Bailard, Biehl & Kaiser Diversa Fund
(A No-Load Fund With No 12b-1 Plan)
Prospectus
The Bailard, Biehl & Kaiser Diversa Fund (the "Fund") is designed to achieve an
above average total return (the sum of income and capital gains) with below
average risk through investment in up to six classes of assets: United States
(domestic) stocks, domestic bonds, domestic cash equivalents, international
stocks, international bonds and international cash equivalents.
This Prospectus contains the basic information that you should know about the
Fund before investing and should be retained for future reference. A Statement
of Additional Information containing further information about the Fund has been
filed with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference. A copy of the Statement of Additional Information may
be obtained without charge by writing directly to us or by calling us at (800)
882-8383.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION IS
JANUARY 27, 1998, AS EACH MAY BE SUPPLEMENTED FROM TIME TO TIME.
Fund Information: Shareholder Services:
Bailard, Biehl & Kaiser Diversa Fund Chase Global Funds Services Company
950 Tower Lane, Suite 1900 P.O. Box 2798
Foster City, California 94404 Boston, Massachusetts 02208
(800) 882-8383 (800) 541-4366
(617) 557-8000
(Massachusetts residents)
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TABLE OF CONTENTS
Costs and Expenses of Fund Borne by Shareholders.............................3
The Fund.....................................................................3
Financial Highlights.........................................................4
What is the Fund's Investment Objective?.....................................6
What are the Fund's Investment Policies?.....................................6
Investment Practices.........................................................9
What Risk Factors Should I Be Aware of?.....................................12
How Do I Purchase Shares?...................................................15
How Do I Exchange or Redeem Shares?.........................................17
What is the Fund's Share Price?.............................................19
What Should I Know About Distributions and Taxes?...........................19
Who is the Fund's Investment Adviser?.......................................22
What Else Should I Know About the Fund?.....................................23
Performance Information.....................................................24
Administrative Services.....................................................24
Transfer Agent and Custodian................................................24
Experts.....................................................................25
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.
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Costs and Expenses of Fund Borne by Shareholders
Shareholder Transaction Expenses
Sales Load Imposed on Purchases......................................... None
Sales Load Imposed on Reinvested Dividends.............................. None
Deferred Sales Load..................................................... None
Redemption Fees......................................................... None
Exchange Fees........................................................... None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees......................................................... 0.95%
12b-1 Fees.............................................................. None
Other Expenses.......................................................... 0.89%
Total Fund Operating Expenses........................................... 1.84%
Example:
1 year 3 years 5 years 10 years
------ ------- ------- --------
You would pay the following
expenses on a $1,000 investment, assuming
1) 5% annual return and 2) redemption at
the end of each time period: $19 $58 $100 $216
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.
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 $1.03 billion in market value as of October 31,
1997.
Financial Highlights
The following information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report for the most recent five years is included
in the Fund's annual report to shareholders for the fiscal year ended September
30, 1997. Portions of the Fund's annual report to shareholders for the year
ended September 30, 1997 are incorporated by reference into the Statement of
Additional Information. This information should be read in conjunction with the
other financial statements and notes thereto included in the annual report.
The following information is based upon past results and may not be indicative
of the future performance of the Fund. Further information about the performance
of the Fund is included in the Fund's annual report to shareholders for the
fiscal year ended September 30, 1997. A copy of the annual report is available,
upon request and without charge, by calling the Fund's Investor Services
Department at (800) 882-8383, or writing to the following address: Bailard,
Biehl & Kaiser Fund Group, 950 Tower Lane, Suite 1900, Foster City, California
94404.
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Bailard, Biehl & Kaiser Diversa Fund
Financial Highlights
<TABLE>
<CAPTION>
For a share outstanding throughout the year:
For the year ended September 30,
----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ----- ----- ----- ----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.39 $13.20 $12.01 $12.68 $10.93 $10.64 $9.71 $11.26 $10.55 $11.70
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Income from Investment Operations:
Net Investment Income 0.40(1) 0.3(1) 0.38(1) 0.261 0.39 0.34 0.44 0.42 0.61 0.52
Net Realized/Unrealized Gain (Loss) on
Securities and Foreign Currency 1.92 0.96 1.13 (0.66) 1.66 0.30 0.90 (1.52) 0.76 (1.03)
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Total from Investment Operations 2.32 1.27 1.51 (0.40) 2.05 0.64 1.34 (1.10) 1.37 (0.51)
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Less Distributions:
From Net Investment Income (0.42) (0.32) (0.26) (0.05) (0.30) (0.35) (0.41) (0.45) (0.66) (0.35)
From Net Realized Gains (1.38) (0.76) (0.06) (0.22) - - - - - (0.29)
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Total Distributions (1.80) (1.08) (0.32) (0.27) (0.30) (0.35) (0.41) (0.45) (0.66) (0.64)
----------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.91 $13.39 $13.20 $12.01 $12.68 $10.93 $10.64 $9.71 $11.26 $10.55
========================================================================================
Total Return 19.14% 10.09% 12.83% (3.18%) 19.05% 6.16% 13.97% (10.19%) 13.56% (3.97%)
Ratios/Supplemental Data:
Net Assets, End of Year (000's) $37,471 $36,566 $40,688 $46,047 $49,584 $50,487 $57,546 $79,420 $103,864 $105,719
Ratio of Expenses to Average Net Assets 1.84% 1.99% 1.85% 1.82% 1.70% 1.90% 1.46% 1.34% 1.26% 1.26%
Ratio of Net Investment Income to
1.87% 2.09% 2.97% 2.03% 2.88% 2.75% 3.01% 3.60% 5.24% 5.13%
Average Net Assets
Portfolio Turnover Rate 66% 68% 166% 137% 96% 94% 254% 235% 100% 89%
Average Commission Rate Paid(2) $0.0347 $0.0344 ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
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(1) In 1995 and 1994, net investment income per share has been computed before
adjustments for book/tax differences.
(2) Represents average commission rate paid per share on purchases and sales of
equity securities by the Fund, as computed under an SEC rule effective with the
Fund's 1996 fiscal year. Prior period rates have not been presented as permitted
by the rule.
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What is the Fund's Investment Objective?
The Fund's objective is to achieve an above average total return with below
average risk through multiple asset allocation. The Fund's performance with
respect to return and risk will be measured against that of other funds
investing in multiple classes of assets. By investing in up to six classes of
assets (United States (domestic) stocks, domestic bonds, domestic cash
equivalents, international stocks, international bonds, and international cash
equivalents) and adjusting the level of investment it maintains in these classes
in response to changing market conditions, the Fund hopes to provide this unique
combination of risk and return. The Fund is intended to serve as the core or
foundation portfolio for investors because of its investment in several classes
of assets.
