STATEMENT OF ADDITIONAL INFORMATION
BAILARD, BIEHL & KAISER INTERNATIONAL EQUITY 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 28, 1997. You
can request the Prospectus by writing directly to us at the address above or by
calling us at (800) 882-8383.
CONTENTS
Page
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1 Investment Objectives and Policies ................................. B-2
2 Directors and Officers ............................................. B-5
3 Right to Use Name .................................................. B-8
4 Investment Advisory and Other Services ............................. B-8
5 Brokerage .......................................................... B-10
6 Net Asset Value for Purchase, Exchange and Redemption of Shares .... B-11
7 Tax Aspects ........................................................ B-12
8 Stockholder Information ............................................ B-13
9 Performance Data ................................................... B-13
10 Financial Statements ............................................... B-13
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THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT
CONSTITUTE AN OFFER TO SELL SECURITIES.
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The date of this Statement of Additional Information
is January 28, 1997.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Bailard, Biehl & Kaiser International Equity Fund (the "Fund") is a
non-diversified series of the Bailard, Biehl & Kaiser International Fund Group,
Inc., an open-end management investment company (the "Company"). The Fund's
primary investment objective is to seek capital appreciation. Current income,
while a factor in portfolio selection, is a secondary objective and will be
pursued only when consistent with the Fund's primary objective. The Fund seeks
to achieve its objectives by investing in foreign equity securities, principally
common stocks, preferred stocks and convertible securities. Foreign securities
include securities issued by U.S. companies whose assets are primarily located
or whose operations are primarily conducted outside of the United States. The
remainder of the portfolio is invested in short-term obligations of U.S. and
foreign companies and governments pending investment or for protection against
market declines.
While there is no limitation on the countries in which the Fund may
invest, other than such restrictions as may be imposed from time to time by the
Company's Board of Directors, investments will ordinarily be principally in
companies based in the Far East, Europe, the United Kingdom, Canada and
Australia. Investments may be made in developed as well as developing countries.
The Fund may engage in certain hedging techniques to protect against
the effects of changes in currency exchange rates and market conditions. Such
techniques consist of forward foreign currency exchange contracts and
transactions in options, futures contracts and options on futures contracts on
foreign currencies and stock indices.
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, defined to mean the vote of (A) 67% or more of
the voting securities present at a meeting of the stockholders, if the holders
of more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy at such meeting; or (B) more than 50% of the outstanding
voting securities of the Fund, whichever is less. These fundamental policies
provide that the Fund will not:
1. 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), except as indicated below; for this purpose, water,
communications, electric and gas utilities shall each be considered a
separate industry, and neither all national, regional or local
governments (United States or foreign), as a group, nor all
international organizations (government or private), as a group, nor
all finance companies, as a group, shall be considered as within a
single industry.
2. Acquire more than 10% of the outstanding voting securities
of any one issuer.
3. Invest in companies for the purpose of exercising control
or management.
4. Purchase or sell real estate; provided that the Fund may
invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein.
5. 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 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
B-2
<PAGE>
aggregate market value of all purchased grantor warrants then owned
exceeds 10% of the total assets of the Fund taken at market value at
the time of the purchase of such grantor warrant. (Accordingly, this
10% limitation will not apply to the acquisition or ownership of
grantor warrants acquired other than as a result of a purchase.)
Moreover, and notwithstanding this restriction, the Fund may purchase
and sell foreign currencies on a current basis and may engage in
foreign currency and market hedging transactions, including investing
in, writing and purchasing forward contracts on foreign currencies, and
options, futures contracts and options on futures contracts on foreign
currencies and stock indices.
6. Issue senior securities, borrow money or pledge its assets,
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, 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 and neither
such arrangements 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 a borrowing.
7. 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 and sales of portfolio 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.
8. Engage in the business of underwriting securities issued by
others, or knowingly purchase securities subject to contractual
restrictions or legal restrictions on disposition in all of the
principal markets where traded if such purchase will result in more
than 10% of the value of its total assets (taken at market value) then
being invested in such securities1. This restriction also applies to
repurchase agreements maturing in over seven days. This restriction
will not, however, preclude the Fund from buying securities which are
not registered for sale with the Securities and Exchange Commission or
otherwise marketable in the United States, if marketable elsewhere.
9. 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.
10. 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 portfolio securities with other
accounts under the management of the Fund's investment adviser to save
brokerage costs or achieve an average price among them is not deemed to
result in a securities trading account.)
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.
- --------
(1)If through (I) the appreciation of portfolio securities which are
not readily marketable, (ii) the depreciation of other investments of the Fund,
or (iii) the sale of assets to meet redemptions, the Fund should be in a
position in which more than 10% of the value of its assets are invested in
securities which are not readily marketable, the Fund will consider what steps,
if any, to take to protect against the resulting illiquidity.
B-3
<PAGE>
12. Purchase from or sell portfolio securities to its
officers, directors or other "interested persons" of the Fund as
defined in the Investment Company Act of 1940 (the "1940 Act").
