
falls outside of the range of the closing bid and asked prices, or if there has
been no sale that day, then the index option will be valued using the mean of
the closing bid and asked prices. Options traded over-the-counter are valued at
the most recent bid quotation in the case of purchased options and at the most
recent asked quotation in the case of written options. When the Fund writes an
option, an amount equal to the premium received is included as an asset, and an
equivalent deferred credit is included as a liability and marked to market on a
daily basis. If a call option written by the Fund is exercised, the proceeds are
increased by the premium received. If a call option written by the Fund expires,
the Fund has a gain in the amount of the premium. If the Fund enters into a
closing purchase transaction, the Fund will have a gain or loss depending on
whether the premium was more or less than the cost of the closing transaction.
If a put option held by the Fund is exercised, the amount the Fund receives on
sale of the underlying investment is reduced by the amount of the premium paid
by the Fund.
Futures Contracts and precious metals are valued at the last settlement price as
of the close of the commodities exchange on which they are traded. Forward
currency contracts are valued based on their amortized forward points and the
closing spot price of their underlying currencies as of 11:00 a.m. New York
time. Foreign securities and cash are converted into U.S. dollar values at the
mean of the bid and asked prices for the underlying currencies as of the same
time.
All prices are taken from the primary market in which the portfolio security or
other asset is traded.
The Board of Trustees has delegated to the Fund's Custodian and the Adviser the
authority to make valuations of marketable securities and rate of exchange
determinations in accordance with the standards described above. If market
quotations are not readily available for valuation purposes, portfolio
securities and other assets will be valued by or under the direction of the
Board of Trustees in such manner as the Board of Trustees in good faith deems
appropriate to reflect the fair value thereof.
The general procedures for purchasing, exchanging and redeeming shares are fully
described in the Prospectus. In addition, during any 90-day period, the Fund is
committed to pay in cash all requests to redeem shares by any one shareholder,
up to the lesser of $250,000 or 1% of the value of the Fund's net assets at the
beginning of the period. The Fund may change this commitment only with the
approval of the Securities and Exchange Commission. Should redemptions by any
shareholder exceed this limitation, the Fund reserves the right to redeem the
excess amount in whole or in part in readily marketable securities. The same
method used to determine net asset value will be used to value portfolio
securities distributed in connection with such redemptions. If shares of the
Fund are redeemed in kind, the redeeming shareholder may incur additional
brokerage costs in converting to cash any portfolio securities distributed.
TAX ASPECTS
The Fund believes that it has qualified for "pass-through" tax treatment as a
regulated investment company for its fiscal year ended September 30, 1997, and
intends to be able to continue to so qualify. To qualify as a regulated
investment company, the Fund must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, gains
from the sale or other disposition of stocks, securities or foreign currencies,
or certain other sources,
B-13
<PAGE>
(b) diversify its holdings so that, at the end of each quarter of the taxable
year, (i) at least 50% of the market value of the Fund's assets is represented
by cash, U.S. government obligations and other securities limited in respect of
any one issuer to an amount not greater than 5% of the Fund's 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 obligations or the securities of other regulated investment
companies), and (c) distribute in each year at least 90% of its investment
company taxable income.
For any year in which it does not qualify as a regulated investment company, (a)
the Fund will be taxed as an ordinary corporation, (b) distributions to its
shareholders will not be deductible by the Fund in computing its taxable income,
and (c) the Fund's distributions, to the extent made out of the Fund's current
or accumulated earnings and profits, will be taxable to its shareholders as
dividends (regardless of whether they would otherwise have been considered
long-term capital gains). Should the Fund be deemed a personal holding company,
its undistributed income would be taxed at the highest marginal rate applicable
to corporations and it could be subject to an additional personal holding
company tax generally equal to 39.6% of its net undistributed dividend and
interest income.
Backup Tax Withholding Requirement
Certain shareholders may be subject to backup tax withholding at a 31% rate.
Generally, a shareholder will be subject to backup withholding if the
shareholder fails to provide the Fund with its correct taxpayer identification
number, or if the IRS notifies the Fund that the shareholder has underreported
interest or dividends. In addition, shareholders who fail to certify that they
are not subject to backup withholding (on the grounds only of underreporting and
notice from the IRS) will be subject to backup withholding. Accordingly, to
avoid being subject to backup withholding, investors who acquire shares in the
Fund must certify that they have provided their correct taxpayer identification
numbers and that they are not subject to backup withholding in the appropriate
spaces on the application at the end of the Prospectus.
