As filed with the Securities and Exchange
Commission on November 30, 1998
Registration No. 33-8441
File No. 811-4828
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 17 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 19 [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, 1999, 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>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number and Caption in
Form N-1A Registration Statement Caption in Prospectus
- -------------------------------- ---------------------
<S> <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>
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, 1999, 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?.....................................................16
How Do I Exchange or Redeem Shares?...........................................18
What is the Fund's Share Price?...............................................20
What Should I Know About Distributions and Taxes?.............................20
Who is the Fund's Investment Adviser?.........................................23
What Else Should I Know About the Fund?.......................................24
Performance Information.......................................................25
Administrative Services.......................................................25
Transfer Agent and Custodian..................................................25
Experts.......................................................................26
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
<PAGE>
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........................................................... 0.85%
Total Fund Operating Expenses............................................ 1.80%
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: $18 $57 $97 $212
</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 $1.2 billion in market value as of October 31,
1998.
FINANCIAL HIGHLIGHTS
The following information has been audited by PricewaterhouseCoopers 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, 1998. Portions of the Fund's annual report to shareholders
for the year ended September 30, 1998 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, 1998. 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
For a share outstanding throughout the year:
<TABLE>
<CAPTION>
For the year ended September 30,
------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.91 $13.39 $13.20 $12.01 $12.68 $10.93 $10.64 $9.71 $11.26 $10.55
------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.13 0.401 0.31 0.381 0.261 0.39 0.34 0.44 0.42 0.61
Net Realized/Unrealized Gain (Loss)
on Securities and Foreign Currency 0.23 1.92 0.96 1.13 (0.66) 1.66 0.30 0.90 (1.52) 0.76
------------------------------------------------------------------------------------------
Total from Investment Operations 0.36 2.32 1.27 1.51 (0.40) 2.05 0.64 1.34 (1.10) 1.37
------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From Net Investment Income (0.23) (0.42) (0.32) (0.26) (0.05) (0.30) (0.35) (0.41) (0.45) (0.66)
From Net Realized Gains (1.05) (1.38) (0.76) (0.06) (0.22) -- -- -- -- --
------------------------------------------------------------------------------------------
Total Distributions (1.28) (1.80) (1.08) (0.32) (0.27) (0.30) (0.35) (0.41) (0.45) (0.66)
------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.99 $13.91 $13.39 $13.20 $12.01 $12.68 $10.93 $10.64 $9.71 $11.26
==========================================================================================
TOTAL RETURN 2.98% 19.14% 10.09% 12.83% (3.18%) 19.05% 6.16% 13.97% (10.19%) 13.56%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000's) $35,329 $37,471 $36,566 $40,688 $46,047 $49,584 $50,487 $57,546 $79,420 $103,864
Ratio of Expenses to Average Net Assets
Before Expenses Paid Indirectly 1.86% 1.84% 1.99% 1.85% 1.82% 1.70% 1.90% 1.46% 1.34% 1.26%
After Expenses Paid Indirectly 1.80% 1.84% 1.99% 1.85% 1.82% 1.70% 1.90% 1.46% 1.34% 1.26%
Ratio of Net Investment Income to
Average Net Assets 1.34% 1.87% 2.09% 2.97% 2.03% 2.88% 2.75% 3.01% 3.60% 5.24%
Portfolio Turnover Rate 59% 66% 68% 166% 137% 96% 94% 254% 235% 100%
</TABLE>
- --------
(1) Net investment income per share has been computed before adjustments for
book/tax differences.
5
<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
INVESTMENT policy is based on the following FIVE principles:
o TAKE A GLOBAL PERSPECTIVE. The economies of the world are increasingly
becoming more interlinked. Taking a global view allows for not only a
better understanding of the investment impact of international events, but
a clearer view of events in the U.S. as well.
o CONTROL RISK THROUGH DIVERSIFICATION. The cornerstone of the Fund's
investment approach is diversification. The Adviser's forecasting models
are based on probabilities, not certainties. There are many unpredictable
events that occur in the world, and we must always keep in mind the
limitations of our analysis. Therefore, we strive to diversify the Fund in
such a way as to protect the assets of the Fund from a variety of adverse
outcomes. Consequently, holdings of domestic stocks could range from 0% to
65% of Funds 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 FIND MISPRICED ASSETS AND KNOW WHEN TO TRADE. Appropriate valuation methods
vary across asset classes. While the methods may vary, the goal is the
same, to identify asset classes and individual securities which the Adviser
believes are over or under priced. The ability to identify underpriced or
overpriced securities in itself, however, is not sufficient. When
6
<PAGE>
to buy a security is as important as what security to buy. 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 securities, sectors, and asset classes
that the Adviser believes are undervalued and in stages of an upward move,
and will underweight those that appear to be overvalued and beginning to
weaken.
o USE A DISCIPLINED INVESTMENT METHODOLOGY. The Adviser has developed complex
forecasting and valuation models. These quantitative and fundamental models
aid in the decision-making process. The Adviser strives to act on these
models in a disciplined and cost efficient fashion.
o MAKE INFORMED ASSET ALLOCATION DECISIONS. In making its asset allocation
decisions, 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 in each economic
SCENARIO. The historic volatility and risk characteristics of each asset
class 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 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)
7
<PAGE>
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 Aa or AA in quality by Moody's or
S&P, with the exception that no more than 5% of the class assets, and no more
than 50% of the class assets in emerging markets, may be invested in securities
rated Baa or BBB. The Fund's international bonds will include securities issued
by foreign governments, supra-national entities and foreign companies.
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
8
<PAGE>
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 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.
9
<PAGE>
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 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
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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 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
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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 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.
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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 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?"
EURO. On January 1, 1999, eleven major European countries participating in the
Economic and Monetary Union ("EMU") adopted a single currency, the Euro,
overseen by the European Central Bank. Beginning on the first day of 1999, most
securities denominated in the currencies of participating countries were
redenominated in Euros.
As would be expected with any undertaking of this magnitude, there are areas of
uncertainty involving the actual conversion and the market's reaction. These
areas may include but are not limited to the ability of financial institutions
to prepare their operating systems and the creation of suitable clearing and
payment systems for the new currency. These and other factors, including
political and economic risk, could cause market disruptions after the
introduction of the Euro. While there can be no assurance that the Fund will not
be adversely affected, the Adviser is taking steps to effect the Fund's
transition to the Euro as smoothly as possible.
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
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
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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 charaCteristics 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.
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
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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:
(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.
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(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.
YEAR 2000. The Year 2000 issue has received much attention in recent months. If
the systems on which the Fund relies are unable to process date related
information before or after January 1, 2000, the Fund could be adversely
affected. At this time, the Adviser does not expect any material issues to arise
affecting the Fund in regard to Year 2000 and is taking appropriate steps, it
believes, in addressing the issue. The Year 2000 issue affects nearly all
companies and organizations, however, the Adviser does not have control over
external providers servicing the Adviser or the Fund. As a result, as with any
issue of this magnitude, there can be no assurance that the Year 2000 issue will
not have an adverse effect on the companies whose securities are held by the
Fund or on global markets or economies generally.
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 and Roth 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.
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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 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.
An Automatic Investment Plan ("AIP") may be established by new or existing
shareholders in order to have a predetermined dollar amount deducted
automatically from the shareholder's checking or savings account on a monthly
basis, and used to purchase shares in the Fund. The minimum amount which may be
automatically deducted is $100. If you wish to establish an AIP please contact
the Fund.
The AIP will be terminated by CGFSC on receipt of satisfactory evidence of the
death or incapacity of the shareholder, but until it has received such notice,
CGFSC will not be liable for any deductions made from the shareholder's checking
or savings account in accordance with the AIP. The shareholder or the Fund may
terminate the AIP at any time upon notice to the other.
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<PAGE>
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.
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
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<PAGE>
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. 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
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.
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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.
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
20
<PAGE>
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, 1998, 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
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,
mid-term capital gains 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.
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<PAGE>
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.
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
22
<PAGE>
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 Chief Investment Officer of the Adviser since
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 of the Adviser since 1992.
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.
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<PAGE>
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, 1998,
the total fees paid to the Adviser amounted to $356,891, 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, 1998 were $675,399 which constituted approximately
1.80% 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 31, 1998 the Adviser managed portfolios with total holdings of
approximately $1.2 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 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.
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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 LLC
("ICA"). Pursuant to such agreement, ICA 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 ICA 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
PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, California 94105,
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, 1998 incorporated by reference into the
Statement of Additional Information have been so included in reliance upon the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
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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 length of time. Such bonds lack
outstanding incvestment 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, although to a lesser
degree. Earnings trends and coverage ratios are sound but more subject to
variation.
A-1
<PAGE>
Capital characteristics may be more affected by external conditions. Ample
alternative liquidity is maintained.
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-2
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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
B-1
<PAGE>
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 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
B-2
<PAGE>
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 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 investment ("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
B-3
<PAGE>
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 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
B-4
<PAGE>
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 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 investment ("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.)
B-5
<PAGE>
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 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.
B-6
<PAGE>
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 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.
B-7
<PAGE>
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-8
<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
PricewaterhouseCoopers LLP
San Francisco, California
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
Shirley L. Clayton, Trustee
Scott F. Wilson, 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 30, 1998
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, 1999. 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, 1999.
B - 1
<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
B - 2
<PAGE>
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:
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
TRANSPORTATION
CONSUMER STAPLES --------------
- ---------------- Air Freight
Apparel Air Transport
Brewers Railroads
Cosmetics Trucking
Distillers
Food UTILITIES
Photography ---------
Soft Drinks Electric
Shoes Gas Pipelines
Soaps Water
Textiles
Tobacco
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
B - 4
<PAGE>
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 Director and officer of the Adviser,
950 Tower Lane, Suite 1900 currently President. Director and Chief
Foster City, CA 94404 Executive Officer of Fund Services since
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 Holdings and Senior Vice
950 Tower Lane, Suite 1900 President and Treasurer/Secretary of the
Foster City, CA 94404 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
September 1995. Vice President and
Manager 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 Kyriakidis(1) Assistant Treasurer and Employee of the Adviser since
950 Tower Lane, Suite 1900 Assistant Secretary November 1995, most recently as Vice
Foster City, CA 94404 President. Assistant Treasurer and
Assistant Secretary of the International
Fund Group since September 1996.
Assistant Treasurer of the REIT since
June 1996. Treasurer of Fund Services
since January 1996. Correspondence
Specialist of Franklin Resources, Inc.
from July 1994 to May 1995.
Shirley L. Clayton(2) Trustee Chief Financial Officer of Orquest, a
122 Campo Bello Lane biotechnology company, since 1998.
Menlo Park, CA 94025 President and Chief Operating Officer of
TopoMetrix from 1993 to 1998. Chief
Financial Officer of Cygnus Therapeutic
Systems, Inc., a biotechnology company,
from March 1990 to June 1993. Director
of the International Fund Group.
Scott F. Wilson(2) Trustee General Partner of Transcontinental
Transcontinental Capital Capital Partners, an investment banking
Partners firm, since 1991. Shareholder of
540 Cowper Street Milbank Winthrop & Co., an investment
Palo Alto, CA 94301 adviser, since 1981. Director of the
International Fund Group.
James C. Van Horne(2) Trustee A.P. Giannini Professor of Finance at the
Graduate School of Business Graduate School of Business of Stanford
Stanford University University from September 1976 to the
Stanford, CA 94305 present. From September 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, 1998.
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
Shirley L. Clayton $6,667(3) $0 $0 $20,000
David B. Shippey $0 $0 $0 $0
Scott F. Wilson $6,667(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 ses 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 $4,000 annual trustee fee plus $667 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, 1996, 1997, and 1998, the
total fees paid to the Adviser amounted to $370,980, $350,110 and $356,891
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, 1998, the Fund reimbursed the Adviser
approximately $42,691.
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, 1996, 1997 and 1998 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 1996, 1997, and 1998 fiscal years, the Fund
paid the Custodian $174,875, $151,411 and $144,197, respectively.
B - 9
<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
LLC.