13. Purchase or retain the securities of an issuer if, to the
Fund's knowledge, one or more of the officers or directors of the
Company, or one or more of the officers or directors of the Fund's
investment 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.
For purposes of the 25% limit in paragraph 1 above, the Fund deems each
national government and such government's agencies and instrumentalities to be a
single industry. Similarly, the Fund deems a particular regional government or
local government (including the agencies and instrumentalities of such
government) to be a separate industry so long as securities issued by such
government are backed by the assets and revenues of such government. The Fund
treats all international organizations (government or private) that have been
assigned the same Standard Industrial Classification Code as a single industry.
In determining the issuer of a foreign security, each national
government and each political subdivision, agency and instrumentality of each
nation and each supra-national entity of which such nation is a member is
considered a separate issuer. Issuers representing more than one nation will be
excluded in determining the percentage of any individual nation. Where foreign
securities are backed only by assets and revenues of a particular political
subdivision, agency or instrumentality, only such entity is considered to be the
issuer.
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 policies or restrictions.
In addition, the Investment Company Act of 1940 (the "1940 Act"), 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>
DIRECTORS AND OFFICERS
The management of the Company, including the general overall
supervision of the Fund's portfolio transactions, is the responsibility of the
Board of Directors. The names and business addresses of the directors and
officers of the Company and their principal occupations and other affiliations
during the past five years are set forth below:
<TABLE>
<CAPTION>
Principal Occupations
Office(s) Held and Other Affiliations
Name and Address With the Fund During the Past 5 Years
- ---------------- ------------- -----------------------
<S> <C> <C>
Peter M. Hill(1) Director and Director, officer and currently Chief Investment
2755 Campus Drive Chairman Officer of Bailard, Biehl & Kaiser, Inc. (the
San Mateo, CA 94403 "Adviser"). Director of BB&K Fund Services, Inc.,
an NASD registered broker-dealer ("Fund Services"),
since June 1992.
Burnice E. Sparks, Jr.(1) Director and Director, officer and currently President of the
2755 Campus Drive President Adviser. Director and Chief Executive Officer of
San Mateo, CA 94403 Fund Services since June 1992. Trustee and President
of Bailard, Biehl & Kaiser Fund Group, a registered
investment company (the "Fund Group").
Barbara V. Bailey(1) Treasurer Senior Vice President and Treasurer of BB&K
2755 Campus Drive Holdings, Inc. and Senior Vice President and
San Mateo, CA 94403 Treasurer/ Secretary of the Adviser since December
1995. Treasurer of the Fund Group since September
1996. Secretary of Fund Services and Treasurer and
Secretary of Bailard, Biehl & Kaiser REIT since June
1996. Management consultant from September 1995
to December 1995. Account Manager/Consultant at
Watson Wyatt Worldwide from December 1994 to
September 1995. Vice President at Caisse Nationale
de Credit Agricole from July 1991 to April 1994.
Janis M. Horne(1) Secretary and Chief Senior Vice President, Investment Counselor and
2755 Campus Drive Compliance Officer Chief Compliance Officer of the Adviser. Secretary
San Mateo, CA 94403 and Chief Compliance Officer of the Fund Group.
Sofi Zacharias(1) Assistant Treasurer Employee of the Adviser since November 1995, most
2755 Campus Drive and Assistant Secretary recently as Fund Services Administrator. Assistant
San Mateo, CA 94403 Treasurer and Assistant Secretary of the Fund Group
since September 1996. Assistant Treasurer of
Bailard, Biehl & Kaiser REIT since June 1996.
Correspondence Specialist at Franklin Resources, Inc.
from July 1994 to May 1995.
</TABLE>
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(1) "Interested person" of the Company, as defined in the 1940 Act.
B-5
<PAGE>
<TABLE>
<CAPTION>
Office(s) Held And Other Affiliations
Name and Address With the Fund During the Past 5 Years
- ---------------- ------------- -----------------------
<S> <C> <C>
Shirley L. Clayton(2) Director President and Chief Operating Officer of
TopoMetrix TopoMetrix, a manufacturer of scanning probe
5403 Betsy Ross Drive microscopes, since January 1996; Chief Financial
Santa Clara, CA 95054-1162 Officer from June 1993 to January 1996. Chief
Financial Officer of Cygnus Therapeutic
Systems, Inc., a biotechnology company, from
March 1990 to June 1993. Trustee of the Fund
Group.
David B. Shippey(2) Director Prior to September 1983 associated with Saga
5130 Enterprise Road Corporation, a restaurant and contract food service
Santa Rosa, CA 95404 business, his last position being Vice President and
Treasurer. Trustee of the Fund Group.
James C. Van Horne(2) Director A.P. Giannini Professor of Finance at Graduate
Graduate School of Business School of Business of Stanford University from
Stanford University September 1976 to the present. Deputy Assistant
Stanford, CA 94305 Secretary of the United States Treasury
Department from September 1975 to August 1976.