All investments, including mutual funds, have risks, and no investment is
suitable for all investors. Accordingly, there is no guarantee that the Fund
will achieve its investment objective, and investors should consult with their
financial and other advisers concerning the suitability of this investment for
their own particular circumstances. The Fund anticipates that its net asset
value will fluctuate.
What are the Fund's Investment Policies?
Asset allocation is the most important area of investment concern for the Fund.
For its private clients, the Adviser has been actively engaged in asset
allocation among three of the classes of assets since 1971, among five of the
classes since 1979 and among all of the asset classes since 1987. The Fund's
asset allocation policy is based on the following three principles:
o Investment in Multiple Classes of Assets. Holdings of domestic stocks
could range from 0% to 65% of Fund assets. Holdings of domestic bonds,
domestic cash equivalents, international stocks, international bonds and
international cash equivalents each could range from 0% to 50% of Fund
assets.
o Analysis of Expected Returns and Other Factors. The Adviser will perform
an asset allocation review at least semi-annually. The recommended asset
mix will be reviewed to help ensure that, based on the Adviser's
forecasted returns, the Fund's assets could undergo such scenarios as high
inflation or recession without significant losses when measured over a
four-year period.
o Response to Market Conditions. The Fund will shift its emphasis among as
many as six classes of assets, as well as various industry sectors, as
financial trends and economic conditions change. The Fund will overweight
sectors that the Adviser believes are undervalued and in the early stages
of an upward move, and will underweight those that appear to be overvalued
and beginning to weaken. Actual asset allocations are intended to change
gradually over any market cycle.
In conducting its asset allocation review, the Adviser undertakes a complex
quantitative and economic analysis of potential relative returns for each asset
category. As part of this analysis, the Adviser considers future economic
circumstances and assesses the probable performance of each asset class. The
historic volatility and risk characteristics of each asset are also considered.
Based on its analysis, the Adviser determines an appropriate asset allocation.
The six classes of assets in which the Fund will invest are the following:
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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) 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
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be of a quality comparable to domestic bonds rated at least Baa or BBB in
quality by Moody's or S&P, respectively. The Fund's international bonds will
include securities issued by foreign governments, supranational 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 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.
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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.
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
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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 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
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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 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
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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.
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?"
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
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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 exchange losses exceed other investment
company taxable income during a taxable year, the Fund might not be able to or
might determine not to make ordinary income distributions, or distributions made
before the losses were realized would be recharacterized as a return of capital
to shareholders for United States income tax purposes, rather than as an
ordinary income, thereby reducing each shareholder's basis in his Fund shares.
Lower-Rated Bonds. Bonds that are rated Baa by Moody's or BBB by S&P, and
equivalent unrated bonds, are medium grade obligations that are still considered
investment grade bonds. Changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade bonds. Such bonds lack outstanding
investment characteristics and may have speculative charateristics as well. The
Fund does not have a policy with respect to the retention of a bond whose rating
falls below Baa or BBB, respectively. The Fund will address such circumstances
on a case by case basis.
Real Estate Securities. The Fund may invest in equity securities of real estate
related companies (i.e., companies at least 50% of whose assets consist of real
property held for sale or investment or at least 50% of whose products or
services are provided to the real estate industry), real estate investment
trusts, and real estate limited partnerships, all of which securities will be
publicly traded, primarily on an exchange (except that the Fund will only invest
in limited partnerships whose securities are listed on the New York Stock
Exchange or the American Stock Exchange). The Fund may also invest in securities
of companies unrelated to the real estate industry but that have significant
real estate holdings believed to be undervalued relative to the price of the
company's securities.
Although the Fund's investments in real estate will be limited to publicly
traded securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein, the Fund may be
subject to risks associated with direct ownership of real estate. These include
declines in the value of real estate, risks related to general and local
economic conditions and increases in interest rates.
Other risks associated with real estate investments include the fact that equity
and mortgage real estate investment trusts are dependent upon management skill,
are not diversified, and are therefore subject to the risk of financing single
projects or a limited number of projects. They are also subject to heavy cash
flow dependency, defaults by borrowers and self liquidation.
Additionally, equity real estate investment trusts may be affected by any
changes in the value of the underlying property owned by the trusts, and
mortgage real estate investment trusts may be affected by the
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<PAGE>
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 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. Moerover, in some cases, the Fund's
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<PAGE>
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.
(iii) The Fund will not enter into any Futures Contract or Option on a Futures
Contract if, as a result thereof, the aggregate margin deposits and
premiums required on all such instruments would exceed 5% of the Fund's
net assets.
In order to help reduce the risk of counterparty default in Forward Contracts
and Options traded over-the-counter, the Fund will only enter into such
transactions with registered broker-dealers, or with banks or other financial
institutions regulated by the FDIC or having assets in excess of $1 billion, in
each case having a net worth of at least $20 million. For a more detailed
discussion of the uses, risks and costs of Hedging Transactions, see Appendix B.
Investment Company Securities. The Fund's purchase of securities of another
investment company results in the layering of expenses such that shareholders of
the Fund not only will bear the expenses of the Fund but also will indirectly
bear a proportionate share of the expenses of the other investment company. The
Fund will not invest more than 5% of its total assets in any investment company
or more than 10% of its total assets in investment companies as a group, and it
will not purchase the securities of any investment company that is sponsored or
managed by the Adviser.
How Do I Purchase Shares?
Shares of the Fund are offered at net asset value, without any sales charge, on
a continuous basis directly by the Fund or through a broker-dealer. If shares of
the Fund are purchased through a broker-dealer, a service fee may be charged by
the broker-dealer. If shares of the Fund are purchased directly from the Fund
without the intervention of a broker-dealer, no such fee will be imposed.
Certain Fund services may not be available to shares held in the name of a
broker-dealer or other nominee.
The minimum initial investment in the Fund is $5,000 and each subsequent
investment must be at least $100. The minimum initial investment requirement for
employees and officers of the Adviser and their relatives, and Trustees of the
Trust, is $2,000 and each minimum subsequent investment is $100. Fund shares may
also be purchased by various types of retirement plans, including individual
retirement accounts ("IRAs") of individuals who would otherwise be eligible to
invest in the Fund. The minimum initial and subsequent investments of such plans
correspond to the minimum requirements for such individuals. The Adviser
sponsors the Bailard, Biehl & Kaiser IRA for individuals wishing to establish an
IRA. For information concerning the Bailard, Biehl & Kaiser IRA, call (800)
882-8383. The Fund reserves the right
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<PAGE>
to waive, reduce or increase the minimum investment for initial and subsequent
investments.