Other Tax Consequences
Dividends and interest received by the Fund in connection with its foreign
securities investments may give rise to withholding and other taxes imposed by
foreign countries, generally at rates from 10% to 35%. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Investors may be entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to the limitations of the Code. Foreign countries generally do
not impose taxes on capital gains in respect of investments by foreign
investors.
Some investments made by the Fund may be treated as "passive foreign investment
companies" ("PFICs") for U.S. income tax purposes. Investment by the Fund in
PFICs could alter the timing or characterization of certain distributions to
shareholders or subject the Fund to federal income tax or other charges in
certain circumstances.
The discussion in the Prospectus, together with the foregoing, is a general and
abbreviated summary of the tax consequences of investment in the Fund. Investors
are urged to consult their own tax advisors to determine the effect of
investment in the Fund upon their individual tax situations.
SHAREHOLDER INFORMATION
As of October 8, 1997 all officers and Trustees of the Trust as a group held of
record and beneficially less than 1% of the outstanding shares of the Fund. No
shareholders held of
B-14
<PAGE>
record or, to the Fund's knowledge, beneficially in excess of 5% of the
outstanding shares of the Fund on that date.
PERFORMANCE DATA
The Fund may compute its average annual compounded rate of total return during
specified periods that would equate a hypothetical initial investment of $1,000
to the ending redeemable value of such investment by (a) adding one to the
computed average annual total return, (b) raising the sum to a power equal to
the number of years covered by the computation and (c) multiplying the result by
$1,000 (which represents the hypothetical initial investment). The ending
redeemable value is determined by assuming a complete redemption at the end of
the periods covered by the average annual total return computation. The Fund's
average annual compounded rates of total return for the one-year, five-year and
ten-year periods ended September 30, 1997 were 19.14%, 11.27% and 7.29%,
respectively. These figures assume that all dividends and distributions by the
Fund are reinvested at net asset value on the reinvestment dates.
These figures represent past performance and an investor should be aware that
the investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Therefore, there is no assurance that this performance
will be repeated in the future.
FINANCIAL STATEMENTS
Incorporated by reference herein are the report of the independent accountants
dated November 15, 1997, and the other portions of Registrant's annual report to
shareholders for the fiscal year ended September 30, 1997, under the headings:
"SCHEDULE OF INVESTMENTS," "STATEMENT OF ASSETS AND LIABILITIES," "STATEMENT OF
OPERATIONS," "STATEMENT OF CHANGES IN NET ASSETS," "FINANCIAL HIGHLIGHTS, "
"NOTES TO FINANCIAL STATEMENTS" and "REPORT OF INDEPENDENT ACCOUNTANTS". Copies
of the annual report are available, upon request and without charge, by calling
the Fund's Investor Services Department at (800) 882-8383, or by writing to the
following address: Bailard, Biehl & Kaiser Fund Group, Investor Services
Department, 950 Tower Lane, Suite 1900, Foster City, CA 94404.
-----------------------------------------------------
The Prospectus and this Statement of Additional Information, together, do not
contain all of the information set forth in our registration statement filed
with the Securities and Exchange Commission. Certain information is omitted in
accordance with rules and regulations of the Commission. The registration
statement may be inspected at the Public Reference Room of the Commission at
Room 1024; 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and
copies thereof may be obtained from the Commission at prescribed rates.
- -----------------
B-15
<PAGE>
As filed with the Securities and
Exchange Commission on November 28, 1997
Registration No. 33-8441
File No. 811-4828
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Part C
of
Form N-1A
REGISTRATION STATEMENT
BAILARD, BIEHL & KAISER FUND GROUP
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements:
Incorporated by reference in Part B (Statement of
Additional Information) under the heading "Financial
Statements"
Financial Highlights:
Included in Part A (Prospectus)
(b) Exhibits:
Exhibit Number and Description
------------------------------
(1) Declaration of Trust of Registrant, as amended (incorporated
by reference to Exhibit 1 of Post-Effective Amendment No. 3
to Registrant's Form N-1A Registration Statement dated
January 30, 1989).
(2) By-Laws of Registrant (incorporated by reference to Exhibit
2 of Registrant's Form N-1A Registration Statement dated
November 3, 1987).
(3) Not applicable.
(4) Specimen Stock Certificate of Registrant (incorporated by
reference to Exhibit 4 of Pre-Effective Amendment No. 1 to
Registrant's Form N-1A Registration Statement dated November
28, 1986).
(5) Amended Investment Advisory And Management Agreement by and
between Registrant and Bailard, Biehl & Kaiser, Inc.