Director of Sanwa Bank California and
Montgomery Street Income Securities, Inc., a
registered investment company. Trustee of the
Fund Group.
</TABLE>
- --------
(2) Member of the Audit Committee.
B-6
<PAGE>
The following table sets forth the compensation paid to the Company's
Directors during the fiscal year ended September 30, 1996.
Compensation Table
<TABLE>
<CAPTION>
Name of Person Aggregate Pension or Retirement Estimated Total Compensation
and Position Compensation Benefits Accrued as Part Annual From Company and
from Company of Company Expenses Benefits Upon Fund Complex(1)
Retirement Paid to Directors
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter M. Hill $0(2) $0 $0 $0
Director
Burnice E. Sparks, Jr. $0(2) $0 $0 $0
Director
Shirley L. Clayton $10,000(3) $0 $0 $20,000
Director
David B. Shippey $10,000(3) $0 $0 $20,000
Director
James C. Van Horne $10,000(3) $0 $0 $20,000
Director
</TABLE>
The Company and the Fund Group reimburse each Director and Trustee for
travel and other out-of-pocket disbursements incurred in connection with
attending Board meetings. The Company and the Fund Group also reimburse other
travel expenses of Directors, Trustees and officers, including international
travel expenses, incurred incident to the performance of duties as a Director,
Trustee or officer.
- --------
(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 Company and the 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 a $6,000 annual director fee plus $1,000 for each Board
meeting attended in person.
B-7
<PAGE>
RIGHT TO USE NAME
Bailard, Biehl & Kaiser, Inc., a California corporation (the "Adviser"
or "Bailard, Biehl & Kaiser"), has granted the Company the right to use the
designation "Bailard, Biehl & Kaiser" in its name and has reserved the right to
withdraw its consent to the use of such designation by the Company under certain
conditions, including the condition that Bailard, Biehl & Kaiser ceases to act
as the Company's investment adviser, and to grant the use of such name to
others, including any other investment company.
INVESTMENT ADVISORY AND OTHER SERVICES
Management Agreement
The Fund has entered into an Investment Management Agreement (the
"Management Agreement") with Bailard, Biehl & Kaiser for investment advisory and
certain portfolio transaction and administrative services. The Adviser, subject
to the general supervision of the Company's Board of Directors, is responsible
for the overall management of the Fund's portfolio in accordance with the Fund's
investment objectives, policies and restrictions. The Adviser is also
responsible for making investment recommendations as to securities to be
acquired, purchased or sold, for reviewing and selecting firms to effect the
execution of portfolio transactions and for reviewing the execution of such
transactions to ensure their overall reasonableness. In addition, the Adviser
provides certain administrative services to the Fund, including the oversight of
the various agents, records and reports of the Fund. The Adviser receives a
monthly fee calculated at an annual rate equal to .95% of the average daily net
assets of the Fund.
The Management Agreement may be terminated at any time, without penalty
upon 60 days' written notice, by majority vote of the Board of Directors of the
Company 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).
Expenses of the Fund
--------------------
The Fund pays all of its own expenses (except for those expressly to be
paid by Bailard, Biehl & Kaiser), including without limitation the following:
organization costs, taxes, investment management fees, expenses for legal and
auditing services, costs of printing proxies, stock certificates, stockholder
reports, prospectuses and statements of additional information, charges of the
Fund's custodian, any sub-custodian and transfer and dividend disbursing agent,
expenses of redemption of the Fund's shares, Securities and Exchange Commission
fees, expenses of registering the Fund's shares under federal, state and foreign
laws, fees and actual out-of-pocket expenses of Directors, accounting and
pricing costs (including the daily calculation of the net asset value),
insurance, interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, and other similar expenses.
For the fiscal years ended September 30, 1994, 1995 and 1996 the Fund
paid investment management fees of $1,971,857, $1,092,804 and $988,625 to the
Adviser, respectively.
The Adviser pays certain expenses incurred in the Fund's day-to-day
management, including the costs of office space and other facilities used by the
Adviser, and salaries and expenses of personnel of the Adviser. As an
accommodation to the Fund, from time to time, the Adviser directly pays certain
expenses of the Fund (such as insurance premiums, Directors' fees, and fees
relating to state securities law filings) for which the Adviser is later
reimbursed by the Fund. Disbursements by the Adviser on behalf of the Fund and
their subsequent
B-8
<PAGE>
reimbursement by the Fund are effected only upon the prior approval of an
officer of the Company. For the fiscal year ended September 30, 1996, the Fund
reimbursed the Adviser approximately $29,173.
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. Of the states in which the Fund's shares are currently offered
for sale, only California imposes an expense limitation. California law requires
reimbursement of expenses if in any fiscal year the aggregate annual 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.) For the fiscal years ended September 30, 1994, 1995
and 1996, no expense reimbursement was required. The imposition of an expense
limitation by California or any other state after October 1996 appears to be
prohibited by the National Securities Markets Improvement Act of 1996.