The Fund reserves the right to refuse any application to purchase its shares.
Resale of Fund shares (other than by redemption) may be restricted in certain
jurisdictions. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.
As a condition of this offering, if a purchase is canceled because your check or
wire transfer does not clear, you will be responsible for any loss the Fund or
the Adviser incurs. If you are already a shareholder, the Fund can redeem shares
from your account to reimburse the Fund or the Adviser for any loss. In
addition, you may be prohibited or restricted from making future purchases in
the Fund.
Shares may be purchased directly from the Fund by completing the Shareholder
Application Form included at the end of this Prospectus and sending it, together
with a check (payable to the order of the Fund), to Chase Global Funds Services
Company ("CGFSC"), P.0. Box 2798, Boston, Massachusetts 02208 or (for express
delivery) 73 Tremont Street, Boston, Massachusetts 02108-3913. (CGFSC is an
affiliate of The Chase Manhattan Bank, N.A.) Additional Shareholder Application
Forms can be obtained from the Fund at 950 Tower Lane, Suite 1900, Foster City,
California 94404.
Shares of the Fund may also be purchased by wire by calling CGFSC at (800)
541-4366 (617/557-8000 for Massachusetts residents) to receive a wire reference
control number and notify CGFSC of your incoming bank wire. A properly completed
application must be sent to CGFSC at the above address before bank-wired
investments can be redeemed. Moreover, any shareholder who fails to submit an
application form containing a correct taxpayer identification number will be
automatically subject to backup tax withholding on distributions at a 31% rate.
Instruct your bank (which may charge for this service) to wire a specified
amount (via the Federal Reserve Bank) to:
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081-1000
ABA #021000021
DDA #910-2-733160
Attn:
Bailard, Biehl & Kaiser Diversa Fund
Shareholder's Name:______________
Account Number:__________
Wire Reference Control Number:
A bank-wired investment is considered received when CGFSC has been notified that
the bank wire has been credited to the Fund's account.
You may purchase additional shares of the Fund at any time by mailing or wiring
funds in the manner and subject to the minimums described above. Please remember
to include your Bailard, Biehl & Kaiser Diversa Fund account number on your
check or as part of your wiring instructions.
When an investor makes an initial investment, an account will be opened on the
books of the Fund and a confirmation will be sent of the opening of the account.
Thereafter, whenever a transaction takes place in the account, such as a
purchase of additional shares, exchange or redemption of shares, payment of
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<PAGE>
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 authorized brokers
and their designees.
"Good order" means that certificates and stock powers must be endorsed by the
record owner(s) exactly as
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<PAGE>
the shares are registered and, for redemptions in excess of $50,000, the
signature(s) must be accompanied by a signature guarantee. A signature guarantee
is a widely accepted way to protect shareholders and the Fund by verifying the
signature on the request. Signature guarantees should not be qualified in any
way, whether by date or otherwise. Signatures must be guaranteed by an "Eligible
Guarantor Institution" and not by a notary public or any other person or entity.
An "Eligible Guarantor Institution" means a bank, trust company, broker, dealer,
municipal or government securities broker or dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association that is a participant in the Securities Transfer Agents
Medallion Program ("STAMP") endorsed by the Securities Transfer Association. In
some cases, "good order" may require the furnishing of additional documents. In
the event that you need assistance in determining which documents are required
in order to effect a redemption, you may contact CGFSC at (800) 541-4366 for
assistance.
Because the net asset value per share of the Fund fluctuates (reflecting the
market value of the assets owned by the Fund), the amount you receive for your
shares may be more or less than the amount you paid for them. Checks for
redemption payments normally will be mailed within seven days after receipt of
redemption requests. If you request that the redemption proceeds be wired
directly into a bank account, the transfer agent will deduct a wire charge of
$10 from the proceeds to cover the additional expense.
Systematic Withdrawal Plan. A Systematic Withdrawal Plan (SWP) may be
established by a new or existing shareholder if the shares in his account, when
valued at the current net asset value, equal $10,000 or more. Shareholders who
elect to establish a SWP Account will be mailed a semimonthly, monthly or
quarterly check in a stated amount, not less than $100. Depending on the SWP
option chosen, shares sufficient to satisfy the stated amount will be
automatically redeemed on or about the third and/or eighteenth day of the
payment period and a check for the stated amount will be mailed by CGFSC to the
shareholder as soon thereafter as practicable. A transaction fee of $2 per check
will be deducted from the proceeds. Withdrawals may result in a gain or loss for
tax purposes, may reduce principal and may eventually use up all of the shares
in the account.
Payments will be terminated by CGFSC on receipt of satisfactory evidence of the
death or incapacity of the shareholder, but until it has received such evidence,
CGFSC will not be liable for any payments made in accordance with the SWP. The
shareholder or the Fund may terminate the SWP account at any time upon notice to
the other.
General Conditions of All Redemptions. The right to redeem may be suspended and
the payment of the redemption price deferred during any period when the New York
Stock Exchange is closed, during periods when trading on the Exchange is
restricted as determined by the Securities and Exchange Commission, for any
period during which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets or for such other periods as the Commission may by
order permit for the protection of investors. In addition, if shares have been
recently issued to a shareholder and payment was made by check, the Fund will
effect the redemption, but will hold the proceeds thereof until the check for
the purchase of such shares has cleared, unless the shares were purchased with a
cashier's or certified check.
Special Redemption Procedure. The Fund may redeem the shares of any shareholder
who ceases to hold shares in the Fund having an aggregate net asset value above
$1,000. Shareholders will be given at least 30 days' written notice of any
redemption effected in accordance with this paragraph.
Telephone Transactions. You may establish telephone exchange and redemption
privileges if you have checked the appropriate box and supplied the necessary
information on the Shareholder Application Form
17
<PAGE>
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 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
18
<PAGE>
affected, among other factors, by foreign currency exchange losses, as described
below.
Distributions of net income and capital gains, if any, will be credited to your
account in full or fractional shares at their net asset value on the
distribution date unless you elect to receive your distributions in cash, by
check or wire. Cash distributions will also be paid out on the distribution
date.