(incorporated by reference to Exhibit 5 of Post-Effective
Amendment No. 7 to Registrant's Form N-1A Registration
Statement dated June 29, 1990)
(6) Distribution Agreement by and between Registrant and BB&K
Fund Services, Inc. (incorporated by reference to Exhibit 6
of Post-Effective Amendment No. 3 to Registrant's Form N-1A
Registration Statement dated January 30, 1989).
(7) Not applicable.
(8) Custodian Agreement by and between Registrant and Brown
Brothers Harriman & Co. (incorporated by reference to
Exhibit 8 of Post-Effective Amendment No. 1 to Registrant's
Form N-1A Registration Statement dated June 15, 1987).
(9) Administration Agreement between Registrant and Investment
Company Administration Corporation, as amended (incorporated
by reference to Exhibit 9 of Post-Effective
C-1
<PAGE>
Amendment No. 12 to Registrant's Form N-1A Registration
Statement dated January 26, 1996).
(10) Opinion and Consent of Counsel (incorporated by reference to
Exhibit 10 of Pre-Effective Amendment No. 2 to Registrant's
Form N-1A Registration Statement dated December 18, 1986).
(11) Consent of Price Waterhouse LLP.
(12) Not applicable.
(13) Investment letter provided in connection with the shares
issued to raise initial capital (incorporated by reference
to Exhibit 13 of Pre-Effective Amendment No. 1 to
Registrant's Form N-1A Registration Statement dated November
28, 1986).
(14) Model IRA Plan (incorporated by reference to Exhibit 14 of
Registrant's Form N-1A Registration Statement dated June 15,
1987).
(15) Not applicable.
(16) Schedule for Computation of Performance Quotations.
(27) Financial Data Schedule.
Item 25. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------
Registrant's organization has been sponsored by Bailard, Biehl
& Kaiser, Inc. ("Bailard, Biehl & Kaiser"), a California corporation and a
wholly owned subsidiary of BB&K Holdings, Inc., a California corporation
("Holdings"). Thomas E. Bailard, Burnice E. Sparks, Jr., Barbara V. Bailey, and
Janis M. Horne, who are officers and/or Trustees of Registrant, are also
officers and/or Directors of Holdings, Bailard, Biehl & Kaiser and/or BB&K Fund
Services, Inc. ("Fund Services"), a California corporation and a wholly owned
subsidiary of Holdings . Mr. Bailard, Mr. Sparks, and Ms. Horne are also each
shareholders of Holdings. Registrant's shares of common stock are offered to
investment advisory or counselling clients and employees (including officers and
relatives of employees and officers) and Directors of Bailard, Biehl & Kaiser.
As a result, Holdings, Bailard, Biehl & Kaiser and/or Fund Services may be
deemed to be directly or indirectly under common control with Registrant.
Mr. Sparks, Ms. Bailey, Ms. Horne and Sofi Kyriakidis, who are
officers and/or Trustees of Registrant, are also officers and/or Directors of
Bailard, Biehl & Kaiser International Fund Group, Inc. (the "International Fund
Group"), a Maryland corporation and a registered investment company. Shirley L.
Clayton, David B. Shippey and James C. Van Horne, Trustees of Registrant, are
also Directors of the International Fund Group. Bailard, Biehl & Kaiser serves
as the investment adviser to each series of the International Fund Group. As a
result, the International Fund Group may be deemed to be directly or indirectly
under common control with Registrant.
C-2
<PAGE>
Item 26. Number of Holders of Securities.
--------------------------------
As of October 31, 1997 the number of record holders of the
Registrant's shares was as follows:
Shares Number of Record
Title of Class Outstanding Holders
- -------------- ----------- -------
Shares of beneficial interest 2,702,188 357
Item 27. Indemnification.
----------------
Registrant participates in a policy of insurance which
insures the Trust and its Trustees, officers and employees against any liability
arising by reason of any actual or alleged breach of duty, neglect, error,
misstatement, misleading statement or other act or omission within the scope of
their duties.
Reference is made to Sections 5.1, 5.2, 5.3 and 5.4 of the
Declaration of Trust (see Exhibit 1 to this Registration Statement) and Article
XI of the By-Laws (see Exhibit 2 to this Registration Statement), which reflect
the positions taken in Investment Company Act Release 11330.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
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 Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of 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, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser.