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, 1998, the
Adviser estimates that the Fund paid $78,889 in brokerage commissions, involving
$26,981,946 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 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
B - 10
<PAGE>
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, 1998, 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, 1996, 1997 and 1998, the Fund paid
brokerage commissions on Fund portfolio securities transactions of approximately
$85,971, $79,880, and $79,108, respectively. The Fund's portfolio turnover rate
for the fiscal years ended September 30, 1996, 1997, and 1998, was 68%, 66% and
59%, respectively. Keeping an eye an trading costs helped reduce the turnover
rate, as did the Fund's use of index options in the domestic 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 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
B - 11
<PAGE>
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, 1998, 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) 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.
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 accelerate the stockholders' taxation, 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 12, 1998 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.
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
B - 13
<PAGE>
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, 1998 were 2.98%, 9.27% and
8.14%, 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 18, 1998, and the other portions of Registrant's annual report to
shareholders for the fiscal year ended September 30, 1998, 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: BB & K Fund Services, Inc., 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 - 14
<PAGE>
As filed with the Securities and
Exchange Commission on November 30, 1998
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, dated August 27, 1986 as
amended January 3, 1989.
(2) By-Laws of Registrant dated August 27, 1986, as amended June
15, 1990.
(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., dated as
of March 15, 1980 (incorporated by reference to Exhibit 5 of
Post-Effective Amendment No. 16 to Registrant's Form N-1A
Registration Statement dated June 29, 1998).
(6) Distribution Agreement by and between Registrant and BB&K Fund
Services, Inc., dated as of March 15, 1980 (incorporated by
reference to Exhibit 6 of Post-Effective Amendment No. 16 to
Registrant's Form N-1A Registration Statement dated June 29,
1998).
(7) Not applicable.
(8.1) Custodian Agreement by and between Registrant and Brown
Brothers Harriman & Co., dated as of September 24, 1990, as
amended December 22, 1995 and June 15, 1998.
(8.2) Foreign Custody Manager Delegation Agreement between Registrant
and Brown Brothers Harriman & Co., dated as of June 15, 1998.
(9) Administration Agreement between Registrant and Investment
Company Administration Corporation, dated as of April 1, 1994,
as amended as of July 1, 1995 (incorporated by
C-1
<PAGE>
EXHIBIT NUMBER
AND DESCRIPTION
reference to Exhibit 9 of Post-Effective Amendment No 16 to
Registrant's Form N-1A Registration Statement dated June 29,
1998).
(10) Opinion and Consent of Counsel (incorporated by reference to
Exhibit 10 of Post-Effective Amendment No. 16 to Registrant's
Form N-1A Registration Statement dated June 29, 1998).
(11) Consent of PricewaterhouseCoopers 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 Post-Effective Amendment No. 16 to Registrant's Form N-1A
Registration Statement dated June 29, 1998).
(14) Model IRA plan (incorporated by reference to Exhibit 14 of
Post-Effective Amendment No 16 to Registrant's Form N-1A
Registration Statement dated June 29, 1998).
(15) Not applicable.
(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, Janis M. Horne,
and Sofi Kyriakidis, 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. Ms. Bailey, Mr. Bailard, Mr. Sparks, Ms. Bailey 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 Ms. 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,
Scott F. Wilson 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
C-2
<PAGE>
International Fund Group may be deemed to be directly or indirectly under common
control with Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of October 31, 1998 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 2,725,835 357
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>
<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 Chief Investment Officer Director of Fund Services; Chairman of
and Director the Board of the International Fund
Group
Burnice E. Sparks, Jr. President and Director Chief Executive Officer and Director of
Fund Services; President 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 22, 1998, 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-4
<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 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 President and Director of
and Director Bailard, Biehl & Kaiser; President
of Registrant; President and
Director of the International Fund
Group
Sofi Kyriakidis 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-5
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Name and Address of Persons Records, Books and
Maintaining Physical Possession Accounts Required By:
- ------------------------------- ---------------------
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
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, the Registrant has duly caused this Amendment to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Foster City, State of California, on the 30th day of November, 1998.
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 30, 1998
- ------------------------------
Thomas E. Bailard(1)
/s/ Burnice E. Sparks, Jr. President and Trustee November 30, 1998
- ------------------------------
Burnice E. Sparks, Jr.
/s/ Barbara V. Bailey Treasurer November 30, 1998
- ------------------------------
Barbara V. Bailey(2)
/s/ Shirley L. Clayton Trustee November 30, 1998
- ------------------------------
Shirley L. Clayton
/s/ Scott F. Wilson Trustee November 30, 1998
- ------------------------------
Scott F. Wilson
/s/ James C. Van Horne Trustee November 30, 1998
- ------------------------------
James C. Van Horne
- --------
(1) Principal Executive Officer
(2) Principal Financial Officer
C-7
<PAGE>
As filed with the Securities
Exchange Commission on November 30, 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. 17 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 19 [X]
BAILARD, BIEHL & KAISER FUND GROUP
(Exact name of registrant as specified in charter)
950 Tower Lane, Suite 1900
Foster City, California 94404
(Address of principal executive offices)
Registrant's telephone number, including area code: (800) 882-8383
Exhibits 1, 2, 8.1, 8.2, 11 and 27
================================================================================
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Number Exhibit Numbered Page
- -------------- ------- -------------
(1) Declaration of Trust of Registrant
(2) By-laws of Registrant
(8.1) Custodian Agreement by and between Registrant
and Brown Brothers Harriman & Co.
(8.2) Foreign Custody Manager Delegation Agreement
between Registrant and Brown Brothers Harriman & Co.
(11) Consent of PricewaterhouseCoopers LLP
(27) Financial Data Schedule
CERTIFICATE OF AMENDMENT
OF
DECLARATION OF TRUST
OF
BB&K FUND GROUP
JANIS M. HORNE hereby certifies that:
1. She is the Secretary of BB&K Fund Group, a trust with transferable
shares of the type commonly called a Massachusetts business trust.
2. The first sentence of Section 1.1 of the Declaration of Trust of
BB&K Fund Group dated August 27, 1986 (the "Declaration of Trust") is amended to
read as follows:
The name of the trust established hereby (the "Trust") is the
"Bailard, Biehl & Kaiser Fund Group" and so far as may be
practicable the Trustees shall conduct the Trust's activities,
execute all documents and sue or be sued under that name, which name
(and the word "Trust" wherever herein used) shall refer to the
Trustees as trustees, and not as individuals, or personally, and
shall not refer to the officers, agents, employees or Shareholders
of the Trust.
3. The fourth sentence of Section 6.1 of the Declaration of Trust is
amended to read as follows:
Without limiting the authority of the Trustees set forth herein to
establish and designate any further Series, there is hereby
established one Series of Shares to be known as the Bailard, Biehl &
Kaiser Diversa Fund.
4. Section 11.7 of the Declaration of Trust is amended and restated to
read in full as follows:
Section 11.7. Use of the Name "Bailard, Biehl & Kaiser". Bailard,
Biehl & Kaiser, Inc. (the "Company") has consented to the use by the
Trust of the identifying name "Bailard, Biehl & Kaiser", which is a
property right of the Company. The Trust will only use the name
"Bailard, Biehl & Kaiser" as a component of its name and for no
other purpose, and will not purport to grant to any third party the
right to use the name "Bailard, Biehl & Kaiser" for any purpose. The
Company or any of its corporate affiliates may use or grant to
others the
<PAGE>
right to use the name "Bailard, Biehl & Kaiser", as all or a portion
of a corporate or business name for any commercial purpose,
including a grant of such right to any other investment company. At
the request of the Company, the Trust will take such action as may
be required to provide its consent to the use by the Company, or any
of its corporate affiliates, or by any person to whom the Company or
an affiliate of the Company shall have granted the right to the use
of the name "Bailard, Biehl & Kaiser". Upon the termination of any
investment advisory or management agreement or underwriting
agreement into which the Company or any of its affiliates and the
Trust may enter, the Trust shall, upon request by the Company, cease
to use the name "Bailard, Biehl & Kaiser" as a component of its
name, and shall not use such name as a part of its name or for any
other commercial purpose, and shall cause its officers and Trustees
to take any and all actions which the Company may request to effect
the foregoing and to reconvey to the Company or such corporate
affiliate any and all rights to such name.
5. The foregoing amendments of the Declaration of Trust have been duly
adopted by the Board of Trustees of the Trust in accordance with the manner
provided in Sections 9.3 and 11.1 of the Declaration of Trust.
Date: January 3, 1989
/s/ Janis M. Horne
------------------
Janis M. Horne
Secretary
2
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN MATEO )
The undersigned, being duly sworn, deposes and says that she
is the Secretary of BB&K Fund Group and that the matters set forth in the
foregoing Certificate of Amendment are true and correct to her own knowledge.
/s/ Janis M. Horne
-------------------------
Janis M. Horne
Subscribed and sworn to before
me at a Notary Public this 3rd
day of January, 1989
/s/ Steven R. Hulser
- -------------------------------
Notary Public
My Commission Expires:
9/17/89
- -------------------------------
3
AMENDMENT OF
BY-LAWS OF
BAILARD, BIEHL & KAISER
FUND GROUP
(As Adopted June 15, 1990)
Section 3.2. Meetings. Meetings of Shareholders shall be held
whenever a vote of Shareholders is required by the Declaration and at such other
times as the Trustees may determine to be necessary, appropriate or advisable.
Meetings of Shareholders to consider any matter as to which a vote of
Shareholders is required by the 1940 Act or is permitted by Section 15(a)(3),
16(a) or 32(a)(3) of, or Rule 12b-1(b)(3)(iii) under, the 1940 Act and as to
which the Trustees have not called a meeting of Shareholders shall be called by
the secretary upon the written request of the holders of Shares entitled to cast
not less than twenty-five percent (25%) of all the votes then entitled to be
cast at a meeting of Shareholders without regard to Series. The secretary shall
also call a meeting of Shareholders, upon the written request of the holders of
Shares entitled to cast not less than ten percent (10%) of all the votes then
entitled to be cast at a meeting of Shareholders without regard to Series, for
the purpose of voting on the question of the removal of any Trustee or Trustees.
Any such Shareholders request directed to the Secretary shall state the purpose
or purposes of such meeting and the matters proposed to be acted on thereat. The
secretary shall inform such Shareholders of the estimated reasonable cost of
preparing and mailing such notice of the meeting. Upon payment to the Trust of
such costs, the secretary shall give notice stating the purpose or purposes of
the meeting to each Shareholder entitled to vote at such meeting. Unless
requested by Shareholders entitled to cast a majority of all votes entitled to
be cast at a meeting of Shareholders without regard to Series, a meeting need
not be called to consider any matter which is substantially the same as a matter
voted on at any meeting of Shareholders held during the preceding twelve (12)
months.
-1-
CUSTODIAN AGREEMENT
AGREEMENT made this day of 1990, between BAILARD, BIEHL & KAISER FUND
GROUP, (the "Trust") on behalf of the Bailard, Biehl & Kaiser DIVERSA FUND AND
ANY OTHER SEPARATE PORTFOLIO that may be designated from time to time by the
Trust (each referred to as a "Fund"), and Brown Brothers Harriman & Co. (the
"Custodian").
WITNESSETH: That in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. The Trust hereby employs and appoints the Custodian as a custodian
for the term and subject to the provisions of this Agreement. The Custodian
shall not be under any duty or obligation to require the Trust to deliver to it
any securities, funds or other property owned by the Trust and shall have no
responsibility or liability for or on account of securities, funds or other
property not so delivered. The Trust will deposit with the Custodian copies of
the Declaration of Trust and By-Laws (or comparable documents) of the Trust and
all amendments thereto, and copies of such votes and other proceedings of the
Trust as may be necessary for, or convenient to, the Custodian in the
performance of its duties.
2. Except for securities and funds held by subcustodians appointed
pursuant to the provisions of Section 3 hereof, the
Custodian shall have and perform the following powers and duties:
- 1 -
<PAGE>
A. SAFEKEEPING - To keep safely the securities, funds and
other-property of-a Fund that have been delivered to the Custodian and from time
to time to receive delivery of securities, funds and other property for
safekeeping.
B. MANNER OF HOLDING SECURITIES - To hold securities of EACH FUND (1)
by physical possession of THE SHARE CERTIFICATES or other instruments
representing such securities in registered or bearer form, or (2) in book-entry
form by a Securities System (as said term is defined in Section 2V).