For the fiscal year ended September 30, 1997, the Fund believes that it has
qualified as a "regulated investment company" ("RIC") under Subchapter M of the
Internal Revenue Code of 1986 (the "Code") and intends to be able to continue to
so qualify in future years. Qualification as a RIC allows the Fund to qualify
for "pass-through" treatment under the federal income tax laws, which means the
Fund, subject to certain conditions and requirements, will not be subject to
United States federal income tax on amounts it distributes to shareholders.
Accordingly, the Fund plans to distribute substantially all of its net
investment income and net realized capital gains to its shareholders.
RICs are subject to a nondeductible 4% excise tax on the excess (if any) of the
"required distribution" for a calendar year over the "distributed amount" for
such year. To avoid imposition of such tax, a RIC generally will have to
distribute in each calendar year at least 98% of its ordinary income for such
calendar year and at least 98% of its capital gains for the 12-month period
ending on October 31 of such year. The Fund intends to make sufficient
distributions each year to avoid imposition of the excise tax.
Distributions of the Fund's net investment income and net realized short-term
capital gains are generally taxable to the Fund's shareholders as ordinary
income. Distributions paid from long-term capital gains and mid-term capital
gains will generally be taxable as long-term capital gains or mid-term capital
gains, as the case may be, 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.
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
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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 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.
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Certain Foreign Tax Consequences. Foreign securities such as those to be
purchased by the Fund may be subject to foreign taxes, which could reduce the
yield on such securities, although a shareholder otherwise subject to United
States federal income taxes may be entitled to claim a credit or deduction for
such tax purposes, subject to certain limitations. The Statement of Additional
Information provides additional details on these tax aspects.
The foregoing is a general and abbreviated summary of tax consequences of
investment in the Fund. Additional details concerning federal and foreign tax
consequences are contained in the Statement of Additional Information. Investors
are urged to consult their own tax advisers to determine the effect of
investment in the Fund upon their individual tax situations.
Who is the Fund's Investment Adviser?
In accordance with Massachusetts law and the Declaration of Trust, the Board of
Trustees has absolute and exclusive control over the Fund assets and the
business of the Fund. The Board is authorized, however, to enter into an
investment advisory or management agreement with an investment adviser pursuant
to which the adviser would furnish the Fund with certain services, including
management, investment and research services. Accordingly, while the Board of
Trustees of the Fund has overall management responsibility for the Fund,
Bailard, Biehl & Kaiser, as the Adviser, manages day-to-day operations pursuant
to a Management Agreement. Under the Management Agreement, the Adviser directs
the purchase and sale of securities in the Fund's investment portfolio in
accordance with the Fund's investment objective and policies.
Peter M. Hill and Arthur A. Micheletti have been primarily responsible for the
asset allocation decisions regarding the Fund's portfolio since 1995. Mr. Hill
directs the team of investment professionals that focuses on each asset category
of the Fund. Mr. Hill has been Co-President of the Adviser since 1992, was
appointed Chief Investment Officer in 1995 and has additional responsibilities
for institutional portfolio management functions. From 1984 to 1992, Mr. Hill
was Executive Vice President and a portfolio manager for the Adviser. He is also
Chairman and a Director of the Bailard, Biehl & Kaiser International Fund Group,
Inc. Mr. Micheletti has been primarily responsible for the bond and cash
equivalent portions of the portfolio since 1992. Mr. Micheletti has been with
the Adviser and has managed international and domestic fixed-income portfolios
since 1981. Mr. Micheletti was a Vice President, portfolio manager and
investment analyst for the Adviser from 1981 to 1992, and has been a Senior Vice
President and investment strategist and the Chief Economist since 1992.
In placing orders for the Fund's portfolio securities, the Adviser is required
to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Adviser will
consider the research and investment information and related services, such as
price quotations, provided by brokers or dealers who effect or are parties to
portfolio transactions for the Fund or the Adviser's other clients. The Adviser
does not use any of its affiliates or affiliates of the Fund to execute
portfolio transactions. The Fund, however, may purchase equity and debt
securities of brokers or dealers that execute its portfolio transactions.
Under the Management Agreement, the Adviser pays the following expenses incurred
in the Fund's day-to-day management: office space and facilities used by the
Adviser, salaries and expenses of personnel of the Adviser and certain costs
associated with the sale of the Fund's shares. For the services and facilities
it provides, the Adviser receives a monthly fee calculated at an annual rate
equal to .95% of the average net assets of the Fund up to $75 million, .80% of
the next $75 million, and .65% of the average net assets in excess of $150
million. While the initial rate is higher than the rate charged by most other
advisers, the Fund believes that it is justified by the complexity of the
services provided by the Adviser. For the fiscal
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year ended September 30, 1997, the total fees paid to the Adviser amounted to
$350,110, or approximately 0.95% of the Fund's average net assets.
The Fund bears the balance of the expenses incurred in its operations, including
costs incurred in complying with federal and state securities laws, fees of
counsel and independent auditors, compensation of the Transfer Agent and the
Custodian, taxes, interest, brokerage commissions, costs of shareholder
communications and valuation expenses. The Fund's total expenses for the fiscal
year ended September 30, 1997 were $678,105, which constituted approximately
1.84% of the Fund's average net assets for such period.
As an accommodation to the Fund, from time to time Bailard, Biehl & Kaiser
directly pays certain expenses of the Fund (such as insurance premiums,
Trustees' fees, and fees relating to state securities law filings) for which
Bailard, Biehl & Kaiser is later reimbursed by the Fund. Disbursements by
Bailard, Biehl & Kaiser on behalf of the Fund and their subsequent reimbursement
by the Fund are effected only upon the prior approval of an officer of the
Trust.
The Adviser commenced business as a registered investment advisor in 1970 and
was incorporated as a California corporation in 1972. The principal place of
business of the Adviser is 950 Tower Lane, Suite 1900, Foster City, California
94404. The Adviser is a wholly owned subsidiary of BB&K Holdings, Inc., a
California corporation. The Adviser also acts as investment adviser to the
Bailard, Biehl & Kaiser International Equity Fund and the Bailard, Biehl &
Kaiser International Bond Fund series of the Bailard, Biehl & Kaiser
International Fund Group, Inc., an open-end management investment company. As of
October 31, 1997 the Adviser managed portfolios with total holdings of
approximately $1.03 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.
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
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purpose of voting on the question of the removal of a Trustee. The Fund will
assist in shareholder communications with respect to any meeting duly called by
the holders of its shares. In the event that the Trust issues additional series,
shareholders of the Fund will vote with shareholders of the other funds within
the Trust, except with respect to matters affecting only the rights of a
particular fund.