-----------------------------------------------------
Bailard, Biehl & Kaiser is the investment adviser of the
Registrant. The other business, profession, vocation or employment of a
substantial nature in which the Directors and officers of Bailard, Biehl &
Kaiser who are Trustees or officers of Registrant have been engaged for the past
two fiscal years are as follows:
C-3
<PAGE>
Item 29. Principal Underwriters.
-----------------------
Fund Services, located at 950 Tower Lane, Suite 1900, Foster
City, California 94404, is the principal underwriter for the Registrant and for
the International Fund Group. Certain information with respect to the officers
and Directors of Fund Services is set forth below. The principal business
address of each such person is 950 Tower Lane, Suite 1900, Foster City,
California, 94404.
<TABLE>
<CAPTION>
Name Position(s) With Fund Services Other Principal Occupations
- ---- ------------------------------ ---------------------------
<S> <C> <C>
Thomas E. Bailard Chairman of the Board Chairman of the Board and Chief
Executive Officer of Holdings;
Chairman of the Board and Chief
Executive Officer of Bailard, Biehl
& Kaiser; Chairman of the Board
and Trustee of Registrant; Chairman
of Bailard, Biehl & Kaiser REIT
Peter M. Hill Director Co-President, Chief Investment
Officer and Director of Bailard,
Biehl & Kaiser; Chairman of the
Board of the International Fund
Group
Burnice E. Sparks, Jr. Chief Executive Officer Co-President and Director of
and Director Bailard, Biehl & Kaiser; President
and Trustee of Registrant; President
and Director of the International
Fund Group
Sofi Kyriakdis Treasurer Employee of the Adviser since
November 1995, most recently as
Vice President. Assistant
Treasurer and Assistant Secretary
of the International Fund Group since
September 1996. Assistant Treasurer of
the REIT since June 1996. Correspondence
Specialist of Franklin Resources, Inc.
from July 1994 to May 1995.
Barbara V. Bailey Secretary Senior Vice President and
Treasurer/Secretary of Bailard,
Biehl & Kaiser; Senior Vice
President and Treasurer of
Holdings; Treasurer of Registrant
and the International Fund Group;
Treasurer and Secretary of Bailard,
Biehl & Kaiser REIT
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Position(s) With
Name Bailard, Biehl & Kaiser Other Principal Occupations
- ---- ----------------------- ---------------------------
<S> <C> <C>
Thomas E. Bailard Chairman of the Board Chairman of the Board, Chief
and Chief Executive Executive Officer and President of
Officer Holdings; Chairman of the Board of Fund
Services Inc.; Chairman of the Board
and Trusteee of Registrant; Chairman of
Bailard, Biehl & Kaiser REIT
Peter M. Hill Co-President, Chief Director of Fund Services; Chairman of
Investment Officer and the Board of the International Fund
Director Group
Burnice E. Sparks, Jr. Co-President and Director Chief Executive Officer and Director of
Fund Services; President and Trustee of
Registrant; President and Director of the
International Fund Group
Barbara V. Bailey Senior Vice President Senior Vice President and Treasurer of
and Treasurer/Secretary Holdings; Secretary of Fund Services;
Treasurer of Registrant and the
International Fund Group; Treasurer and
Secretary of Bailard, Biehl & Kaiser REIT
Janis M. Horne Senior Vice President and Secretary and Chief Compliance Officer
Chief Compliance Officer of Registrant and the International Fund
Group
</TABLE>
For additional information as to any other business,
profession, vocation or employment of a substantial nature of Bailard, Biehl &
Kaiser, its Directors and officers, reference is made to Part B of this
Registration Statement and to Form ADV, as amended on June 28, 1997, filed under
the Investment Advisers Act of 1940 by Bailard, Biehl & Kaiser, SEC File No.
801-8562. The principal business address of Bailard, Biehl & Kaiser and each
Director and officer of Bailard, Biehl & Kaiser is 950 Tower Lane, Suite 1900,
Foster City, CA 94404.
C-5
<PAGE>
Item 30. Location of Accounts and Records.
---------------------------------
<TABLE>
<CAPTION>
Name and Address of Persons Records, Books and
Maintaining Physical Possession Accounts Required by:
- ------------------------------- ---------------------
<S> <C>
Brown Brothers Harriman & Co. Rule 31a-1(b)(1), (2)(i-iii), (3), (8), (9)
40 Water Street
Boston, MA 02109
Bailard, Biehl & Kaiser Fund Group Rule 31a-1(b)(4), (5), (6), (7), (10), (11)
950 Tower Lane, Suite 1900
Foster City, CA 94404
Chase Global Funds Services Company Rule 31a-1(b)(2)(iv)
73 Tremont St.
Boston, MA 02108-3913
</TABLE>
Item 31. Management Services.