C. REGISTERED NAME; NOMINEE - To hold registered securities of each
Fund (1) in the name or any nominee name of the Custodian or the Fund, or in the
name or any nominee name of any agent appointed pursuant to Section 6E, or (2)
in street certificate form, so-called, and in any case with or without any
indication of fiduciary capacity.
D. PURCHASES - Upon receipt of Proper Instructions, as defined in
Section Z on Page 15, insofar as funds are available for the purpose, to pay for
and receive securities and other property purchased for the account of a global
Fund, payment being made only upon receipt of the securities or other property
(1) by the Custodian, or (2) by a clearing corporation of a national securities
exchange of which the Custodian is a member, (3) by a Securities System or (4)
by a Subcustodian. However, (i) in the case of repurchase agreements entered
into by a Fund, the Custodian may release funds to a Securities System or to a
- 2 -
<PAGE>
Subcustodian prior to the receipt of advice from the Securities System or
Subcustodian that the securities underlying such repurchase agreement have been
transferred by book entry into the Account (as defined in Section 2V) of the
Custodian maintained with such Securities System or Subcustodian, so long as the
payment instructions to such Securities System or Subcustodian include a
requirement that delivery is only against payment of securities, and (ii) in the
case of time deposits, call account deposits, currency deposits, and other
deposits, contracts or options pursuant to Sections 2L, 2M and 2N, the Custodian
may make payment therefor without receiving an instrument evidencing said
deposit so long as the payment instructions detail specific securities to be
acquired.
E. EXCHANGES - Upon receipt of Proper Instructions, to exchange
securities held by it for the account of a Fund for other securities in
connection with any reorganization, recapitalization, split-up of shares, change
of par value, conversion or other event, and to deposit any such securities in
accordance with the terms of any reorganization or protective plan. Without such
instructions, the Custodian may surrender securities in temporary form for
definitive securities, may surrender securities for transfer into a name or
nominee name as permitted in Section 2C, and may surrender securities for a
different number of certificates or instruments representing the same number of
shares or same principal amount of indebtedness,
- 3 -
<PAGE>
provided the securities to be issued are to be delivered to the Custodian and
further provided Custodian shall at the time of surrendering securities or
instruments receive a receipt or other evidence of ownership thereof.
F. SALES OF SECURITIES - Upon receipt of Proper Instructions, to make
delivery of securities which have been sold for the account of a Fund, but only
against payment therefor (1) in cash, by a certified check, bank cashier's
check, bank credit, or bank wire transfer, or (2) by credit to the account of
the Custodian with a clearing corporation of a national securities exchange of
which the Custodian is a member, or (3) by credit to the account of the
Custodian or an Agent of the Custodian with a Securities System.
G. DEPOSITARY RECEIPTS - Upon receipt of Proper Instructions, to
instruct a subcustodian appointed pursuant to Section 3 hereof (a
"Subcustodian") or an agent of the Custodian appointed pursuant to Section 6E
hereof (an "Agent") to surrender securities to the depositary used by an issuer
of American Depositary Receipts or International Depositary Receipts
(hereinafter collectively referred to as "ADRs") for such securities against a
written receipt therefor adequately describing such securities and written
evidence satisfactory to the Subcustodian or Agent that the depositary has
acknowledged receipt of instructions to issue with respect to such securities
ADRs in the name of the Custodian, or a nominee of the Custodian,
- 4 -
<PAGE>
for delivery to the Custodian in Boston, Massachusetts, or at such other place
as the Custodian may from time to time designate.
Upon receipt of Proper Instructions, to surrender ADRs to the
issuer thereof against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depositary to
deliver the securities underlying such ADRs to a Subcustodian or an Agent.
H. EXERCISE OF RIGHTS; TENDER OFFERS - Upon timely receipt of Proper
Instructions, to deliver to the issuer or trustee thereof, or to the agent of
either, warrants, puts, calls, rights or similar securities for the purpose of
being exercised or sold, provided that the new securities and cash, if any,
acquired by such action are to be delivered to the Custodian, and, upon receipt
of Proper Instructions, to deposit securities upon invitations for tenders of
securities, provided that the consideration is to be paid or delivered or the
tendered securities are to be returned to the Custodian.
I. STOCK DIVIDENDS, RIGHTS, ETC. - To receive and collect all stock
dividends, rights and other items of like nature; and to deal with the same
pursuant to Proper Instructions relative thereto.
J. OPTIONS - Upon receipt of Proper Instructions, to
- 5 -
<PAGE>
receive and retain confirmations or other documents evidencing the purchase or
writing of an option on a security or securities index by a Fund; to deposit and
maintain in a segregated account, either physically or by book-entry in a
Securities System, securities subject to a covered call option written by the
Fund; and to release and/or transfer such securities OR OTHER ASSETS ONLY in
accordance with a notice or other communication evidencing the expiration,
termination or exercise of such covered option furnished by The Options Clearing
Corporation, the securities or options exchange on which such covered option is
traded or such other organization as may be responsible for handling such
options transactions.
K. BORROWINGS - Upon receipt of Proper Instructions, to deliver
securities of a Fund to lenders or their agents as collateral for borrowings
effected by the Fund, provided that such borrowed money is payable to or upon
the Custodian's order as Custodian for the Fund.
L. DEMAND DEPOSIT BANK ACCOUNTS - To open and operate an account or
accounts in the name of a Fund on the Custodian's books subject only to draft or
order by the Custodian. All funds received by the Custodian from or for the
account of a Fund shall be deposited in said account(s). The responsibilities of
the Custodian to a Fund for deposits accepted on the Custodian's books shall be
that of a U. S. bank for a similar deposit.
If and when authorized by Proper Instructions, the Custodian
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<PAGE>
may open and operate an additional account(s) in such other banks or trust
companies as may be designated by a Fund in such instructions (any such bank or
trust company so designated by such Fund being referred to hereafter as a
"Banking Institution"), provided that such account(s) shall be in the name of
the Custodian for account of such Fund and subject only to the Custodian's draft
or order. Such accounts may be opened with Banking Institutions in the United
States and in other countries and may be denominated in either U. S. Dollars or
other currencies as a Fund may determine. All such deposits shall be deemed to
be portfolio securities of a Fund and accordingly the responsibility of the
Custodian therefor shall be the same as and no greater than the Custodian's
responsibility in respect of other portfolio securities of a Fund.
M. INTEREST BEARING CALL OR TIME DEPOSITS - To place interest bearing
fixed term and call deposits with such banks and in such amounts as a Fund may
authorize pursuant to Proper Instructions. Such deposits may be placed with the
Custodian or with Subcustodians or other Banking Institutions as a Fund may
determine. Deposits may be denominated in U. S. Dollars or other currencies and
need not be evidenced by the issuance or delivery of a certificate to the
Custodian, provided that the Custodian shall include in its records with respect
to the assets of a Fund, appropriate notation as to the amount and currency of
each such deposit, the accepting Banking Institution, and other
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<PAGE>
appropriate details. Such deposits, other than those placed with the Custodian,
shall be deemed portfolio securities of a Fund and the responsibilities of the
Custodian therefor shall be the same as those for demand deposit bank accounts
placed with other banks, as described in Section 2L of this agreement. The
responsibility of the Custodian for such deposits accepted on the Custodian's
books shall be that of a U. S. bank for a similar deposit.
N. FOREIGN EXCHANGE TRANSACTIONS - Pursuant to Proper Instructions, to
enter into foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf and for the account of a Fund.
Such transactions may be undertaken by the Custodian with such Banking
Institutions, including the Custodian and Subcustodian(s) as principals, as
approved and authorized by the Trust. Foreign exchange contracts and options
other than those executed with the Custodian, shall be deemed to be portfolio
securities of a Fund and the responsibilities of the Custodian therefor shall be
the same as those for demand deposit bank accounts placed with other banks as
described in Section 2L of this agreement.
0. FUTURES CONTRACTS - Upon receipt of Proper Instructions, to receive
and retain confirmations evidencing the purchase or sale of a futures contract
or an option on a futures contract by a Fund; to deposit and maintain in a
segregated account, for the benefit of any futures commission merchant or to pay
to such
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<PAGE>
futures commission merchant, assets designated by a Fund as initial, maintenance
or variation "margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written by such Fund, in accordance with the provisions of any
agreement or agreements among any of a Fund, the Custodian and such futures
commission merchant, designated to comply with the rules of the Commodity
Futures Trading Commission and/or any contract market, the Securities and
Exchange Commission or any similar organization or organizations, regarding such
margin deposits; and to release and/or transfer assets in such margin accounts
only in accordance with any such agreements or rules.
P. STOCK LOANS - Upon receipt of Proper Instructions, to deliver
securities of a Fund, in connection with loans of securities by a Fund, to the
borrower thereof upon the receipt of the cash collateral, if any, for such
borrowing. In the event U. S. Government securities are to be used as
collateral, the Custodian will not release the securities to be loaned until it
has received confirmation that such collateral has been delivered to the
Custodian. The Custodian and the Funds understand that the timing of receipt of
such confirmation will normally require that the delivery of securities to be
loaned will be made one day after receipt of the U. S. Government collateral.
Q. COLLECTIONS - To collect, receive and deposit in said account or
accounts all income and other payments with respect to
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<PAGE>
the securities held hereunder, and to execute ownership and other certificates
and affidavits for all federal and state tax purposes in connection with receipt
of income or other payments with respect to securities of a Fund or in
connection with transfer of securities, and pursuant to Proper Instructions to
take such other actions with respect to collection or receipt of funds or
transfer of securities which involve an investment decision.
R. DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS - Upon receipt of Proper
Instructions from the Trust, or upon receipt of instructions from the Trust's
shareholder servicing agent or agent with comparable duties (the "Shareholder
Servicing Agent") (given by such person or persons and in such manner on behalf
of the Shareholder Servicing Agent as the Trust shall have authorized), the
Custodian shall release funds or securities to the Shareholder Servicing Agent
or otherwise apply funds or securities, insofar as available, for the payment of
dividends or other distributions to Fund shareholders. Upon receipt of Proper
Instructions from the Trust, or upon receipt of instructions from the
Shareholder Servicing Agent (given by such person or persons and in such manner
on behalf of the Shareholder Servicing Agent as the Trust shall have
authorized), the Custodian shall release funds or securities, insofar as
available, to the Shareholder Servicing Agent or as such Agent shall otherwise
instruct for payment to Fund shareholders who have delivered to such Agent a
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<PAGE>
request for repurchase or redemption of their shares of capital stock of the
Fund.
S. PROXIES, NOTICES, ETC. - Promptly to deliver or mail to the Trust
all forms of proxies and all notices of meetings and any other notices or
announcements affecting or relating to securities owned by A FUND THAT ARE
RECEIVED BY THE CUSTODIAN, AND upon receipt of Proper Instructions, to execute
and deliver or cause its nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian nor its nominee shall
vote upon any of such securities or execute any proxy to vote thereon or give
any consent or take any other action with respect thereto (except as otherwise
herein provided) unless ordered to do so by Proper Instructions.
T. NONDISCRETIONARY DETAILS - Without the necessity of express
authorization from the Trust, (1) to attend to all nondiscretionary details in
connection with the sale, exchange, substitution, purchase, transfer or other
dealings with securities, funds or other property of a Fund held by the
Custodian except as otherwise directed from time to time by the Trustees of the
Trust, and (2) to make payments to itself or others for minor expenses of
handling securities or other similar items relating to the Custodian's duties
under this Agreement, provided that all such payments shall be accounted for to
the Trust.
U. Bills - Upon receipt of Proper Instructions, to pay or
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<PAGE>
cause to be paid, insofar as funds are available for the purpose, bills,
statements, or other obligations of a Fund.
V. DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS - The Custodian may
deposit and/or maintain securities owned by a Fund in (i) The Depository Trust
Company, (ii) any book-entry system as provided in Subpart 0 of Treasury
Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, or the book-entry
regulations of federal agencies substantially in the form of Subpart 0, or (iii)
any other domestic clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 which acts
as a securities depository and whose use the Fund has previously approved in
writing (each of the foregoing being referred to in this Agreement as a
"Securities System"). Utilization of a Securities System shall be in accordance
with applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may deposit and/or maintain Fund securities, either
directly or through one or more Agents appointed by the Custodian (provided that
any such agent shall be qualified to act as a custodian of the Fund pursuant to
the Investment Company Act of 1940 and the rules and regulations thereunder), in
a Securities System provided that such securities are represented in an account
("Account") of the Custodian or such Agent in the Securities System which shall
not include any
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<PAGE>
assets of the Custodian or Agent other than assets held as a fiduciary,
custodian, or otherwise for customers;
2) The records of the Custodian with respect to securities of a Fund
which are maintained in a Securities System shall identify by book-entry those
securities belonging to a Fund;
3) The Custodian-shall pay for securities purchased for the account of
a Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and transfer for the
account of that Fund. The Custodian shall transfer securities sold for the
account of a Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such transfer and
payment for the account of a Fund. Copies of all advices from the Securities
System of transfers of securities for the account of a Fund shall identify the
Fund, be maintained for that Fund by the Custodian or an Agent as referred to
above, and be provided to that Fund at its request. The Custodian shall furnish
the Trust confirmation of each transfer to or from the account of a Fund in the
form of a written advice or notice and shall furnish to the Trust copies of
daily transaction sheets reflecting each day's transactions in the Securities
System for the account of a Fund on the next business day;
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<PAGE>
4) The Custodian shall provide a Fund with any report obtained by the
Custodian or any Agent as referred to above on the Securities System's
accounting system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System; and the Custodian and such Agents
shall send to such Fund such reports on their own systems of internal accounting
control as the Fund may reasonably request from time to time.
5) At the written request of the Trust, the Custodian will terminate
the use of any such Securities System on behalf of the Trust as promptly as
practicable.
W. PRECIOUS METALS - Upon receipt of Proper Instructions from the
Trust, the Custodian shall instruct, by tested telex, a subcustodian appointed
pursuant to Section 3 to pay for and receive precious metals purchased for the
account of a Fund only upon receipt of precious metals by such subcustodian for
the account of such Fund.
Upon receipt of Proper Instructions from the Trust, the
Custodian shall instruct, by tested telex, a Subcustodian appointed pursuant to
Section 3 to make delivery of precious metals which has been sold for the
account of a Fund, but only against receipt of cash proceeds by the Bank for the
account of the Fund.
X. OTHER TRANSFERS - Upon receipt of Proper Instructions, to deliver
securities, funds and other property of a Fund to a
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<PAGE>
Subcustodian or another custodian of such Fund; and, upon receipt of Proper
Instructions, to make such other disposition of securities, funds or other
property of such Fund in a manner other than or for purposes other than as
enumerated elsewhere in this Agreement, provided that the instructions relating
to such disposition shall include a statement of the purpose for which the
delivery is to be made, the amount of securities, funds or OTHER PROPERTY TO BE
DELIVERED and the name of the person or persons to whom delivery is to be made.
Y. INVESTMENT LIMITATIONS - In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for a Fund, the Custodian may assume unless and until
notified in writing to the contrary that Proper Instructions received by it are
not in conflict with or in any way contrary to any provisions of the Trust's
Declaration of Trust or By-Laws (or comparable documents) or votes or
proceedings of the shareholders or Trustees of the Trust. The Custodian shall in
no event be liable to the Trust and shall be indemnified by the Trust for any
violation which occurs in the course of carrying out instructions given by the
Fund of any investment limitations to which the Trust is subject or other
limitations with respect to the Trust's powers to make expenditures, encumber
securities, borrow or take similar actions affecting its portfolio.
Z. PROPER INSTRUCTIONS - Proper Instructions shall mean a
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<PAGE>
tested telex from the Trust or a written request, direction, instruction or
certification signed or initialed on behalf of the Trust by one or more person
or persons as the Board of Trustees of the Trust shall have from time to time
authorized, provided, however, that no such instructions directing the delivery
of securities or the payment of funds to an authorized signatory of the Trust
shall be signed by such person. Those persons authorized to give Proper
Instructions may be identified by the Board of Trustees by name, title or
position and will include at least one officer empowered by the Board to name
other individuals who are authorized to give Proper Instructions on behalf of
the Trust. Telephonic or other oral instructions given by any one of the above
persons will be considered Proper Instructions if the Custodian reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. Oral instructions will be
confirmed by tested telex or in writing in the MANNER SET forth above but the
lack of such CONFIRMATION SHALL IN NO way affect any action taken by the
Custodian in reliance upon such oral instructions. The Trust authorizes the
Custodian to tape record any and all telephonic or other oral instructions given
to the Custodian by or on behalf of the Trust (including any of its officers,
Trustees, employees or agents) and will deliver to the Custodian a similar
authorization from any investment manager or adviser or person or entity with
similar responsibilities which is
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<PAGE>
authorized to give Proper Instructions on behalf of a Fund to the Custodian.
Proper Instructions may relate to specific transactions or to types or classes
of transactions, and may be in the form of standing instructions.
Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices or systems, in addition to
tested telex, provided that the Trust and the Custodian agree to the use of such
device or system.
3. Securities, funds and other PROPERTY OF A FUND MAY BE held by
subcustodians appointed pursuant to the provisions of this Section 3 (a
"Subcustodian"). The Custodian may, at any time and from time to time, appoint
any bank or trust company or securities depository (meeting the requirements of
a custodian or a foreign custodian under the Investment Company Act of 1940 and
the rules and regulations thereunder) to act as a Subcustodian for a Fund,
provided that the Fund shall have approved in writing (1) any such bank or trust
company or securities depository and the subcustodian agreement to be entered
into between such bank or trust company and the Custodian or any Subcustodian,
and (2) if the subcustodian is a bank, trust company or securities depository
organized under the laws of a country other than the United States, the holding
of securities, cash and other property of the Fund in the country in which it is
proposed to utilize the services of such subcustodian. Upon such approval by the
Trust, the Custodian is authorized on behalf of the Trust to notify each
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<PAGE>
Subcustodian of its appointment as such. The Custodian may, at any time in its
discretion, remove any bank or trust company or securities depository that has
been appointed as a Subcustodian but will promptly notify the Fund of any such
action.
Those Subcustodians, their offices or branches which the Trust has
approved to-date are set forth on Appendix A hereto. Such Appendix shall be
amended from time to time as Subcustodians, branches or offices are changed,
added or deleted. The Trust shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be held at a
location not listed on Appendix A, in order that there shall be sufficient time
for the Trust to give the approval required by the preceding paragraph and for
the Custodian to put the appropriate arrangements in place with such
Subcustodian pursuant to such subcustodian agreement.
Although a Fund does not intend to invest in a country before the
foregoing procedures have been completed, in the event that an investment is
made prior to approval, if practical, such security shall be removed to an
approved location or if not practical such security shall be held by such agent
as the Custodian may appoint. In such event, the Custodian shall be liable to a
Fund for the actions of such AGENT IF AND ONLY TO THE extent the Custodian shall
have recovered from such agent for any damages caused the Fund by such agent and
provided that the Custodian shall pursue its rights against such agent.
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With respect to the securities, funds and other property held by a
Subcustodian, either directly or indirectly, including demand and interest
bearing deposits, currencies or other deposits and foreign exchange contracts as
referred to in Sections 2L, 2M, 2N, or 20 the Custodian shall be liable to a
Fund if and only to the extent that such Subcustodian or ANY OTHER SUBCUSTODIAN
is liable to the Custodian and the Custodian recovers under the applicable
subcustodian agreement provided that the Custodian shall pursue its rights
against such Subcustodian. The Custodian shall nevertheless be liable to the
Trust for its own negligence in transmitting any instructions received by it
from the Trust and for its own negligence in connection with the delivery of any
securities, funds or other property held by it to any such Subcustodian.
In the event that any Subcustodian appointed pursuant to the
provisions of this Section 3 fails to perform any of its obligations under the
terms and conditions of the applicable subcustodian agreement, the Custodian
shall use its best efforts to cause such Subcustodian to perform such
obligations. In the event that the Custodian is unable to cause such
Subcustodian to perform fully its obligations thereunder, the Custodian shall
forthwith upon a Fund's request terminate such Subcustodian and, if necessary or
desirable, appoint another subcustodian in accordance with the provisions of
this Section 3. At the election of the Trust, it shall have the right to
enforce, to the
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<PAGE>
extent permitted by the subcustodian agreement and applicable law, the
Custodian's rights against any such Subcustodian for loss or damage caused a
Fund by such Subcustodian.
At the written request of the Trust, the Custodian will terminate any
Subcustodian appointed pursuant to the provisions of this Section 3 in
accordance with the termination provisions under the applicable subcustodian
agreement. The Custodian will not amend any subcustodian agreement or agree to
change or permit any changes thereunder except upon the prior written approval
of the Trust.
In the event the Custodian receives a claim from a Subcustodian under
the indemnification provisions of any subcustodian agreement, the Custodian
shall promptly give written notice to the affected Fund of such claim. No more
than thirty days after written notice to such Fund of the Custodian's intention
to make a payment under such indemnification provisions, such Fund will
reimburse the Custodian the amount of such payment except in respect of any
negligence or misconduct of the Custodian or any Subcustodian.
4. The Custodian may assist generally in the preparation of reports to
Fund shareholders and others, audits of accounts, and other ministerial matters
of like nature.
5. The Trust hereby also appoints the Custodian as its financial agent.
With respect to the appointment as financial agent, the Custodian shall have and
perform the following powers and duties:
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A. Records - To create, maintain and retain such records relating to
its activities and obligations under this Agreement as are required under the
Investment Company Act of 1940 and the rules and regulations thereunder
(including Section 31 thereof and Rules 3la-1 and 3la-2 thereunder) and under
applicable Federal and State tax laws. All such records will be the property of
the TRUST AND IN THE EVENT OF termination of this Agreement shall be delivered
to the successor custodian, and the Custodian agrees to cooperate with the Trust
in execution of documents and other actions necessary or desirable in order to
substitute the successor custodian for the Custodian under this agreement.
B. Accounts - To keep books of account and render statements, including
interim monthly and complete quarterly financial statements, or copies thereof,
from time to time as reasonably requested by Proper Instructions.
C. ACCESS TO RECORDS - Subject to security requirements of the
Custodian applicable to its own employees having access to similar records
within the Custodian and such regulations as may be reasonably imposed by the
Custodian, the books and records maintained by the Custodian pursuant to
Sections 5A and 5B shall be open to inspection and audit at reasonable times by
officers of, attorneys for, and auditors employed by, the Trust.
D. CALCULATION OF NET ASSET VALUE - To compute and determine the net
asset value per share of capital stock of each Fund as of
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the close of business on the New York Stock Exchange on each day on WHICH SUCH
Exchange is open, unless otherwise directed by Proper Instructions. Such
computation and determination shall be made in accordance with (1) the
provisions of the Declaration of Trust and By-Laws of the Company, as they may
from time to time be amended and delivered to the Custodian, (2) the votes of
the Board of Trustees of the Trust at the time in force and applicable, as they
may from time to time be delivered to the Custodian, and (3) Proper Instructions
from such officers of the Trust or other persons as are from time to time
authorized by the Board of Trustees of the Trust to give instructions with
respect to computation and determination of the net asset value. On each day
that the Custodian shall compute the net asset value per share of each Fund, the
Custodian shall provide the Trust with written reports which permit the Trust to
verify that portfolio transactions have been recorded in accordance with the
Trust's instructions.
In computing the net asset value, the Custodian may rely upon any
information furnished by Proper Instructions, including without limitation any
information (1) as to accrual of liabilities of a Fund and as to liabilities of
such Fund not appearing on the books of account kept by the Custodian, (2) as
to the existence, status and proper treatment of reserves, if any, authorized
by the Trust, (3) as to the sources of quotations to be used in computing the
net asset value, including those
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listed in Appendix B, (4) as to the fair value to be assigned to any securities
or other property for which price quotations are not readily available, and (5)
as to the sources of information with respect to "corporate actions" affecting
portfolio securities of a Fund, including those listed in Appendix B.
(Information as to "corporate actions" shall include information as to
dividends, distributions, stock splits, stock dividends, rights offerings,
conversions, exchanges, recapitalizations, mergers, redemptions, calls, maturity
dates and similar transactions, including the ex- and record dates and the
amounts or other terms thereof.)