BB&K Fund Services, Inc., 2755 Campus Drive, San Mateo, California
94403 ("Fund Services"), serves as the sole 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 Fund's shares may also be purchased directly from the
Fund.
The Adviser and the Distributor are wholly owned subsidiaries of BB&K
Holdings, Inc. ("Holdings"), which may be deemed to be a controlling person of
the Adviser and the Distributor. 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 the
securities of Holdings, as individuals or 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 performed by the Custodian during the 1994, 1995 and 1996 fiscal years,
the Fund paid the Custodian $641,115, $436,737 and $392,252, respectively.
The Company, on behalf of the Fund, has entered into an Administration
Agreement dated as of October 1, 1991, as amended, with Investment Company
Administration Corporation.
Personal Securities Transactions
--------------------------------
Officers, directors and employees of the Company 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 Company 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.
B-9
<PAGE>
BROKERAGE
The Adviser is responsible for the allocation of brokerage and reviews
the efficiency of execution and reasonableness of the commissions charged. In
effecting portfolio transactions, the Adviser seeks to obtain the best net
results for the Fund, taking into account such factors as price, size of order,
difficulty of execution and operational facilities of the firm involved. The
Adviser generally seeks reasonably competitive commission rates in domestic and
foreign transactions. Ordinarily, the Adviser purchases securities from the
primary market, 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.
Within the framework of the above policies, the Adviser may also
consider research, investment information and other related services, such as
price quotations, provided by brokers. In recognition of research services, the
Adviser has the authority to cause the Fund to pay brokerage commissions (which
are negotiated in the case of domestic stock exchange transactions, but which
are often fixed in the case of foreign stock exchange transactions) in excess of
that which other brokers might charge for effecting the same transaction. As a
consequence, the Fund could pay a broker that furnishes research services for
the Adviser a higher commission than that which might be paid to another broker
that does not furnish research services, or that furnishes research services
deemed to be of lesser value, if such commission is deemed reasonable in
relation to the value of the brokerage and research services provided by the
broker, viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the Fund. Research services that
could be provided could include analyses of industries, statistical or economic
information or analyses of issuers. The Fund may also place orders for
securities transactions with its Custodian in return for a discount on the
Fund's custodial fees. This practice will have the effect of reducing the amount
of expenses reported in the Fund's financial statements. It is not contemplated
that there will be any set formula or allocation with respect to brokerage. The
Adviser will review, from time to time, brokerage commissions paid on behalf of
the Fund with a view to determining their reasonableness in relation to
brokerage commissions paid by other similarly situated investors.
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 of value are provided by brokers through whom the Fund places
portfolio transactions, the Adviser may be relieved of expenses that it might
otherwise bear. Research services furnished by brokers could be useful and of
value 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 and of value
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.
There are occasions on 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 objectives. 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 that is deemed equitable by the Adviser to the accounts
involved, including the Fund.
No brokerage commissions will be paid to any broker that was at the
time of the transaction an "affiliated person" of the Fund or indirectly
affiliated with the Fund through a common "affiliated person" as that term is
defined in the 1940 Act. Neither the Adviser nor any of its affiliates receives
any brokerage commissions from portfolio transactions.
During the Fund's fiscal years ended September 30, 1994, 1995 and 1996,
the Fund paid brokerage commissions on portfolio transactions of approximately
$2,641,388, $1,646,286 and $804,280, respectively. The Fund's portfolio turnover
rate for the fiscal years ended September 30, 1994, 1995 and 1996 is set forth
in the
B-10
<PAGE>
Fund's Prospectus under "Financial Highlights". Brokerage commissions declined
in 1995 largely as a result of lower commission rates. The decrease in brokerage
commissions and portfolio turnover rate in 1996 was primarily due to lower
volatility in world equity markets and therefore less need to make portfolio
strategy changes.
NET ASSET VALUE FOR PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
The net asset value per share, on which purchase, exchange and
redemption prices are based, is calculated in accordance with the formula and at
the times set forth in the Prospectus. As of the date of this Statement of
Additional Information, the Fund understands that the New York Stock Exchange
will be closed (and, thus, no net asset value will be calculated) on the
following U.S. holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Equity securities traded on an exchange or on the NASDAQ National
Market System are valued at the closing price. 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 a
Fund is exercised, the proceeds are increased by the premium received. If a call
option written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, the Fund will
have a gain or loss depending on whether the premium was more or less than the
cost of the closing transaction. If a put option held by the Fund is exercised,
the amount the Fund receives on sale of the underlying investment is reduced by
the amount of the premium paid by the Fund.
Futures contracts 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 Directors 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
B-11
<PAGE>
assets will be valued by, or under the direction of, the Board of Directors in
such manner as the Board of Directors in good faith deems appropriate to reflect
the fair value thereof.
The procedures for purchasing, exchanging and redeeming shares are
described in the Prospectus.
