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 26, 1997. 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 26, 1997.
<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 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
B - 2
<PAGE>
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:
B - 3
<PAGE>
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 Finance
Construction Machines -------
Electricals Banks - NYC
Machine Tools - Regional
Miscellaneous Capital Goods Insurers - Multi
- Casualty
Communication Services - Life
- ---------------------- Finance Companies
Telecommunications Miscellaneous Finance
Real Estate
Consumer Cyclicals Savings and Loan Companies
- ------------------
Advertising Health Care
Auto/Parts/Tires -----------
Broadcasting Drugs
Entertainment Hospital Management
Forest Products Hospital Supply
Home Builders/Mobile Home
Home Furnishings/Appliances High Technology
Hotel/Motel ---------------
Newspapers Business Equipment
Publishing Computer Services
Restaurants Defense Electronics
Retailing-Food, Drug, Department Electronic-Instrumentation
Waste Management Electronic-Semiconductors
Electronic Warfare
Consumer Staples
- ---------------- Transportation
Apparel --------------
Brewers Air Freight
Cosmetics Air Transport
Distillers Railroads
Food Trucking
Photography
Soft Drinks Utilities
Shoes ---------
Soaps Electric
Textiles Gas Pipelines
Tobacco Water
Toys
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 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.
B - 4
<PAGE>
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
2755 Campus Drive Board, Chief and President of BB&K Holdings,
San Mateo, CA 94403 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 REIT.
Burnice E. Sparks, Jr.(1) President and Director and officer of the Adviser,
2755 Campus Drive Trustee currently President. Director and
San Mateo, CA 94403 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
2755 Campus Drive Chief Compliance Officer Counselor and Chief Compliance Officer
San Mateo, CA 94403 of the Adviser. Secretary and
Chief Compliance Officer of the
International Fund Group.
Barbara V. Bailey(1) Treasurer Senior Vice President and Treasurer of
2755 Campus Drive Holdings and Senior Vice President and
San Mateo, CA 94403 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 Bailard, Biehl & Kaiser
REIT since June 1996. Management
consultant from September 1995 to
December 1995. Account
Manager/Consultant at Watson Wyatt
Worldwide from December 1994 to
September 1995. Vice President at Caisse
Nationale de Credit Agricole from July
1991 to April 1994.
</TABLE>
- --------
(1) "Interested person" of the Trust, as defined in the 1940 Act.
B - 5
<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Other Principal
Name and Address with Trust Occupation(s) During Past Five Years
- ---------------- ---------- ------------------------------------
<S> <C> <C>
Sofi Zacharias(1) Assistant Treasurer Employee of the Adviser since
2755 Campus Drive and Assistant Secretary November 1995, most recently as Fund
San Mateo, CA 94403 Services Administrator. Assistant
Treasurer and Assistant Secretary of the
International Fund Group since
September 1996. Assistant Treasurer of
Bailard, Biehl & Kaiser 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
Santa Rosa, CA 95404 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
B - 6
<PAGE>
The following table sets forth the compensation paid to the Trust's Trustees
during the fiscal year ended September 30, 1996.
Compensation Table
<TABLE>
<CAPTION>
Name of Person Aggregate Pension or Retirement Estimated Total Compensation
and Position Compensation Benefits Accrued as Part Annual From Company and
from Trust 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
Shirley L. Clayton $10,000(3) $0 $0 $20,000
David B. Shippey $10,000(3) $0 $0 $20,000
James C. Van Horne $10,000(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) Consists of $6,000 annual trustee fee plus $1,000 for each Board
meeting attended in person.
B - 7
<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, 1994, 1995, and 1996, the
total fees paid to the Adviser amounted to $472,318, $398,374, and $370,980
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)
relating to the pricing and valuation of securities.
B - 8
<PAGE>
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, 1996, the Fund reimbursed the Adviser
approximately $41,800.
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, 1994, 1995, and 1996 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., 2755 Campus Drive, San Mateo, California 94403 ("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 1994, 1995, and 1996 fiscal years, the Fund
paid the Custodian $168,037, $145,700, and $174,875 respectively.
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
B - 9
<PAGE>
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. It is
not contemplated that there will be any set formula or allocation with respect
to brokerage.
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.
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 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, 1996, 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.
B - 10
<PAGE>
During the fiscal years ended September 30, 1994, 1995 and 1996, the Fund paid
brokerage commissions on Fund portfolio securities transactions of approximately
$252,531, $134,521, and $85,971, respectively. The Fund's portfolio turnover
rate for the fiscal years ended September 30, 1994, 1995, and 1996, was 137%,
166%, and 68%, respectively. Brokerage commissions declined in 1995 largely as a
result of lower commission rates. The decrease in brokerage commissions and
portfolio turnover rate in 1996 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, 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 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.
B - 11
<PAGE>
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, 1996, 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) derive in each taxable year less than 30% of its
gross income from the sale or other disposition of certain assets, including
stock, securities, and certain foreign currency positions, held for less than
three months, (c) 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 (d) distribute in each year at least 90% of
its investment company taxable income.
B - 12
<PAGE>
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 November 15, 1996 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 record or, to the Fund's knowledge, beneficially in
excess of 5% of the outstanding shares of the Fund on that date.
B - 13
<PAGE>
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 and five-year
periods ended September 30, 1996 were 10.09% and 8.73%, respectively. The Fund's
average annual compounded rate of total return from December 18, 1986
(commencement of operations) to September 30, 1996 was 7.26%. 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.
B - 14
<PAGE>
FINANCIAL STATEMENTS
Incorporated by reference herein are the report of the independent accountants
dated November 15, 1996, and the other portions of Registrant's annual report to
shareholders for the fiscal year ended September 30, 1996, 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, 2755 Campus Drive, San Mateo, CA 94403.
------------------------------------------------------------------------
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