In like manner, the Custodian shall compute and determine the net asset
value as of such other times as the Board of Trustees of the Trust from time to
time may reasonably request.
Notwithstanding any other provisions of this Agreement, including
Section 6C, the following provisions shall apply with respect to the Custodian's
foregoing responsibilities in this Section 5D: The Custodian shall be held to
the exercise of reasonable care in computing and determining net asset value as
provided in this Section 5D, but shall not be held accountable or liable for any
losses, damages or expenses a Fund or any shareholder or former shareholder of
the Fund may suffer or incur arising from or based upon errors or delays in the
determination of such net asset value unless such error or delay was due to the
Custodian's negligence, gross negligence or reckless or willful
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<PAGE>
misconduct in determination of such net asset value. (The parties hereto
acknowledge, however, that the Custodian's causing an error or delay in the
determination of net asset value may, but does not in and of itself, constitute
negligence, gross negligence or reckless or willful misconduct.) In no event
shall the Custodian be liable or responsible to a Fund, any present or former
shareholder of a Fund or any other party for any error or delay which continued
or was undetected after the date of an audit performed by the certified public
ACCOUNTANTS EMPLOYED BY the Trust if, in the exercise of reasonable care in
accordance with generally accepted accounting standards, such accountants should
have become aware of such error or delay in the course of performing such audit.
The Custodian's liability for any such negligence, gross negligence or reckless
or willful misconduct which results in an error in determination of such net
asset value shall be limited to the direct, out-of-pocket loss a Fund,
shareholder or former shareholder shall actually incur, measured by the
difference between the actual and the erroneously computed net asset value, and
any expenses a Fund shall incur in connection with correcting the records of a
Fund affected by such error (including charges made by a Fund's registrar and
transfer agent for making such corrections) or communicating with shareholders
or former shareholders of the Fund affected by such error,
Without limiting the foregoing, the Custodian shall not be
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held accountable or liable to a Fund, any shareholder or former shareholder
thereof or any other person for any delays or losses, damages or expenses any of
them may suffer or incur resulting from (1) the Custodian's failure to receive
timely and suitable notification concerning quotations or corporate actions
relating to or affecting portfolio securities of a Fund or (2) any errors in the
computation of the net asset value based upon or arising out of quotations or
information as to corporate actions if received by the Custodian either (i) from
a SOURCE WHICH THE Custodian was authorized pursuant to the second paragraph of
this Section 5D to rely upon, or (ii) from a source which in the Custodian's
reasonable judgment was as reliable a source for such quotations or information
as the sources authorized pursuant to that paragraph. Nevertheless, the
Custodian will use its best judgment in determining whether to verify through
other sources any information it has received as to quotations or corporate
actions if the Custodian has reason to believe that any such information might
be incorrect.
In the event of any error or delay in the determination of such net
asset value for which the Custodian may be liable, the Fund and the Custodian
will consult and make good faith efforts to reach agreement on what actions
should be taken in order to mitigate any loss suffered by a Fund or its present
or former shareholders, in order that the Custodian's exposure to liability
shall be reduced to the extent possible after taking into account
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all relevant factors and alternatives. Such actions might include a Fund or the
Custodian taking reasonable steps to collect from any shareholder or former
shareholder who has received any overpayment upon redemption of shares such
overpaid amount or to collect from any shareholder who has underpaid upon a
purchase of shares the amount of such underpayment or to reduce the number of
shares issued to such shareholder. It is understood that in attempting to reach
agreement on the actions to be taken or the amount of the loss which SHOULD
APPROPRIATELY BE BORNE by the Custodian, each Fund and the Custodian will
consider such relevant factors as applicable law, the amount of the loss
involved, such Fund's desire to avoid loss of shareholder good will, the fact
that other persons or entities could have been reasonably expected to have
detected the error sooner than the time it was actually discovered, the
appropriateness of limiting or eliminating the benefit which shareholders or
former shareholders might have obtained by reason of the error, and the
possibility that other parties providing services to a Fund might be induced to
absorb a portion of the loss incurred.
E. DISBURSEMENTS - Upon receipt of Proper Instructions, to pay or cause
to be paid, insofar as funds are available for the purpose, bills, statements
and other obligations of a Fund (including but not limited to interest charges,
taxes, management fees, compensation to Trust officers and employees, AND OTHER
operating expenses of a Fund).
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6. A. The Custodian shall not be liable for any action taken or omitted
in reliance upon Proper Instructions believed by it to-be genuine or upon any
other written notice, request, direction, instruction, certificate or other
instrument believed by it to be genuine and signed by the proper party or
parties.
The Secretary or Assistant Secretary of the Trust shall certify to the
Custodian the names, signatures and scope of authority of all persons authorized
to give Proper Instructions or any other such notice, request, direction,
instruction, certificate or instrument on behalf of each Fund, the names and
signatures of the officers of the Trust, the name and address of the Shareholder
Servicing Agent, and any resolutions, votes, instructions or directions of the
Trust's Board of Trustees or shareholders. Such certificate may be accepted and
relied upon by the Custodian as conclusive evidence of the facts set forth
therein and may be considered in full force and effect until receipt of a
similar certificate to the contrary.
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement.
The Custodian shall be entitled, at the expense of a Fund, to receive
and act upon advice of counsel (who may be counsel for a Fund) on all matters,
and the Custodian shall be without
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liability for any action reasonably taken or omitted pursuant to such advice.
B. With respect to the portfolio securities, cash and other property of
a Fund held by a Securities System, the Custodian shall be liable to that Fund
only for any loss or damage to the Fund resulting from use of the Securities
System if caused by any negligence, misfeasance or misconduct of the Custodian
or any of its agents or of any of its or their employees or from any failure of
the Custodian or any such agent to enforce effectively such rights as it may
have against the Securities System.
C. Except as may otherwise be set forth in this Agreement with respect
to particular matters, the Custodian shall be held only to the exercise of
reasonable care and diligence in carrying out the provisions of this Agreement,
provided that the Custodian shall not thereby be required to take any action
which is in contravention of any applicable law. However, nothing herein shall
exempt the Custodian from liability due to its own negligence or willful
misconduct. The Trust agrees to indemnify and hold harmless the Custodian and
its nominees from all claims and liabilities (including counsel fees) incurred
or assessed against it or its nominees in connection with the performance of
this Agreement, except such as may arise from its or its nominee's breach of the
relevant standard of conduct set forth in this Agreement. Without limiting the
foregoing indemnification obligation of the Trust, the Trust agrees to indemnify
the
- 28 -
<PAGE>
Custodian and its nominees against any liability the Custodian or such nominee
may incur by reason of taxes assessed to the Custodian or such nominee or other
costs, liability or expense incurred by the Custodian or such nominee resulting
directly or indirectly from the fact that portfolio securities or other property
of a Fund is registered in the name of the Custodian or such nominee.
In order that the indemnification provisions contained in this Section
6C shall apply, however, it is understood that if in any case the Trust may be
asked to indemnify or hold the Custodian harmless, the Trust shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the Custodian will use all reasonable care to
identify and notify the Trust promptly concerning any situation which presents
or appears likely to present the probability of such a claim for indemnification
against the Trust. The Trust shall have the option to defend the Custodian
against any claim which may be the subject of this indemnification, and in the
event that the Trust so elects it will so notify the Custodian, and thereupon
the Trust shall take over complete defense of the claim, and the Custodian shall
in such situation initiate no further legal or other expenses for which it shall
seek indemnification under this Paragraph 6C. The Custodian shall in no case
confess any claim or make any compromise in any case in which the Trust will be
asked to
- 29 -
<PAGE>
indemnify the Custodian except with the Trust's prior written consent.
It is also understood that the Custodian shall not be liable for any
loss involving any securities, currencies, deposits or other property of a Fund,
whether maintained by it, a Subcustodian, an agent of the Custodian or a
Subcustodian, a Securities System, or a Banking Institution, or a loss arising
from a foreign currency transaction or contract, resulting from a Sovereign
Risk. A "Sovereign Risk" shall mean nationalization, expropriation, devaluation,
revaluation, confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting each
Fund's property; or acts of war, terrorism, insurrection or revolution; or any
other similar act or event beyond the Custodian's control.
D. The Custodian shall be entitled to receive reimbursement from a Fund
on demand, in the manner provided in Section 7, for its cash disbursements,
expenses and charges (including the fees and expenses of any Subcustodian or any
Agent) in connection with this Agreement, but excluding salaries and usual
overhead expenses.
E. The Custodian may at any time or times in its discretion appoint
(and may at any time remove) any other bank or trust
- 30 -
<PAGE>
company as its agent (an "Agent") to carry out such of the provisions of this
Agreement as the Custodian may from time to time direct, provided, however, that
the appointment of such Agent (other than an Agent appointed pursuant to the
third paragraph of Section 3) shall not relieve the Custodian of any of its
responsibilities under this Agreement.
F. Upon request, a Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary or
desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
7. Each Fund shall pay the Custodian a custody fee based on such fee
schedule as may from time to time be agreed upon in writing by the Custodian and
such Fund. Such fee, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 6D, shall be billed to each Fund in such a
manner as to permit payment by a direct cash payment to the Custodian or by
placing Fund portfolio transactions with the Custodian resulting in an
agreed-upon amount of commissions being paid to the Custodian in an agreed-upon
period of time.
8. This Agreement shall continue in full force and effect until
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid, to the other party, such termination to take effect not sooner
than seventy five (75) days
- 31 -
<PAGE>
after the date of such delivery or mailing. In the event of termination the
Custodian shall be entitled to receive prior to delivery of the securities,
funds and other property held by it all accrued fees and unreimbursed expenses
the payment of which is contemplated by Sections 6D and 7, upon receipt by the
Trust of a statement setting forth such fees and expenses.
In the event of the appointment of a successor custodian, it is agreed
that the funds and securities owned by a Fund and held by the Custodian or any
Subcustodian shall be delivered to the successor custodian, and the Custodian
agrees to cooperate with such Fund in execution of documents and performance of
other actions necessary or desirable in order to substitute the successor
custodian for the Custodian under this Agreement.
9. This Agreement constitutes the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof. No provision of
this Agreement may be amended or terminated except by a statement in writing
signed by the party against which enforcement of the amendment or termination is
sought.
In connection with the operation of this Agreement, the Custodian and
the Trust may agree in writing from time to time on such provisions
interpretative of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretative or additional provisions made as provided in the
- 32 -
<PAGE>
preceding sentence shall be deemed to be an amendment of this Agreement.
10. This instrument is executed and delivered in The Commonwealth of
Massachusetts and shall be governed by and construed according to the laws of
said Commonwealth.
11. Notices and other writings delivered or mailed postage prepaid to a
Fund addressed to the Trust at 2755 Campus Drive, San Mateo, CA 94403 or to such
other address as the Trust may have designated to the Custodian in writing, or
to the Custodian at 40 Water Street, Boston, Massachusetts 02109, Attention:
Manager, Securities Department, or to such other address as the Custodian may
have designated to the Company in writing, shall be DEEMED TO HAVE BEEN PROPERLY
delivered or given hereunder to the respective addressee.
12. This Agreement shall be binding on and shall inure to the benefit
of the Trust and the Custodian and their respective successors and assigns,
provided that neither party hereto may assign this Agreement or any of its
rights or obligations hereunder without the prior written consent of the other
party.
13. Notice is hereby given of the limitations of the liability of the
Trust's shareholders and Trustees as set forth in the Trust's Declaration of
Trust, as amended, on file with the Secretary of the Commonwealth of
Massachusetts. The obligations assumed by a Fund or the Trust pursuant to this
Agreement shall be limited in all cases to such Fund and its assets. No party
- 33 -
<PAGE>
named herein shall seek satisfaction of any such obligation from the
shareholders or any shareholder of the Trust; nor shall any party named herein
seek satisfaction of any such obligation from the Board of Trustees or any
individual Trustee of the Trust.
14. This Agreement may be executed in any number of COUNTERPARTS, EACH
OF WHICH shall be deemed an original. This Agreement shall become effective when
one or more counterparts have been signed and delivered by each of the parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed in its name and behalf on the day and year first above written.
BAILARD, BIEHL & KAISER FUND GROUP on behalf of the BAILARD, BIEHL & KAISER
DIVERSA FUND
2160P
BROWN BROTHERS HARRIMAN & CO.