TAX ASPECTS
The Fund believes that it has qualified for "pass-through" tax
treatment as a regulated investment company for its fiscal year ended September
30, 1996, and intends to be able to continue to so qualify. To qualify as a
regulated investment company, the Fund must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividends, interest,
gains from the sale or other disposition of stock, securities or foreign
currencies, or certain other sources, (b) derive in each taxable year less than
30% of its gross income from the sale or other disposition of certain assets,
including stock, securities, and certain foreign currency positions, held for
less than three months, (C) diversify its holdings so that, at the end of each
quarter of the taxable year, (I) at least 50% of the market value of the Fund's
assets is represented by cash, U.S. government obligations and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. government obligations or the securities of
other regulated investment companies), and (d) distribute in each year at least
90% of its investment company taxable income.
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 stockholders will not be deductible by the Fund in
computing its taxable income, (C) the Fund's distributions, to the extent made
out of the Fund's current or accumulated earnings and profits, will be taxable
to its stockholders as dividends (regardless of whether they would otherwise
have been considered long-term capital gains), and (d) stockholders will not be
entitled to claim U.S. foreign tax credits. 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 stockholders may be subject to backup tax withholding at a 31%
rate. Generally, a stockholder will be subject to backup withholding if the
stockholder fails to provide the Fund with its correct taxpayer identification
number, or if the IRS notifies the Fund that the stockholder has underreported
interest or dividends. In addition, stockholders 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 Purchase Application accompanying the Prospectus.
Other Tax Consequences
----------------------
Dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries, generally at rates
from 10% to 35%. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes. Investors may be entitled to claim U.S.
foreign tax credits with respect to such taxes, subject to the limitations of
the Code. Foreign countries generally do not impose taxes on capital gains in
respect of investments by foreign investors.
Some investments made by the Fund may be treated as "passive foreign
investment companies" ("PFICs") for U.S. income tax purposes. Investment by the
Fund in PFICs could alter the timing or
B-12
<PAGE>
characterization of certain distributions to stockholders 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 advisers to determine the
effect of investment in the Fund upon their individual tax situations.
STOCKHOLDER INFORMATION
As of December 31, 1996 all officers and Directors of the
Company as a group held of record and beneficially less than 1% of the
outstanding shares of the Fund. No stockholders 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 annual compounded rate of total return for the Fund for the one
year period ended September 30, 1996 was 7.33%. The average annual compounded
rate of total return for the Fund for the five year period from October 1, 1991
to September 30, 1996 was 3.17%. The average annual compounded rate of total
return for the Fund for the ten year period from October 1, 1986 to September
30, 1996 was 2.18%. These figures assume that all dividends and distributions by
the Fund were reinvested at net asset value on the reinvestment dates. Periods
prior to October 1, 1993 include an assumed 1% annual advisory fee, payable
quarterly, charged by the Adviser to its clients.
B-13
<PAGE>
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. In addition, the Fund's advisers,
advisory fees and investment objectives have changed over the periods covered by
these figures. Therefore, there is no assurance that this performance will be
repeated in the future.
FINANCIAL STATEMENTS
Incorporated by reference herein are portions of the Fund's annual
report to stockholders for the fiscal year ended September 30, 1996 under the
headings: "SCHEDULE OF INVESTMENTS BY COUNTRY," "SCHEDULE OF INVESTMENTS BY
INDUSTRY," "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 contacting
Bailard, Biehl & Kaiser International Fund Group, Inc., 2755 Campus Drive, San
Mateo, California 94403, (800) 882-8383.
-----------------------------------------------------
The Prospectus and this Statement of Additional Information, together,
do not contain all of the information set forth in our registration statement
filed with the Securities and Exchange Commission. Certain information is
omitted in accordance with rules and regulations of the Commission. The
registration statement may be inspected at the Public Reference Room of the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and copies thereof may be obtained from the Commission at prescribed
rates.
B-14
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
BAILARD, BIEHL & KAISER INTERNATIONAL BOND FUND
950 Tower Lane
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 28, 1997. You can request the Prospectus by writing directly to us at
the address above or by calling us at (800) 882-8383.
CONTENTS
--------
Page
----
1 Investment Objectives and Policies ................................. B-2
2 Directors and Officers ............................................. B-5
3 Right to Use Name .................................................. B-7
4 Investment Advisory and Other Services ............................. B-8
5 Brokerage .......................................................... B-9
6 Net Asset Value for Purchase, Exchange and Redemption of Shares .... B-11
7 Tax Aspects ........................................................ B-11
8 Stockholder Information ............................................ B-12
9 Performance Data ................................................... B-12
10 Financial Statements ............................................... B-13
-----------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT
CONSTITUTE AN OFFER TO SELL SECURITIES.