--------------------
Not applicable.
Item 32. Undertakings.
-------------
Registrant undertakes to furnish each person to whom a Prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, Registrant has duly caused this Amendment to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Mateo and State of California on the 28th day of November, 1997.
BAILARD, BIEHL & KAISER FUND GROUP
By: /s/Thomas E. Bailard
-----------------------------------
Thomas E. Bailard
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Thomas E. Bailard Chairman and Trustee November 28, 1997
- --------------------------------
Thomas E. Bailard(1)
/s/Burnice E. Sparks, Jr. President and Trustee November 28, 1997
- --------------------------------
Burnice E. Sparks, Jr.
/s/Barbara V. Bailey Treasurer November 28, 1997
- --------------------------------
Barbara V. Bailey(2)
/s/Shirley L. Clayton Trustee November 28, 1997
- --------------------------------
Shirley L. Clayton
/s/David B. Shippey Trustee November 28, 1997
- --------------------------------
David B. Shippey
/s/James C. Van Horne Trustee November 28, 1997
- --------------------------------
James C. Van Horne
- --------
(1) Principal Executive Officer
(2) Principal Financial Officer
<PAGE>
As filed with the Securities
Exchange Commission on January 23, 1998
Registration No. 33-8441
File No. 811-4828
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 14 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 16 [x]
BAILARD, BIEHL & KAISER FUND GROUP
(Exact name of registrant as specified in charter)
950 Tower Lane, Suite 1900
Foser City, California 94404
(Address of principal executive offices)
Registrant's telephone number, including area code: (800) 882-8383
Exhibits 11, 16 and 17
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Number Exhibit Numbered Page
- -------------- ------- -------------
(11) Consent of Price Waterhouse LLP
(16) Schedule for Computation of Performance Quotations
(17) Financial Data Schedule
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 14 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated November 18, 1997, relating to the financial
statements and financial highlights appearing in the September 30, 1997 Annual
Report to Shareholders of Bailard, Biehl & Kaiser Diversa Fund, portions of
which are incorporated by reference in the Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"Experts" in the Prospectus of the Fund constituting part of the Registration
Statement.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 25, 1997
EXHIBIT 16
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS OF THE
BAILARD, BIEHL & KAISER DIVERSA FUND
TOTAL RETURN FORMULA
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1-, 5- or 10-year periods at the end of the
1-, 5- or 10-year periods (or fractional
portion thereof)
For the 1-year period ended September 30, 1997:
1
$1,000(1+T) = $1,100.90 or an annual compounded rate of 10.09%
For the 5-year period ended September 30, 1997:
5
$1,000 (1+T) = $1,519.66 or an average annual compounded rate
of 8.73%
For the 10-year period ended September 30, 1997:
10
$1,000(1+T) = $1,879.06 or an average annual compounded rate
of 7.26%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 800075
<NAME> BAILARD, BIEHL, KAISER FUND GROUP
<SERIES>
<NUMBER> 1
<NAME> BAILARD, BIEHL, KAISER DIVERSA FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 30390047
<INVESTMENTS-AT-VALUE> 36872960
<RECEIVABLES> 751554
<ASSETS-OTHER> 11951
<OTHER-ITEMS-ASSETS> 11358
<TOTAL-ASSETS> 37647823
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 176692
<TOTAL-LIABILITIES> 176692
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28676131
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 263048
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2061674
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6470278
<NET-ASSETS> 37471131
<DIVIDEND-INCOME> 444362
<INTEREST-INCOME> 922775
<OTHER-INCOME> 0
<EXPENSES-NET> 678105
<NET-INVESTMENT-INCOME> 689032
<REALIZED-GAINS-CURRENT> 2096865
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6424323
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1145896)
<DISTRIBUTIONS-OF-GAINS> (3707053)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 815065
<NUMBER-OF-SHARES-REDEEMED> (5780476)
<SHARES-REINVESTED> 4298913
<NET-CHANGE-IN-ASSETS> 904876
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 350110
<INTEREST-EXPENSE> 922775
<GROSS-EXPENSE> 678105
<AVERAGE-NET-ASSETS> 35244324
<PER-SHARE-NAV-BEGIN> 13.39
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> 1.92
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.80)
<RETURNS-OF-CAPITAL> 19.14
<PER-SHARE-NAV-END> 13.91
<EXPENSE-RATIO> 1.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