<PAGE>
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
BAILARD, BIEHL & KAISER DIVERSA FUND
APPENDIX A
COUNTRY SUBCUSTODIAN DEPOSITORY
- ------- ------------ ----------
ARGENTINA CITIBANK, N.A., BUENOS AIRES Caja de Valores
Citibank, N.A., New York Agt. 7/16/81 CRYL
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
AUSTRALIA NATIONAL AUSTRALIA BANK LTD., MELBOURNE Austraclear Ltd,
National Australia Bank Agt. 5/l/85 Reserve Bank of
Agreement Amendment 2/13/92 Australia
Omnibus Amendment 11/22/93
AUSTRIA CREDITANSTALT BANKVEREIN OeKB
Creditanstalt Bankverein Agreement 12/18/89
Omnibus Amendment 1/17/94
BELGIUM BANQUE BRUXELLES LAMBERT CIK
Banque Bruxelles Lambert Agt. 11/15/90 Banque Nationale
Omnibus Amendment 3/l/94 de Belgique
BERMUDA THE BANK OF N.T. BUTTERFIELD & SON LTD. None
The Bank of N.T. Butterfield & Son Ltd.
Agreement 5/27/97
BRAZIL BANKBOSTON, N.A., SAO PAULO BOVESPA
The First National Bank of Boston CLC
Agreement 1/5/88
Omnibus Amendment 2/22/94
Amendment 7/29/96
CANADA CANADIAN IMPERIAL BANK OF COMMERCE Bank of Canada
Canadian Imperial Bank of Commerce CDS
Agreement 9/9/88
Omnibus Amendment 12/1/93
CHILE CITIBANK, N.A., SANTIAGO DCV
Citibank, N.A., New York Agreement 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
CZECH REPUBLIC CESKOSLOVENSKA OBCHODNI BANKA, A.S., PRAGUE SCP
Ceskoslovenska Obchodni Banka Czech National
Agreement 2/28/94 Bank
DENMARK DEN DANSKE BANK VP
Den Danske Bank Agreement l/l/89
Omnibus Amendment 12/1/93
FINLAND MERITA BANK CSD
Union Bank of Finland Agreement 2/27/89
Omnibus Amendment 4/6/94
FRANCE BANQUE PARIBAS SICOVAM
Morgan Guaranty Trust Company Banque de France
Agreement 4/2/93
Consent and Transfer Agreement 4/4/96
GERMANY DRESDNER BANK DKV
Dresdner Bank Agreement 10/6/95
GREECE CITIBANK, N.A., ATHENS Apothetirion
Citibank, N.A., New York Agreement 7/16/81 Titlon A.E.
New York Agreement Amendment 8/31/90 Bank of Greece
New York Agreement Amendment 7/26/96
PAGE 1 OF 4
<PAGE>
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
BAILARD, BIEHL & KAISER DIVERSA FUND
APPENDIX A
COUNTRY SUBCUSTODIAN DEPOSITORY
- ------- ------------ ----------
HONG KONG STANDARD CHARTERED BANK~ HONG KONG HKSCC
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
HIJNGARY CITIBANK BUDAPEST RT. for CITIBANK, N.A. KELER Ltd.
Citibank, N.A., New York Agreement 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank, N.A. Subsidiary Amendment 10/19/95
Citibank, N.A./Citibank Budapest
Agreement 1/24/92
INDONESIA CITIBANK, N.A., JAKARTA LPP
Citibank, N.A., New York Agreement 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
IRELAND ALLIED IRISH BANKS PLC Crestco.
Allied Irish Banks Agreement 1/10/89 Gilt Settlement
Omnibus Amendment 4/8/94 Office
ISRAEL BANK HAPOALIM B.M. TASE
Bank Hapoalim Agreement 8/27/92 Clearinghouse Ltd.
ITALY BANCA COMMERCIALE ITALIANA Monte Titoli
Banca COMMERCIALE ITALIANA AGREEMENT 5/8/89 Banca D'Italia
Agreement Amendment 10/8/93
Omnibus Amendment 12/14/93
JAPAN SUMITOMO TRUST & BANKING COMPANY, LTD. JASDEC
Sumitomo Trust & Banking Agreement 7/17/92 Bank of Japan
OMNIBUS Amendment 1/13/94
KOREA CITIBANK, N.A., SEOUL KSD
Citibank, N.A., New York Agreement 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank, Seoul Agreement Supplement 10/28/94
MALAYSIA HONGKONG BANK MALAYSIA BERHAD Bank Negara
Hongkong & Shanghai Banking Corp. Malaysia MCD
Agt. 4/19/91
Omnibus Supplement 12/29/93
Schedule 5/14/96
Malaysia Subsidiary Supplement 5/23/94
Side letter Agreement dated 7/28/97
MEXICO CITIBANK MEXICO, S. A. Indeval
Citibank, N.A., New York Agreement 7/16/81 Banco de Mexico
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank Mexico, S.A. Amendment 2/7/95
NETHERLANDS ABN-AMRO BANK NECIGEF
AB'N-AMRO Agreement 12/19/88
De Nederlandsche Bank
NEW ZEALAND NATIONAL AUSTRALIA BANK LTD., AUCKLAND Reserve Bank
National Australia Bank Agreement 5/1/85 of New Zealand
Agreement Amendment 2/13/92
Omnibus Amendment 11/22/93
New Zealand Addendum 3/7/89
PAGE 2 OF 4
<PAGE>
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
BAILARD, BIERL & KAISER DIVERSA FUND
APPENDIX A
COUNTRY SUBCUSTODIAN DEPOSITORY
- ------- ------------ ----------
NORWAY DEN NORSKE BANK VPS
Den norske Bank Agreement 11/16/94
PERU CITIBANK, N.A., LIMA CAVALI
Citibank, N.A., New York Agreement 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
PHILIPPINES CITIBANK, N.A., MANILA PCD
Citibank, N.A., New York Agreement 7/16181 ROSS
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
POLAND CITIBANK (POLAND), S.A. for CITIBANK, N.A. NDS
Citibank, N.A., New York Agreement 7/16/81 National Bank
New York Agreement Amendment 8/31/90 of Poland
New York Agreement Amendment 7/26/96
Citibank Subsidiary Amendment 10/19/95
Citibank, N.A./Citibank Poland S.A. Agt. 11/6/92
PORTUGAL BANCO ESPIRITO SANTO E COMERCIAL Interbolsa
DE LISBOA, S.A.
BESCL Agreement 4/26/89
Omnibus Amendment 2/23/94
SINGAPORE STANDARD CHARTERED BANK, SINGAPORE CDP
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
SOUTH AFRICA FIRST NATIONAL BANK OF SOUTHERN AFRICA CD
First National Bank of Southern Africa Agt. 8/7/91
SPAIN BANCOSANTANDER. SCLV Banco
Banco Santander Agreement 12/14/88 de Espana
SWEDEN SKANDINAVISKA ENSKILDA BANKEN VPC
Skandinaviska Enskilda Banken Agreement 2/20/89
Omnibus Amendment 12/3/93
SWITZERLAND SWISS BANK CORPORATION SEGA
Swiss Bank Corporation Agreement 3/l/94
TAIWAN STANDARD CHARTERED BANK, TAIPEI TSCD
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
THAILAND HONGKONG & SHANGHAI BANKING COR.P.LTD., BANGKOK TSDC
Hongkong & Shanghai Banking Corp. Agt. 4/19/91
Omnibus Amendment 12/29/93
Schedule 5/14/96
TRANSNATIONAL BROWN BROTHERS HARRIMAN & CO. Cedel
Euroclear
TURKEY CITIBANK, N.A., ISTANBUL Takasbank
Citibank, N.A., New York Agreement 7/16/81 Central Bank
New York Agreement Amendment 8/31/90 of Turkey
New York Agreement Amendment 7/26/96
PAGE 3 OF 4
<PAGE>
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
BAILARD, BIERL & KAISER DIVERSA FUND
APPENDIX A
COUNTRY SUBCUSTODIAN DEPOSITORY
- ------- ------------ ----------
UNITED KINGDOM RBS TRUST BANK LTD. CGO
Royal Bank of Scotland Agreement 5/24/96 CMO
CrestCo.
I HEREBY CERTIFY THAT AT ITS MEETING ON _________________________ THE BOARD
APPROVED THE COUNTRIES, SUBCUSTODIANS, AGREEMENTS, AND CENTRAL DEPOSITORIES
LISTED ON THIS APPENDIX.
- ------------------------------- ---------------------
(SIGNATURE) (DATE)
- -------------------------------
(TITLE)
PAGE 4 OF 4
<PAGE>
AMENDMENT TO THE
CUSTODIAN AGREEMENT
AMENDMENT MADE AS OF DECEMBER 22, 1995 (the "Amendment"), between
Bailard, Biehl & Kaiser Fund Group (the "COMPANY") AND BROWN BROTHERS HARRIMAN &
CO. (THE "CUSTODIAN") to the Custodian Agreement dated September 24, 1990, on
behalf of Bailard, Biehl & Kaiser Diversa Fund (the "Fund") and any other
separate portfolio that may be designated from time to time by the Company and
Brown Brothers Harriman & Co.
In consideration of the mutual covenants and agreements herein
contained, the Fund and the Custodian agree that the Custodian Agreement is
hereby amended as follows:
I . Section [y], PROPER INSTRUCTIONS, is amended in its entirety as follows:
"[y]. PROPER INSTRUCTIONS - Proper instructions shall include, in order
of preference, authenticated electro-mechanical communications including SWIFT
and tested telex; a written request signed by two or more authorized persons as
set forth below; telefax transmissions and oral instructions. Each of the
foregoing methods of communicating proper instructions is described and defined
below and may from time to time be further described and defined in written
operating memoranda between the Custodian and the Fund.
Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices or systems, including
authenticated SWIFT and tested telex transmissions. The media through which such
Proper Instructions shall be transmitted and the data which must be contained in
such Proper Instructions in order for such instruction to be complete shall be
set forth in certain operating memoranda to which the Custodian and the Fund
shall from time to time agree. The Fund shall be responsible for sending
instructions which meet the requirements set forth therein and the Custodian
shall be only be responsible for acting on instructions which meet such
requirements. The Custodian shall not be liable for direct or consequential
losses resulting from technical failures of any kind in respect of instructions
sent via electro-mechanical or electronic communications.
<PAGE>
Proper Instructions shall include a written request, direction,
instruction or certification signed or initialed on behalf of the Fund by two or
more persons as the Board of Trustees or Directors of the Fund shall have from
time to time authorized, provided, however, THAT NO SUCH instructions directing
the delivery of securities or the payment of funds to an authorized signatory of
the Fund shall be signed by such persons. Those persons authorized to give
proper instructions may be identified by the Board of Trustees or Directors by
name, title or position and will include at least one officer empowered by the
Board to name other individuals who are authorized to give proper instructions
on behalf of the Fund. Telephonic or other oral instructions or instructions
given by facsimile transmission may be given by any one of the above persons and
will be considered proper instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved.
With respect to telefax. transmissions, the Fund and the Custodian
hereby acknowledge that (i) receipt of legible instructions cannot be assured,
(ii) the Custodian cannot verify that authorized signatures on telefax
instructions are original, and (iii) the Custodian shall not be responsible for
losses or expenses incurred through actions taken in reliance on such telefax
instructions.
The Custodian may act on oral instructions provided such instructions
will be confirmed by authenticated electro-mechanical communications in the
manner set forth above but the lack of such confirmation shall in no way affect
any action taken by the Custodian in reliance upon such oral instructions. The
Fund authorizes the Custodian to tape record any and all telephonic or other
oral instructions given to the Custodian by or on behalf of the Fund (including
any of its officers, Directors, Trustees, employees or agents or any investment
manager or adviser or person or entity with similar responsibilities which is
authorized to give proper instructions on behalf of the Fund to the Custodian.)
Proper instructions may relate to specific transactions or to types or
classes or transactions, and may be in the form of standing instructions."
<PAGE>
Except as amended above, all the provisions of the Custodian Agreement
as hereto effect shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date set forth above.