-----------------------------------------------------------------------
The date of this Statement of Additional Information
is January 28, 1997
B-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Bailard, Biehl & Kaiser International Bond Fund (the "Fund") is a
non-diversified series of the Bailard, Biehl & Kaiser International Fund Group,
Inc. an open-end management investment company (the "Company"). Prior to January
1996, the name of the Fund was Bailard, Biehl & Kaiser International
Fixed-Income Fund. The Fund's investment objective is to seek a total return on
its assets from long-term growth of capital and from income through investment.
To help achieve this objective, the Fund invests its assets primarily in debt
securities of foreign issuers, consisting of foreign governments, supra-national
entities, foreign corporations and banks and U.S. issuers whose assets are
primarily located or whose operations are primarily conducted outside the United
States or whose securities are denominated in foreign currencies. When the
Fund's investment adviser believes that international markets for debt
securities may experience excessive volatility or instability, or are otherwise
unfavorable, the Fund may invest in domestic debt securities. The Fund may also
invest in short or medium-term debt obligations as a defensive measure.
While there is no limitation on the countries in which the Fund may
invest, other than such restrictions as may be imposed from time to time by the
Company's Board of Directors, investments will ordinarily be principally in
companies based in the Far East, Europe, the United Kingdom, Canada and
Australia and in governmental entities within those geographic areas.
The Fund may engage in certain hedging techniques to protect against
the effects of changes in interest and currency exchange rates. Such techniques
consist of forward foreign currency exchange transactions; transactions in
options, futures contracts and options on futures contracts on debt securities
and foreign currencies; and interest rate and foreign currency swaps, and
related caps, floors and collars.
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, defined to mean the vote of (A) 67% or more of
the voting securities present at a meeting of the stockholders, if the holders
of more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy at such meeting; or (B) more than 50% of the outstanding
voting securities of the Fund, whichever is less. These fundamental policies
provide that the Fund will not:
1. 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), except as indicated below; for this purpose,
water, communications, electric and gas utilities shall each be
considered a separate industry, and neither all national, regional or
local governments (United States or foreign), as a group, nor all
international organizations (government or private), as a group, nor
all finance companies, as a group, shall be considered as within a
single industry.
2. Acquire more than 10% of the outstanding voting
securities of any one issuer.
3. Invest in companies for the purpose of exercising control
or management.
4. Purchase or sell real estate; provided that the Fund may
invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein.
5. 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;
B-2
<PAGE>
provided, however, that 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 10% of the total assets
of the Fund taken at market value at the time of the purchase of such
grantor warrant. (Accordingly, this 10% limitation will not apply at
all to the acquisition or ownership of grantor warrants acquired
other than as a result of a purchase.) Moreover, and notwithstanding
this restriction, the Fund may purchase and sell foreign currencies
on a current basis and may engage in interest rate and foreign
currency hedging transactions, including investing in, writing and
purchasing forward contracts, options, futures contracts, and options
on futures contracts, swaps and related caps, floors and collars, and
other similar instruments involving debt securities and foreign
currencies.
6. Issue senior securities, borrow money or pledge its
assets, 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, margin or
collateral arrangements with respect to forward contracts, options,
futures contracts, options on futures contracts and swaps, are not
deemed to be a pledge of assets and neither such arrangements nor the
purchase or sale of forward contracts, options, futures contracts,
options on futures contracts or swaps are deemed to be the issuance
of a senior security or a borrowing.
7. 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 and sales of portfolio securities. The
deposit by the Fund of initial or variation margin in connection with
forward contracts, options, futures contracts or options on futures
contracts will not be considered the purchase of a security on
margin.
8. Engage in the business of underwriting securities issued
by others, or knowingly purchase securities subject to contractual or
legal restrictions on disposition in all of the principal markets
where traded if such purchase will result in more than 10% of the
value of its total assets (taken at market value) then being invested
in such securities1. This restriction also applies to repurchase
agreements maturing in over seven days. This restriction will not,
however, preclude the Fund from buying securities which are not
registered for sale with the Securities and Exchange Commission or
otherwise marketable in the United States, if marketable elsewhere.
9. 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.
10. 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 portfolio securities
with other accounts under the management of the Fund's Adviser to
save brokerage costs
- --------
(1) If through (I) the appreciation of portfolio securities which are
not readily marketable, (ii) the depreciation of other investments of the Fund,
or (iii) the sale of assets to meet redemptions, the Fund should be in a
position in which more than 10% of the value of its assets are invested in
securities which are not readily marketable, the Fund will consider what steps,
if any, to take to protect against the resulting illiquidity.
B-3
<PAGE>
or achieve an average price among them is not deemed to result in a
securities trading account.)
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.
12. Purchase from or sell portfolio securities to its
officers, directors or other "interested persons" of the Fund as
defined in the Investment Company Act of 1940 (the "1940 Act").
13. Purchase or retain the securities of an issuer if, to
the Fund's knowledge, one or more of the officers or directors of the
Company, or one or more of the officers or directors of the Fund's
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.