Under certain circumstances, shareholders of the Fund may be held personally
liable for the obligations of the Trust. The Declaration of Trust provides that
shareholders will not be subject to any personal liability for the acts or
obligations of the Trust and that every written agreement, obligation or other
undertaking made or issued by the Trust will contain a provision to the effect
that the shareholders are not personally liable thereunder. The Declaration of
Trust provides for indemnification out of the Fund's assets against claims
against such shareholders as shareholders of the Trust and any legal and other
expenses incident thereto. Accordingly, the risk of any shareholder incurring
financial loss beyond his investment due to personal liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
The Adviser believes that, in view of the above, the risk of personal liability
to shareholders is remote.
Performance Information
From time to time, the Fund may advertise its total return. This figure is based
upon historical earnings and is not intended to indicate future performance.
"Total return" refers to the average annual rate of return of an investment
based on its public offering price and reflects all income earned by the Fund,
any appreciation or depreciation of the Fund's assets and all expenses incurred
by the Fund for the stated period. This figure is computed by calculating to the
end of a specified period the percentage change in value of an investment of
$1,000, assuming reinvestment of all income and capital gain distributions.
The Fund may include comparative performance information in advertising or
marketing its shares. Such performance information may include data from market
indices, industry publications, business periodicals, rating services and other
sources.
Administrative Services
The Trust, on behalf of the Fund, has entered into an Administration Agreement
(the "Administration Agreement") with Investment Company Administration
Corporation ("ICAC"). Pursuant to such agreement, ICAC provides certain
administrative services in connection with the management of the Fund's
operations. Such services include: (i) assisting the Fund's accountants in
preparing financial reports, (ii) assisting the Fund's attorneys in preparing
amendments to the Fund's registration statement, any proxy materials and other
forms and reports to be filed with the SEC, (iii) preparing periodic reports to
stockholders, (iv) monitoring compliance with the Fund's investment policies and
restrictions, and (v) other administrative matters. As compensation for such
services, the Fund pays ICAC an annual fee of $32,500.
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.
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Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, is
the Fund's Custodian. As Custodian, it holds the securities in the Fund's
portfolio and other assets for safekeeping. Foreign securities owned by the Fund
will also be held by various subcustodians in conformity with Section 17(f) of
the Investment Company Act of 1940 and the rules thereunder.
Experts
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110, serves as
the Trust's independent accountants, providing audit services, including review
and consultation in connection with various filings by the Trust with the
Securities and Exchange Commission and tax authorities.
The information under "Financial Highlights" in this Prospectus and the
financial statements as of September 30, 1997 incorporated by reference into the
Statement of Additional Information have been so included in reliance upon the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in accounting and auditing.
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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
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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.
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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
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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
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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
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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
Price Waterhouse LLP
Boston, Massachusetts
IRA Custodian
The Chase Manhattan Bank, N.A
New York, New York
Diversa Fund Trustees And Officers
Thomas E. Bailard, Chairman, Trustee
Burnice E. Sparks, Jr., President, Trustee
Shirley L. Clayton, Trustee
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>
STATEMENT OF ADDITIONAL INFORMATION
Bailard, Biehl & Kaiser Diversa Fund
950 Tower Lane, Suite 1900
Foster City, California 94404
This Statement of Additional Information is not a Prospectus, but contains
information in addition to that contained in the Prospectus which may be of
interest to some investors. This Statement of Additional Information should be
read in conjunction with the Prospectus dated January 27, 1998. You can request
the Prospectus by writing directly to us at the address above or by calling us
at (800) 882-8383.
Table of Contents
Page
Investment Objectives, Policies and Restrictions........................B-2
Management..............................................................B-5
Right to Use Name.......................................................B-8
Investment Advisory and Other Services..................................B-8
Portfolio Transactions and Brokerage Commissions.......................B-10
Net Asset Value for Purchase, Exchange and Redemption of Shares........B-11
Tax Aspects............................................................B-12
Shareholder Information................................................B-13
Performance Data.......................................................B-13
Financial Statements...................................................B-14
This Statement of Additional Information Does Not
Constitute an Offer to Sell Securities.
The date of this Statement of Additional
Information is January 27, 1998.
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
Auto/Parts/Tires Health Care
Broadcasting -----------
Entertainment Drugs
Forest Products Hospital Management
Home Builders/Mobile Home Hospital Supply
Home Furnishings/Appliances
Hotel/Motel High Technology
Newspapers ---------------
Publishing Business Equipment
Restaurants Computer Services
Retailing-Food, Drug, Department Defense Electronics
Waste Management Electronic-Instrumentation
Electronic-Semiconductors
Consumer Staples Electronic Warfare
- ---------------
Apparel Transportation
Brewers --------------
Cosmetics Air Freight
Distillers Air Transport
Food Railroads
Photography Trucking
Soft Drinks
Shoes Utilities
Soaps ---------
Textiles Electric
Tobacco Gas Pipelines
Toys Water
In addition, the Investment Company Act of 1940, with certain exceptions,
prohibits the Fund from investing its assets in more than 3% of the outstanding
voting stock of any other investment company, more than 5% of its total value in
any other investment company, more than 10% of its total value in other
investment companies as a group, or, together with other investment companies
having the same investment adviser, more than 10% of the outstanding voting
stock of any closed-end investment company, unless the security is acquired
pursuant to a plan of reorganization or a Securities and Exchange Commission
approved offer of exchange.
B - 4
<PAGE>
MANAGEMENT
Trustees and Officers
The names and business addresses of the Trustees and officers of the Trust,
their positions with the Trust and their other principal occupations during the
past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Other Principal
Name and Address with Trust Occupation(s) During Past Five Years
- ---------------- -------------- ------------------------------------
<S> <C> <C>
Thomas E. Bailard(1) Chairman of the Chairman, Chief Executive Officer
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
950 Tower Lane, Suite 1900 Holdings and Senior Vice President and
Foster City, CA 94404 Treasurer/Secretary of the Adviser since
December 1995. Treasurer of International
Fund Group since September 1996.
Secretary of Fund Services and Treasurer
and Secretary of the REIT since January
1996. Management consultant from
September 1995 to December 1995.