Bailard, Biehl & Kaiser Fund Group, Inc.
on behalf of Bailard, Biehl and Kaiser Diversa Fund
(signature)
(name/title)
BROWN BROTHERS HARRIMAN & CO.
<PAGE>
CONTRACT AMENDMENT
Reference is made to the Custodian Agreement dated September 24, 1990 (the
"Custodian Agreement") between Bailard, Biehl & Kaiser Fund Group (the Company),
on behalf of the Bailard, Biehl & Kaiser Diversa Fund (the "Fund"), and BROWN
BROTHERS HARRIMAN & CO. (the "Custodian"). Said Agreement is hereby amended by
replacing Section 3 of said agreement with the following:
3. Subject to the provisions hereinafter set forth in this Section 3, the
Company hereby authorizes the Custodian to utilize Subcustodians to act on
behalf of the Fund. Unless otherwise indicated, capitalized TERMS SHALL have the
meaning provided in Rule 17f-5 under the Investment Company Act of 1940 (the
"1940 Act"), or any successor rule or regulation ("Rule 17f-5").
A. DEPOSIT AND MAINTENANCE OF SECURITIES OR FUNDS WITH FOREIGN
SUBCUSTODIANS - The Custodian may deposit and/or maintain non-U.S. investments
of a Fund in any non-U.S. Securities Depository or Clearing Agency provided such
Securities Depository or Clearing Agency meets the requirements of an "Eligible
Foreign Custodian" under Rule 17f-5 or which by order of the Securities and
Exchange Commission is exempted therefrom. Additionally, the Custodian may, at
any time and from time to time, appoint (a) any bank, trust company or other
entity meeting the requirements of an Eligible Foreign Custodian under Rule
17f-5 or which by order of the Securities and Exchange Commission is exempted
therefrom, or (b) any bank as defined in Section 2(a)(5) of the 1940 Act meeting
the requirements of a custodian under Section 17(f) of the 1940 Act and the
rules and regulations thereunder, to act on behalf of the Fund for purposes of
holding investments of the Fund outside the United States. Such Securities
Depositories, Clearing Agencies, banks, trust companies and other entities are
referred to herein as "Subcustodians".
1
<PAGE>
Unless and except to the extent that review of certain matters concerning the
appointment of Subcustodians shall have been delegated to the Custodian pursuant
to the next paragraph, the Custodian shall, prior to the appointment of any
Subcustodian for purposes of holding property of the Fund outside the United
States, obtain written confirmation of the approval of the Board of Trustees of
the Company (the "Board") or its delegate (other than the Custodian) with
respect to the Subcustodian and any Subcustodian agreement which shall govern
SUCH APPOINTMENT. Each such duly approved Subcustodian shall be listed on
Schedule attached hereto as the same may from time to time be amended.
From time to time, the Custodian may offer, and the Company may accept, that the
Custodian perform certain reviews of Subcustodians AND OF SUBCUSTODIAN CONTRACTS
AS DELEGATE OF THE BOARD. In such event, the Custodian's duties and obligations
with respect to this delegated review will be performed in accordance with the
terms of the separate delegation agreement between the Company and the
Custodian.
With respect to securities and funds held by a Subcustodian, either directly or
indirectly, including demand and interest bearing deposits, currencies or other
deposits and foreign exchange and feautures contracts as referred to in Sections
2L, 2M, 2N, or 20 the Custodian shall be liable to a Fund (in addition to any
liability it may have under the separate delegation agreement described in the
preceeding paragraph) if and only to the extent that such Subcustodian or any
other Subcustodian is liable to the Custodian and the Custodian recovers under
the applicable Subcustodian agreement provided that the Custodian shall pursue
its right against such agent. The Custodian shall nevertheless be liable to the
Fund for its own negligence in transmitting any instruction received by it from
the Fund and for its own negligence in connection with the delivery of any
securities OR FUNDS HELD BY IT TO ANY SUCH Subcustodian.
In the event that any Subcustodian appointed pursuant to the provisions of this
Section 3 fails to perform any of its obligations under the terms and conditions
of the applicable subcustodian agreement, the Custodian shall use its best
efforts to cause such Subcustodian to perform such obligations. in the event
that the Custodian is unable to cause
2
<PAGE>
such Subcustodian to perform fully its obligations thereunder, the Custodian
shall forthwith upon the Fund's request terminate such Subcustodian and, if
necessary or desirable, appoint another Subcustodian in accordance with the
provisions of this Section 3. At the election of the Fund, it shall have the
right to enforce, to the extent permitted by the subeustodian agreement and
applicable law, the Custodian's rights against any such Subcustodian for loss or
damage caused the Fund by such Subcustodian.
In the event the Custodian receives a claim from a Subcustodian under the
indemnification provisions of any subcustodian agreement, the Custodian shall
promptly give written notice to the Fund of such claim. No more than thirty days
after written notices to the Fund of the Custodian's intention to make a payment
under such indemnification provisions, the Fund will reimburse the Custodian the
amount of such payment except in respect of any negligence or misconduct of the
Custodian or any Subcustodian.
B. DEALING IN FOREIGN SECURITIES AND CASH - With respect to securities and funds
held by a Subcustodian, notwithstanding any provisions of this Agreement to the
contrary, payment for securities purchased and delivery of securities sold may
be made prior to receipt of securities or payment, respectively, and securities
OR PAYMENT MAY be received in a form, in accordance with Proper Instructions.
3
<PAGE>
EFFECTIVE as of June 15, 1998.
BAILARD, BIEHL & KAISER FUND GROUP,
on behalf of the BAILARD, BIEHL & KAISER DIVERSA
F U 7NND
By:
Name:
BROWN BROTHERS HARRIMAN & CO.
By:
Name: Fitzwilliam Giarrusso
Title: Partner
4
FOREIGN CUSTODY MANAGER DELEGATION AGREEMENT
AGREEMENT made as of the 15' day of June 1998 between Bailard, Biehl &
Kaiser Fund Group (the "Company"), on behalf of the Bailard, Biehl & Kaiser
Diversa Fund (the "Fund"), a management investment company registered with the
Securities and Exchange Commission (the "Commission") under the Investment
Company Act of 1940, as amended (the "Act"), acting through its Board of
Trustees (the "Board") or its duly appointed representative, and BROWN BROTHERS
HARRIMAN & CO., a New York limited partnership with an office in Boston,
Massachusetts (the "Delegate").
WITNESSETH
WHEREAS the Company has appointed the Delegate as custodian (the "Cust
of the Fund's Assets pursuant to a Custodian Agreement dated September 24, 1990
(the "Custodian Agreement");
WHEREAS the Company may, from time to time, deter-mine to invest and
some or all of the Fund's Assets outside the United States;
WHEREAS,
in accordance with Rule l7f-5 under the Act, as amended ("Rule
17f5"), the Board wishes to delegate to the Delegate certain functions with
respect to the custody of the Fund's Assets outside the United States;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Company and the Delegate agree as follows. Capitalized
TERMS SHALL HAVE THE meaning indicated in Section 14 unless otherwise indicated.
1. MAINTENANCE OF FUND'S ASSETS ABROAD. The Company, acting through its
Boar or its duly authorized representative, hereby authorizes Delegate pursuant
to the terms of the Custodian Agreement to place and maintain the Fund's Assets
within the countries listed in Schedule I attached to the Custodian Agreement
("Schedule 1") (as such Schedule may be amended from time to time in accordance
herewith). Such authorization shall be deemed to include an instruction to use
any Compulsory Securities Depository approved by the Board in any such country.
Countries may be added to and deleted from Schedule 1 by written
Page 1
<PAGE>
INSTRUCTION OF THE COMPANY THAT IS ACCEPTED in writing by the Delegate as an
amendment to Schedule 1. With respect to amendments adding countries to Schedule
1, the Company acknowledges that - (a) the Delegate shall perform services
hereunder only with respect to the countries where it provides custodial
services to the Company under the Custodian Agreement; (b) depending on
conditions in the particular country, advance notice may be required before the
Delegate shall be able to perform its duties hereunder in or with respect to
such country (such advance notice to be reasonable in light of the specific
facts and circumstances attendant to performance of duties in such country); and
(c) nothing in this Agreement shall require the Delegate to provide delegated or
custodial services in any country not listed in Schedule 1 until such amended
Schedule I has been accepted by the Delegate in accordance herewith.
2. DELEGATION. Pursuant to the provisions of Rule 17f-5, the Board
hereby delegates to the Delegate, and the Delegate hereby accepts such
delegation and agrees to PERFORM, ONLY THOSE DUTIES set forth in this Agreement
concerning the safekeeping of the Fund's Assets in each of the countries set
forth in Schedule 1. The Delegate is hereby authorized to take such actions on
behalf of or in the name of the Company as are reasonably required to discharge
its duties under this Agreement, including, without limitation, to cause the
Fund's Assets to be placed with a particular Eligible Foreign Custodian in
accordance herewith. The Company confirms to the Delegate that the Company or
its investment adviser has considered the Sovereign Risk and prevailing country
risk as part of its continuing investment decision process, including such
factors as may be reasonably related to the systemic risk of maintaining the
Fund's Assets in a particular country, including, but not limited to, financial
infrastructure, prevailing custody and settlement systems and practices, and the
laws relating to the safekeeping and recovery of the Fund's Assets held in
custody pursuant to the terms of the Custodian Agreement.
3. SELECTION OF ELIGIBLE FOREIGN CUSTODIAN AND CONTRACT ADMINISTRATION.
T Delegate shall perform the following duties with respect to the selection of
Eligible Foreign Custodians and administration of the contracts governing the
Fund's foreign custodial arrangements:
(a) SELECTION OF ELIGIBLE FOREIGN CUSTODIAN. The Delegate shall place
and maintain the Fund's Assets only with Eligible Foreign Custodians. With
respect to each such
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Eligible Foreign Custodian, the Delegate shall have determined that the Fund's
Assets will be subject to reasonable care based on the standards applicable to
custodians in the relevant market after considering all factors relevant to the
safekeeping of such assets including without limitation:
(i) The Eligible Foreign Custodian's practices, procedures,
and internal controls, including, but not limited to, the physical protections
available for certificated securities (if applicable), the controls and
procedures for dealing with any Securities Depository, the method of keeping
custodial records, and the security and data protection practices;
(ii) Whether the Eligible Foreign Custodian has the requisite
financial strength to provide reasonable care for the Fund's Assets;
(iii) The Eligible Foreign Custodian's general reputation and
standing and, in the case of a Securities Depository, the depository's operating
history and number of participants; and
(iv) Whether the Company will have jurisdiction over and be
able to enforce judgments against the Eligible Foreign Custodian, such as by
virtue of the existence of any offices of such Eligible Foreign Custodian in the
United States or such Eligible Foreign Custodian's appointment of an agent for
service of process in the United States or consent to jurisdiction in the United
States.
(b) CONTRACT ADMINISTRATION. The Delegate shall cause the Fund's
foreign custody arrangements to be governed by a written contract (or, in the
case of a Securities Depository, by such contract, by the rules or established
practices or procedures of the depository, or by any combination of the
foregoing) that the Delegate has determined will provide reasonable care for the
Fund's Assets based on the standards applicable to custodians in the relevant
market. Each such contract shall, except as set forth in the last paragraph of
this subsection (b), include provisions that provide:
(i) For indemnification or insurance arrangements (or any
combination of the foregoing) such that the Fund will be adequately protected
against the risk of loss of assets held in accordance with such contract;
(ii) That the Fund's Assets will not be subject to any right,
charge, security
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interest, lien or claim of any kind in favor of the Eligible Foreign Custodian
or its creditors except a claim of payment for their safe custody or
administration or, in the case of cash deposits, liens or rights in favor of
creditors of the Eligible Foreign Custodian arising under bankruptcy, insolvency
or similar laws;
(iii) That beneficial ownership of the Fund's Assets will be
freely transferable without the payment of money or value other than for safe
custody or administration;
(iv) That adequate records will be maintained identifying the
Fund's Assets as belonging to the Fund or as being held by a third party for the
benefit of the Fund;
(v) That the Company's independent public accountants will be
given access to those records described in (iv) above or confirmation of the
contents of such records; and
(vi) That the Company (which may receive such information
through the Delegate) will receive sufficient and timely periodic reports with
respect to the safekeeping of the Fund's Assets, INCLUDING, BUT NOT LIMITED TO,
NOTIFICATION OF ANY TRANSFER to or from the Fund's account or a third party
account containing the Fund's Assets.