For purposes of the 25% limit in paragraph 1 above, the Fund deems each
national government and such government's agencies and instrumentalities to be a
single industry. Similarly, the Fund deems a particular regional government or
local government (including the agencies and instrumentalities of such
government) to be a separate industry so long as the securities issued by such
government are backed by the assets and revenues of such government. The Fund
treats all international organizations (government or private) that have been
assigned the same Standard Industrial Classification Code as a single industry.
In determining the issuer of a foreign security, each national
government and each political subdivision, agency and instrumentality of each
nation, and each supra-national entity of which such nation is a member is
considered a separate issuer. Issuers representing more than one nation will be
excluded in determining the percentage of any individual nation. Where foreign
securities are backed only by assets and revenues of a particular political
subdivision, agency or instrumentality, only such entity is considered to be the
issuer.
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 policies or restrictions.
In addition, the Investment Company Act of 1940 (the "1940 Act"), 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>
DIRECTORS AND OFFICERS
The management of the Company, including the general overall
supervision of the Fund's portfolio transactions, is the responsibility of the
Board of Directors. The names and business addresses of the directors and
officers of the Company and their principal occupations and other affiliations
during the past five years are set forth below:
<TABLE>
<CAPTION>
Principal Occupations
Office(s) Held and Other Affiliations
Name and Address With the Fund During the Past 5 Years
- ---------------- ------------- -----------------------
<S> <C> <C>
Peter M. Hill(1) Director and Director, officer and currently Chief Investment
2755 Campus Drive Chairman Officer of Bailard, Biehl & Kaiser, Inc. (the
San Mateo, CA 94403 "Adviser"). Director of BB&K Fund Services, Inc.,
an NASD registered broker-dealer ("Fund Services"),
since June 1992.
Burnice E. Sparks, Jr.(1) Director and Director, officer and currently President of the
2755 Campus Drive President Adviser. Director and Chief Executive Officer of
San Mateo, CA 94403 Fund Services since June 1992. Trustee and President
of Bailard, Biehl & Kaiser Fund Group, a registered
investment company (the "Fund Group").
Barbara V. Bailey(1) Treasurer Senior Vice President and Treasurer of BB&K
2755 Campus Drive Holdings, Inc. and Senior Vice President and
San Mateo, CA 94403 Treasurer/ Secretary of the Adviser since December
1995. Treasurer of the Fund Group since September
1996. Secretary of Fund Services and Treasurer and
Secretary of Bailard, Biehl & Kaiser REIT since June
1996. Management consultant from September 1995
to December 1995. Account Manager/Consultant at
Watson Wyatt Worldwide from December 1994 to
September 1995. Vice President at Caisse Nationale
de Credit Agricole from July 1991 to April 1994.
Janis M. Horne(1) Secretary and Chief Senior Vice President, Investment Counselor and
2755 Campus Drive Compliance Officer Chief Compliance Officer of the Adviser. Secretary
San Mateo, CA 94403 and Chief Compliance Officer of the Fund Group.
Sofi Zacharias(1) Assistant Treasurer Employee of the Adviser since November 1995,
2755 Campus Drive and Assistant Secretary most recently as Fund Services Administrator.
San Mateo, CA 94403 Assistant Treasurer and Assistant Secretary of the
Fund Group since September 1996. Assistant
Treasurer of Bailard, Biehl & Kaiser REIT since
June 1996. Correspondence Specialist at Franklin
Resources, Inc. from July 1994 to May 1995.
</TABLE>
- --------
(1) "Interested person" of the Company, as defined in the 1940 Act.
B-5
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Office(s) Held and Other Affiliations
Name and Address With the Fund During the Past 5 Years
- ---------------- -------------- -----------------------
<S> <C> <C>
Shirley L. Clayton(2) Director 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. Trustee of the
Fund Group.
David B. Shippey(2) Director Prior to September 1983 associated
5130 Enterprise Road with Saga Corporation, a restaurant
Santa Rosa, CA 95404 and contract food service business, his
last position being Vice President and
Treasurer. Trustee of the Fund
Group.
James C. Van Horne(2) Director A.P. Giannini Professor of Finance
Graduate School of Business at Graduate School of Business of
Stanford University Stanford University from September
Stanford, CA 94305 1976 to the present. Deputy
Assistant Secretary of the United
States Treasury Department from
September 1975 to August 1976.
Director of Sanwa Bank California and
Montgomery Street Income Securities,
Inc., a registered investment company.
Trustee of the Fund Group.
</TABLE>
- --------
(2) Member of the Audit Committee.
B-6
<PAGE>
The following table sets forth the compensation paid to the Company's
Directors during the fiscal year ended September 30, 1996.