Account Manager/Consultant at Watson
Wyatt Worldwide from December 1994 to
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 Employee of the Adviser since
950 Tower Lane, Suite 1900 and Assistant Secretary November 1995, most recently as
Foster City, CA 94404 Vice President. Assistant
Treasurer and Assistant Secretary of the
International Fund Group since
September 1996. Assistant Treasurer of
the REIT since June 1996. Correspondence
Specialist of Franklin Resources, Inc. from
July 1994 to May 1995.
Shirley L. Clayton(2) Trustee President and Chief Operating Officer
TopoMetrix of TopoMetrix, a manufacturer of
5403 Betsy Ross Drive scanning probe microscopes, since
Santa Clara, CA 95054-1162 January 1996; Chief Financial Officer
from June 1993 to January 1996.
Chief Financial Officer of Cygnus
Therapeutic Systems, Inc., a biotechnology
company, from March 1990 to June 1993.
Director of the International Fund Group.
Scott F. Wilson(2) Trustee General Partner of Transcontinental
Transcontinental Capital Capital Partners, an investment banking
Partners firm, since 1991. Shareholder of Milbank
540 Cowper Street Winthrop & Co., an investment adviser,
Palo Alto, CA 94301 since 1981. Director of the International
Fund Group.
James C. Van Horne(2) Trustee A.P. Giannini Professor of Finance at
Graduate School of Graduate School of Business of
Business Stanford University from September
Stanford University 1976 to the present. From September
Stanford, CA 94305 1975 to August 1976, Deputy Assistant
Secretary of the United States Treasury
Department. Director of Sanwa Bank
California and Montgomery Street Income
Securities, Inc., a registered investment
company. Director of the International
Fund Group.
</TABLE>
- ------------------------------
(1)
"Interested person" of the Trust, as defined in the 1940 Act.
(2)
Member of the Audit Committee
B - 6
<PAGE>
The following table sets forth the compensation paid to the Trust's Trustees
during the fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
Compensation Table
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 $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.
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(1)A Fund Complex consists of investment companies that hold themselves out
to investors as related companies for purposes of investment and investor
services, have a common investment adviser or have an investment adviser that is
an affiliated person of the investment adviser of any other investment
companies. The Trust and the International Fund Group are considered to be part
of the same Fund Complex.
(2)Does not include fees paid to the Adviser pursuant to the Management
Agreement as described below under "INVESTMENT ADVISORY AND OTHER SERVICES".
(3)Consists of $4,000 annual trustee fee plus $667 for each Board meeting
attended in person.
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RIGHT TO USE NAME
Bailard, Biehl & Kaiser has granted the Fund the right to use the designation,
"Bailard, Biehl & Kaiser," in its name. The Adviser has reserved the right to
withdraw its consent to the use of such designation by the Fund under certain
conditions and to grant the use of such name to others, including other
investment companies.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund has entered into an Investment Advisory and Management Agreement (the
"Management Agreement") with Bailard, Biehl and Kaiser for investment advisory
and certain portfolio transaction services. Pursuant to the Management
Agreement, the Adviser manages the day-to-day operations of the Fund and directs
the purchase and sale of securities in the Fund's portfolio in accordance with
the Fund's investment objectives and policies.
The Adviser receives a monthly fee calculated at an annual rate equal to .95% of
the average net assets of the Fund up to $75 million, .80% of the next $75
million, and .65% of the average net assets in excess of $150 million. While the
initial rate is higher than the rate charged by most other advisers, the Fund
believes that it is justified by the complexity of the services provided by the
Adviser. For the fiscal years ended September 30, 1995, 1996, and 1997, the
total fees paid to the Adviser amounted to $398,374, $370,980 and $350,110
respectively. The Adviser pays the following expenses incurred in the Fund's
day-to-day management: office space and facilities used by the Adviser, salaries
and expenses of personnel of the Adviser and certain costs associated with the
sale of the Fund's shares.
The Management Agreement may be terminated at any time, without penalty upon 60
days' written notice, by majority vote of the Board of Trustees of the Fund or
by a vote of the holders of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund. The Management Agreement may also be
terminated by the Adviser upon not less than 180 days' written notice to the
Fund and terminates automatically upon its assignment (as defined in the 1940
Act).
The Fund pays all of its own expenses (except for those expressly to be paid by
the Adviser) including without limitation the following: all costs and expenses
incident to the registration, including the maintenance of registration, of the
Fund under the 1940 Act or the qualification of the shares of the Fund for sale
under federal, state or other securities laws; printing or other reproduction
and distribution of any prospectuses and any other documents necessary and
incident to any public offering (other than costs incident to the reproduction
and distribution of prospectuses to prospective new investors and the
advertising of Fund shares, which are payable by the Adviser); charges and
expenses of any registrar or custodian of the Fund; all auditing, accounting,
bookkeeping and record keeping charges and expenses; transfer agent and dividend
agent charges and expenses; all commissions payable on portfolio securities
transactions; all taxes and organizational fees payable by the Fund to any
federal, state or other governmental agencies; the costs of preparing and
printing stock certificates; all expenses of meetings of shareholders and
Trustees and of preparing, printing and mailing proxy statements and any reports
to shareholders; fees and travel expenses of officers and Trustees; fees and
expenses incident to any dividend or distribution reinvestment program; all
charges and expenses of legal counsel for the Fund; fees and expenses incurred
in obtaining rulings, advice or other information or counselling relating to the
taxation of the Fund or its shareholders; all association dues; all interest
payable on Fund borrowings; and all costs of information obtained from sources
other than the Adviser or its affiliated persons (as defined in the 1940 Act)
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, 1997, the Fund reimbursed the Adviser
approximately $53,789.
The Adviser has agreed to reduce the investment management fee payable to it in
any fiscal year by the amount by which the expenses of the Fund exceed the most
stringent limits prescribed by any state in which the Fund's shares are offered
for sale. Currently, only California imposes an expense limitation. California
law requires reimbursement of expenses (up to the amount of fees received) if in
any fiscal year the annual aggregate expenses of the Fund (determined in
accordance with generally accepted accounting principles), exclusive of
interest, taxes, brokerage and excess custodian costs attributable to
investments in foreign securities (as compared to custodian costs that would
have been incurred had the investments been in domestic securities) exceed 2.5%
of the first $30 million of the average net assets of the Fund, or 2% of the
next $70 million, or 1.5% of the remaining average net assets of the Fund.