Such contract may contain, in lieu of any or all of the provisions specified in
this subsection 3(b), such other provisions that the Delegate determines will
provide, in their entirety, the same or a greater level of care and protection
for the Fund's Assets as the specified provisions, in their entirety,
(c) LIMITATION TO DELEGATED SELECTION. Notwithstanding anything in this
Agreement to the contrary, the duties under this Section 3 shall apply only to
Eligible Foreign Custodians selected by the Delegate and shall not apply to
Compulsory Securities Depositories or to any Eligible Foreign Custodian that the
Delegate is directed to use pursuant to Section 7.
4. MONITORING. The Delegate shall establish a system to monitor at
reasonable intervals (and at least annually) the appropriateness of maintaining
the Fund's Assets with each Eligible Foreign Custodian that has been selected by
the Delegate pursuant to Section 3 of this Agreement. The Delegate shall monitor
the continuing appropriateness of placement of the Fund's Assets with each
particular Eligible Foreign Custodian in accordance with the criteria
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<PAGE>
established under Section 3(a) of this Agreement. The Delegate shall monitor the
continuing appropriateness of the contract governing the Fund's arrangements in
accordance with the criteria established under Section 3(b) of this Agreement.
5. REPORTING. At least annually and more frequently as mutually agreed
between the parties, the Delegate shall provide to the Board written reports
specifying placement of the Fund's Assets with each Eligible Foreign Custodian
selected by the Delegate pursuant to Section 3 of this Agreement and shall
promptly report any material changes to the Fund's foreign custody arrangements.
Delegate will PREPARE SUCH A REPORT WITH RESPECT TO ANY Eligible Foreign
Custodian that the Delegate has been instructed to use pursuant to Section 7
only to the extent specifically agreed with respect to the particular situation.
6. WITHDRAWAL OF FUND'S ASSETS. If the Delegate determines that an
arrangement with a specific Eligible Foreign Custodian selected by the Delegate
under Section 3 of this Agreement no longer meets the requirements of said
Section, Delegate shall withdraw the Fund's Assets from such Eligible Foreign
Custodian as soon as reasonably practicable; PROVIDED, however, that if in the
reasonable judgment of the Delegate, such withdrawal would require liquidation
of any of the Fund's Assets or would materially impair the liquidity, value or
other investment characteristics of the Fund's Assets, it shall be the duty of
the Delegate to provide information regarding the particular circumstances and
to act only in accordance with PROPER Instructions of the Company or its
investment advisor with respect to such liquidation or other withdrawal.
7. DIRECTION AS TO ELIGIBLE FOREIGN CUSTODIAN. Notwithstanding this
Delegation Agreement, the Company, acting through its Board, its investment
adviser or its other authorized representative, may direct the Delegate to place
and maintain the Fund's Assets with a particular Eligible Foreign Custodian. In
such event, the Delegate shall be entitled to rely on any such instruction and
shall have no duties under this Delegation Agreement with respect to such
arrangement save those in Section 9 and that it may undertake specifically in
writing with respect to each particular instance.
8. STANDARD OF CARE. In carrying out its duties under this Agreement,
the Delegate agrees to exercise reasonable care, prudence and diligence such as
a person having
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responsibility for safekeeping the Fund's Assets would exercise.
9. INFORMATION Services. In addition to the delegated duties set forth
herein, and with respect to the jurisdictions listed in Schedule 1, or added
thereto pursuant to Section 1, the Delegate agrees to provide to the Board
and/or the Company's investment adviser, such information as may be reasonably
available to the Custodian relating to:
(a) Information relevant to the compulsory nature of any Compulsory
Secu Depository;
(b) Information as to the existence and merits of an alternative to the
Compulsory SECURITIES DEPOSITORY, INCLUDING matters relevant to practices with
regard to safekeeping, administration and settlement of assets; and,
(c) Information relevant to the criteria with respect to Compulsory
Securities Depositories established by Rule l7f-5 as it existed prior to the
1997 amendments.
The Custodian may provide information under this Section by means of its
regularly established mechanisms for the communication of client market
information. In the provision of information under this Section, the Delegate
shall be responsible to use reasonable care in the gathering of such information
and may rely without limitation on reports and information distributed by the
Compulsory Securities Depository, governmental or regulatory reports, reports of
any auditor of a Compulsory Securities Depository, reports and analysis of
industry groups or similar sources and commercial information services.
Provision of information in accordance with this Section is not offered as
financial, investment or other professional advice. The Custodian makes no
warranty as to the accuracy or completeness of the information provided.
With respect to the jurisdictions listed in Schedule 1, or added thereto
pursuant to Section 1, the
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<PAGE>
Delegate agrees to provide at least annually to the Board and/or the Company's
investment adviser, SUCH INFORMATION AS MAY BE AVAILABLE RELATING to: (a) the
systemic risks of maintaining the Fund's Assets in such countries, including but
not limited to Sovereign Risk, financial infrastructure, prevailing custody and
settlement systems and practices (including the practices of any Compulsory
Securities Depository), and (b) the laws relating to the safekeeping and
recovery of the Fund's Assets held in such countries; provided that the Delegate
shall only be responsible to use reasonable care in the gathering of such
information and shall not be deemed to warranty the completeness or specific
accuracy of such information. The Delegate agrees to promptly notify the Board
or the Company's investment adviser at any time that the Delegate becomes aware
of a material change in such information.
The Delegate also agrees to provide such information as may be reasonably
necessary for the Board to determine that it is reasonable to rely on the
Delegate to perform the delegated responsibilities provided for herein.
10. FAVORED CLIENT. In the event that Delegate in the future shall
generally as a matter of its conduct of business offer additional or different
services with respect to performing delegated duties under Rule l7f-5 with
respect to Compulsory Securities Depositories or OTHERWISE, IT SHALL PROMPTLY
OFFER SUCH SERVICES TO THE Company on its usual business terms.
11. REPRESENTATIONS AND WARRANTIES. The Delegate hereby represents and
warrants that it is a U.S. Bank and that this Agreement has been duly
authorized, executed and delivered by the Delegate and is a legal, valid and
binding agreement of the Delegate.
The Company hereby represents and warrants that, based on information
provided by the Delegate and the Company's investment advisor, the Board has
determined that it is reasonable to rely on the Delegate to perform the
delegated responsibilities provided for herein and that this Agreement has been
duly authorized, executed and delivered by the Company and is a legal, valid and
binding agreement of the Company.
12. EFFECTIVENESS, TERMINATION. This Agreement shall be effective as of
the date first above written. This Agreement may be terminated at any time,
without penalty, by written notice from the terminating party to the
non-terminating party. Such termination shall be
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<PAGE>
effective on the 75th day following the date on which the non-terminating party
shall receive the foregoing notice. The foregoing to the contrary
notwithstanding, this Agreement shall be deemed to have been terminated
concurrently with the termination of the Custodian Agreement.
13. NOTICES. Notices and other communications under this Agreement are
TO BE MADE IN ACCORDANCE WITH THE arrangements designated for such purpose under
the Custodian Agreement unless otherwise indicated in a writing referencing this
Agreement and executed by both parties.
14. Definitions. Capitalized terms in this Agreement have the following
meanings:
a. COMPULSORY SECURITIES DEPOSITO - shall mean a Securities Depository
the use of which is mandatory (i) under applicable law or regulation; (ii)
because securities cannot be withdrawn from the depository; or (iii) because
maintaining securities outside the Securities Depository is not consistent with
prevailing custodial practices.
b. ELIGIBLE FOREIGN CUSTODIAN - shall have the meaning set forth in
Rule 17f 5(a)(1) and shall also include a U.S. Bank.
c. FUND'S ASSETS - shall mean any of the Fund's investments (including
foreign currencies) held outside the United States pursuant to Rule 17f-5 under
the Act, as well as such cash and cash equivalents as are reasonably necessary
to effect the Fund's transactions in such investments.
d. PROPER INSTRUCTIONS - shall have the meaning set forth in the
Custodian Agreement.
e. SECURITIES DEPOSITORY - shall have the meaning set forth in Rule
l7f-5(a)(6).
f. SOVEREIGN RISK - shall have the meaning set forth in Section 6.C of
the Custodian Agreement.
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g. U.S. BANK - shall mean a bank that qualifies to serve as a custodian
of assets of investment companies under Section 17(F) OF THE ACT.
16. GOVERNING LAW AND JURISDICTION. This Agreement shall be construed
in accordance with the laws of the Commonwealth of Massachusetts. The parties
hereby submit to the exclusive jurisdiction of the Federal courts sitting in the
Commonwealth of Massachusetts or of the state courts of such Commonwealth.
17. Fees. Delegate shall perform its functions under this AGREEMENT FOR
THE compensation determined under the Custodian Agreement.
18. INTEGRATION. This Agreement sets forth all of the Delegate's duties
with respect the selection and monitoring of Eligible Foreign Custodians, the
administration of contracts with Eligible Foreign Custodians, the withdrawal of
assets from Eligible Foreign Custodians and the issuance of reports in
connection with such duties. The terms of the Custodian Agreement shall apply
generally as to matters not expressly covered in this Agreement, including
dealings with the Eligible Foreign Custodians in the course of discharge of the
Delegate's obligations under the Custodian Agreement.
19. LIMITATION OF LIABILITY. Notice is hereby given of the limitations
of the liability of the Company's shareholders and Trustees as set forth in the
Company's Declaration of Trust, as AMENDED, ON FILE WITH the Commonwealth of
Massachusetts. The obligations assumed by a Fund or the Company pursuant to this
Agreement shall be limited in all cases to such Fund and its assets. No party
named herein shall seek satisfaction of any such obligation from the
shareholders or any shareholder of the Company; nor shall any party named herein
seek satisfaction of any such obligation from the Board of Trustees or any
individual Trustee of the Company.
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<PAGE>
NOW THEREFORE, the parties have caused this Agreement to be executed by its duly
authorized representatives, effective as of the date first above written.
BROWN BROTHERS HARRIMAN & CO.
By:
NAME: Kristen Fitzwilliam Giarrusso
-----------------------------------
Title: PARTNER
--------------
Date: JUNE 30, 1998
------------------
BAILARD, BIEHL & KAISER FUND GROUP,
on behalf of the BAILARD, BIEHL & KAISER DIVERSA FUND
Name: NIC
Title:
Date: 6/26
Page 10
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. 17 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated November 18, 1998, relating to the financial
statements and financial highlights appearing in the September 30, 1998 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Francisco, California
November 25, 1998
<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> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 29135272
<INVESTMENTS-AT-VALUE> 33333989
<RECEIVABLES> 618106
<ASSETS-OTHER> 2039807
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35991902
<PAYABLE-FOR-SECURITIES> 459058
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 203418
<TOTAL-LIABILITIES> 662476
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28763322
<SHARES-COMMON-STOCK> 2718907
<SHARES-COMMON-PRIOR> 2694116
<ACCUMULATED-NII-CURRENT> 145435
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2280676
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4139993
<NET-ASSETS> 35329426
<DIVIDEND-INCOME> 386826
<INTEREST-INCOME> 791266
<OTHER-INCOME> 0
<EXPENSES-NET> 675399
<NET-INVESTMENT-INCOME> 502693
<REALIZED-GAINS-CURRENT> 3048563
<APPREC-INCREASE-CURRENT> (2330285)
<NET-CHANGE-FROM-OPS> 1220971
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (620306)
<DISTRIBUTIONS-OF-GAINS> (2829561)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 124255
<NUMBER-OF-SHARES-REDEEMED> (345267)
<SHARES-REINVESTED> 245803
<NET-CHANGE-IN-ASSETS> (2141705)
<ACCUMULATED-NII-PRIOR> 263048
<ACCUMULATED-GAINS-PRIOR> 2061674
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 356891
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 698878
<AVERAGE-NET-ASSETS> 35361738
<PER-SHARE-NAV-BEGIN> 13.91
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 0.18
<PER-SHARE-DIVIDEND> (0.23)
<PER-SHARE-DISTRIBUTIONS> (1.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.99
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