(Expenditures which are capitalized in accordance with generally accepted
accounting principles applicable to investment companies, including costs
generally incurred in connection with the purchase or sale of portfolio
securities, are not deemed expenses for purposes of the foregoing reimbursement
provisions.) On September 14, 1989 the Fund received an order from the
California Commissioner of Corporations allowing the Adviser to exclude from the
calculation of the Fund's aggregate annual expenses, not only excess foreign
custodian costs, but also the investment management, recordkeeping, legal and
auditing fees attributable to its foreign investments and asset allocation
practices. For the fiscal years ended September 30, 1995, 1996 and 1997 no
expense reimbursement was required. The imposition of an expense limitation by
California or any other state after October 1996 appears to be prohibited by the
National Securities Markets Improvement Act of 1996.
BB&K Fund Services, Inc., 950 Tower Lane, Suite 1900, Foster City, California
94404 ("Fund Services"), serves as the exclusive Distributor for the Fund's
shares pursuant to an agreement with the Fund. Fund Services receives no
commission or compensation for acting as the Fund's agent in the continuous
public offering of the Fund's shares.
The Adviser and the Distributor are wholly owned subsidiaries of BB&K Holdings,
Inc. ("Holdings"). In addition, Thomas E. Bailard and his spouse, Terri, may be
deemed to be controlling persons of the Adviser and the Distributor by virtue of
their beneficial ownership of more than 25% of Holdings' securities as
individuals or as trustees.
As part of the Custodian Agreement, the Fund's Custodian has agreed to act as
the Fund's financial agent, and will maintain certain books and records for the
Fund, perform the calculations necessary to compute the value of the Fund's
investment securities and other assets and the net asset value of the Fund's
shares, confirm all share purchases and redemptions to the Fund's Transfer
Agent, provide financial reports to the Fund necessary to prepare its financial
statements, and provide additional services of a similar nature. For services
rendered by the Custodian in the 1995, 1996, and 1997 fiscal years, the Fund
paid the Custodian $145,700, $174,875 and $151,411, respectively.
The Trust, on behalf of the Fund, has entered into an Administration Agreement
dated as of April 1, 1994, as amended, with Investment Company Administration
Corporation.
B - 9
<PAGE>
Officers, directors and employees of the Trust and the Adviser are permitted to
invest in securities for their own account, including securities that may be
purchased or held by the Fund. To address potential conflicts with the interests
of the Fund that might arise from personal securities transactions, both the
Trust and the Adviser have adopted codes of ethics pursuant to Rule 17j-1 under
the 1940 Act. These codes include certain preclearance and reporting procedures
and certain restrictions on contemporaneous and short-term trading and on
purchases of securities in private placements and initial public offerings.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Adviser supervises the allocation of brokerage and reviews the efficiency of
execution and reasonableness of the commissions charged. The primary objective
in placing orders for the purchase and sale of securities for the Fund's
portfolio is to obtain the most favorable net results taking into account such
factors as price, commission (which is negotiated in the case of the U.S. stock
exchange transactions but which is generally fixed in the case of foreign stock
exchange transactions), size of order, difficulty of execution and skill
required of the executing broker or dealer. Securities are ordinarily purchased
from the primary markets, whether over-the-counter or listed, and listed
securities may be purchased in the over-the-counter market if in the judgment of
the Adviser it is the primary market.
Although favorable price and efficient execution of portfolio transactions are
primary considerations, other factors may also be relevant. Accordingly, the
Adviser may, consistent with the Fund's best interest, place orders with brokers
who provide research services, such as analyses of industries or issuers and
statistical or economic information. While allocation of brokerage on this basis
may result in the Fund being charged a higher commission rate on certain
transactions, the Adviser periodically reviews the brokerage commissions paid by
the Fund to ensure their reasonableness in relation to (i) the brokerage
commissions paid by other similarly situated investors and (ii) the value of the
brokerage and research services provided, viewed in terms of either particular
transactions or the overall responsibilities of the Adviser to the Fund.
The extent to which commissions charged by brokers may reflect an element of
value for research services cannot be determined. To the extent that research
services are provided by brokers through whom the Fund places portfolio
transactions, the Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by brokers could be useful to the Adviser in
serving its other clients as well as the Fund; on the other hand, certain
research services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful to it in serving the Fund.
It is not the Fund's practice to allocate portfolio securities business on the
basis of sales of its shares. For the fiscal year ended September 30, 1997, the
Adviser estimates that the Fund paid $66,000 in brokerage commissions, involving
$39,900,000 of portfolio transactions, to brokers with whom the Adviser had an
arrangement to receive research or related services.
There are occasions in which portfolio transactions for the Fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other accounts served by the Adviser, some of which accounts have investment
objectives similar to the Fund's investment objective. Although such concurrent
authorizations potentially could be either advantageous or disadvantageous to
the Fund, they will be effected only when the Adviser believes that to do so
will be in the best interest of the Fund. When such concurrent authorizations
occur, the objective will be to allocate the executions in a manner which is
deemed equitable by the Adviser to the accounts involved, including the Fund.
B - 10
<PAGE>
The Adviser does not use any of its affiliates or affiliates of the Fund to
execute portfolio transactions. The Fund, however, may purchase equity and debt
securities of brokers or dealers that execute its portfolio transactions. During
the fiscal year ended September 30, 1997, the Fund did not acquire any
securities issued by the ten brokers (or their parent companies) who executed
the largest dollar amounts of portfolio transactions for the Fund.
During the fiscal years ended September 30, 1995, 1996 and 1997, the Fund paid
brokerage commissions on Fund portfolio securities transactions of approximately
$134,251, $85,971, and $79,880, respectively. The Fund's portfolio turnover rate
for the fiscal years ended September 30, 1995, 1996, and 1997, was 166%, 68% and
66%, respectively. The decrease in brokerage commissions and portfolio turnover
rate in 1996 and 1997 was primarily due to fewer asset allocation changes and
fewer trades in the international stock class of the portfolio.
NET ASSET VALUE FOR PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
The net asset value per share, on which purchase, exchange and redemption prices
are based, is calculated in accordance with the formula and at the times set
forth in the Prospectus. As of the date of this Statement of Additional
Information, the Fund understands that the New York Stock Exchange will be
closed (and, thus, no net asset value will be calculated) on the following U.S.
holidays: New Year's Day, Dr. Martin Luther King, Jr.'s Birthday, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas.
Changes in holdings of portfolio securities are accounted for no later than the
first calculation of net asset value following the trade date (date the order to
buy or sell is executed). Dividends are accounted for on the ex-dividend date
and detachments of securities from other securities are accounted for on the
date of detachment, except that certain dividends or detachments from
international securities are recorded as soon as the Fund is informed of the
ex-dividend or detachment date.
Securities traded on an exchange or on the NASDAQ National Market System are
valued at the closing price on that exchange. If there has been no sale on such
date or if the closing price is not the last sale price, then the security is
valued at the mean of the closing bid and asked prices on such day. Equity
securities that are not traded on an exchange or on the NASDAQ National Market
System are valued at the mean of the closing bid and asked prices.
Short-term debt obligations with a remaining maturity of 60 days or less are
valued at amortized cost. Other debt securities are valued at prices provided by
one or more bona fide market-makers as of the closing of the relevant market.
Options on futures contracts, and exchange traded options other than index
options, are valued at the last sale price on the exchange on which they are
listed, unless no sales of such options have taken place that day, in which case
they will be valued at the mean between their closing bid and asked prices.
Exchange traded index options are valued at the last sale price only if that
price falls on or between the closing bid and asked prices on that day. If the
last sale price falls outside of the range of the closing bid and asked prices,
or if there has been no sale that day, then the index option will be valued
using the mean of the closing bid and asked prices. Options traded
over-the-counter are valued at the most recent bid quotation in the case of
purchased options and at the most recent asked quotation in the case of written
options. When the Fund writes an option, an amount equal to the premium received
is included as an asset, and an equivalent deferred credit is included as a
liability and marked to market on a daily basis. If a call option written by the
Fund is exercised, the proceeds are increased by the premium received. If a call
option written by the Fund
B - 11
<PAGE>
expires, the Fund has a gain in the amount of the premium. If the Fund enters
into a closing purchase transaction, the Fund will have a gain or loss depending
on whether the premium was more or less than the cost of the closing
transaction. If a put option held by the Fund is exercised, the amount the Fund
receives on sale of the underlying investment is reduced by the amount of the
premium paid by the Fund.
Futures Contracts and precious metals are valued at the last settlement price as
of the close of the commodities exchange on which they are traded. Forward
currency contracts are valued based on their amortized forward points and the
closing spot price of their underlying currencies as of 11:00 a.m. New York
time. Foreign securities and cash are converted into U.S. dollar values at the
mean of the bid and asked prices for the underlying currencies as of the same
time.
All prices are taken from the primary market in which the portfolio security or
other asset is traded.
The Board of Trustees has delegated to the Fund's Custodian and the Adviser the
authority to make valuations of marketable securities and rate of exchange
determinations in accordance with the standards described above. If market
quotations are not readily available for valuation purposes, portfolio
securities and other assets will be valued by or under the direction of the
Board of Trustees in such manner as the Board of Trustees in good faith deems
appropriate to reflect the fair value thereof.
The general procedures for purchasing, exchanging and redeeming shares are fully
described in the Prospectus. In addition, during any 90-day period, the Fund is
committed to pay in cash all requests to redeem shares by any one shareholder,
up to the lesser of $250,000 or 1% of the value of the Fund's net assets at the
beginning of the period. The Fund may change this commitment only with the
approval of the Securities and Exchange Commission. Should redemptions by any
shareholder exceed this limitation, the Fund reserves the right to redeem the
excess amount in whole or in part in readily marketable securities. The same
method used to determine net asset value will be used to value portfolio
securities distributed in connection with such redemptions. If shares of the
Fund are redeemed in kind, the redeeming shareholder may incur additional
brokerage costs in converting to cash any portfolio securities distributed.
TAX ASPECTS
The Fund believes that it has qualified for "pass-through" tax treatment as a
regulated investment company for its fiscal year ended September 30, 1997, and
intends to be able to continue to so qualify. To qualify as a regulated
investment company, the Fund must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, gains
from the sale or other disposition of stocks, securities or foreign currencies,
or certain other sources, (b) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, U.S. government obligations and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. government obligations or the securities of
other regulated investment companies), and (c) distribute in each year at least
90% of its investment company taxable income.
For any year in which it does not qualify as a regulated investment company, (a)
the Fund will be taxed as an ordinary corporation, (b)distributions to its
shareholders will not be deductible by the Fund in computing its taxable income,
and (c) the Fund's distributions, to the extent made out of
B - 12
<PAGE>
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 mid-term or 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 8, 1997 all officers and Trustees of the Trust as a group held of
record and beneficially less than 1% of the outstanding shares of the Fund. No
shareholders held of record or, to the Fund's knowledge, beneficially in excess
of 5% of the outstanding shares of the Fund on that date.
PERFORMANCE DATA
The Fund may compute its average annual compounded rate of total return during
specified periods that would equate a hypothetical initial investment of $1,000
to the ending redeemable value of such investment by (a) adding one to the
computed average annual total return, (b) raising the sum to a power equal to
the number of years covered by the computation and (c) multiplying the result by
$1,000 (which represents the hypothetical initial investment). The ending
redeemable value is determined by assuming a complete redemption at the end of
the periods covered by the average annual total return computation. The Fund's
average annual compounded rates of total return for the one-year, five-year and
ten-year periods ended September 30, 1997 were 19.14%, 11.27% and 7.29%,
respectively. These figures assume that all dividends and distributions by the
Fund are
B - 13
<PAGE>
reinvested at net asset value on the reinvestment dates.
These figures represent past performance and an investor should be aware that
the investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Therefore, there is no assurance that this performance
will be repeated in the future.
FINANCIAL STATEMENTS
Incorporated by reference herein are the report of the independent accountants
dated November 15, 1997, and the other portions of Registrant's annual report to
shareholders for the fiscal year ended September 30, 1997, under the headings:
"SCHEDULE OF INVESTMENTS," "STATEMENT OF ASSETS AND LIABILITIES," "STATEMENT OF
OPERATIONS," "STATEMENT OF CHANGES IN NET ASSETS," "FINANCIAL HIGHLIGHTS, "
"NOTES TO FINANCIAL STATEMENTS" and "REPORT OF INDEPENDENT ACCOUNTANTS". Copies
of the annual report are available, upon request and without charge, by calling
the Fund's Investor Services Department at (800) 882-8383, or by writing to the
following address: Bailard, Biehl & Kaiser Fund Group, Investor Services
Department, 950 Tower Lane, Suite 1900, Foster City, CA 94404.
-----------------------------------------------------
The Prospectus and this Statement of Additional Information, together, do not
contain all of the information set forth in our registration statement filed
with the Securities and Exchange Commission. Certain information is omitted in
accordance with rules and regulations of the Commission. The registration
statement may be inspected at the Public Reference Room of the Commission at
Room 1024; 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and
copies thereof may be obtained from the Commission at prescribed rates.
B - 14