Compensation Table
<TABLE>
<CAPTION>
Name of Person Aggregate Pension or Retirement Estimated Total Compensation
and Position Compensation Benefits Accrued as Part Annual From Company and
from Company of Company Expenses Benefits Upon Fund Complex1
Retirement Paid to Directors
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter M. Hill $0(2) $0 $0 $0
Director
Burnice E. Sparks, Jr. $0(2) $0 $0 $0
Director
Shirley L. Clayton $10,000(3) $0 $0 $20,000
Director
David B. Shippey $10,000(3) $0 $0 $20,000
Director
James C. Van Horne $10,000(3) $0 $0 $20,000
Director
</TABLE>
The Company and the Fund Group reimburse each Director and Trustee for
travel and other out-of-pocket disbursements incurred in connection with
attending Board meetings. The Company and the Fund Group also reimburse other
travel expenses of Directors, Trustees and officers, including international
travel expenses, incurred incident to the performance of duties as a Director,
Trustee or officer.
RIGHT TO USE NAME
Bailard, Biehl & Kaiser, Inc., a California corporation (the "Adviser"
or "Bailard, Biehl & Kaiser"), has granted the Company the right to use the
designation "Bailard, Biehl & Kaiser" in its name and has reserved the right to
withdraw its consent to the use of such designation by the Company under certain
conditions, including the condition that Bailard, Biehl & Kaiser ceases to act
as the Company's investment adviser, and to grant the use of such name to
others, including any other investment company.
- --------
(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 Company and the 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 a $6,000 annual director fee plus $1,000 for each Board
meeting attended in person.
B-7
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
Management Agreement
--------------------
The Fund has entered into an Investment Management Agreement (the
"Management Agreement") with Bailard, Biehl & Kaiser for investment advisory and
certain portfolio transaction and administrative services. The Adviser, subject
to the general supervision of the Company's Board of Directors, is responsible
for the overall management of the Fund's portfolio in accordance with the Fund's
investment objectives, policies, and restrictions. The Adviser is also
responsible for making investment recommendations as to securities to be
acquired, purchased or sold, for reviewing and selecting firms to effect the
execution of portfolio transactions and for reviewing the execution of such
transactions to ensure their overall reasonableness. In addition, the Adviser
provides certain administrative services to the Fund, including the oversight of
the various agents, records and reports of the Fund. The Adviser receives a
monthly fee calculated at an annual rate equal to .75% of the average daily net
assets of the Fund.
The Management Agreement may be terminated at any time, without penalty
upon 60 days' written notice, by majority vote of the Board of Directors of the
Company 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).
Expenses of the Fund
--------------------
The Fund pays all of its own expenses (except for those expressly to be
paid by the Adviser), including without limitation the following: organization
costs, taxes, investment management fees, expenses for legal and auditing
services, costs of printing proxies, stock certificates, stockholder reports,
prospectuses and statements of additional information, charges of the Fund's
custodian, any sub-custodian and transfer and dividend disbursing agent,
expenses of redemption of the Fund's shares, Securities and Exchange Commission
fees, expenses of registering the Fund's shares under federal, state and foreign
laws, fees and actual out-of-pocket expenses of Directors, accounting and
pricing costs (including the daily calculation of the net asset value),
insurance, interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, and other similar expenses.
For the fiscal years ended September 30, 1994, 1995 and 1996, the Fund
paid investment management fees of $1,183,513, $768,079 and $461,792 to the
Adviser, respectively.
The Adviser pays certain expenses incurred in the Fund's day-to-day
management, including the costs of office space and other facilities used by the
Adviser, and salaries and expenses of personnel of the Adviser. As an
accommodation to the Fund, from time to time the Adviser directly pays certain
expenses of the Fund (such as insurance premiums, Directors' fees, and fees
relating to state securities law filings) for which the Adviser is later
reimbursed by the Fund. Disbursements by the Adviser on behalf of the Fund and
their subsequent reimbursement by the Fund are effected only upon the prior
approval of an officer of the Company. For the fiscal year ended September 30,
1996, the Fund reimbursed the Adviser approximately $24,365.
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. Of the states in which the Fund's shares are currently offered
for sale, only California imposes an expense limitation. California law requires
reimbursement of expenses 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
B-8
<PAGE>
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.) For
the fiscal years ended September 30, 1994, 1995 and 1996, no expense
reimbursement was required. The imposition of an expense limitation by
California or any other state after October 1996 appears to be prohibited by the
National Securities Markets Improvement Act of 1996.
BB&K Fund Services, Inc., 2755 Campus Drive, San Mateo, California
94403 ("Fund Services"), serves as the sole 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 Fund's shares may also be purchased directly from the
Fund.
The Adviser and the Distributor are wholly owned subsidiaries of BB&K
Holdings, Inc. ("Holdings"), which may be deemed to be a controlling person of
the Adviser and the Distributor. 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 the
securities of Holdings, as individuals or 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. As
compensation for its services, the Fund paid the Custodian $265,166, $197,993
and $144,326 during the 1994, 1995 and 1996 fiscal years, respectively.
The Company, on behalf of the Fund, has entered into an Administration
Agreement (the "Administration Agreement") dated as of October 1, 1991, as
amended, with Investment Company Administration Corporation.
Personal Securities Transactions
--------------------------------
Officers, directors and employees of the Company 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 Company 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.
BROKERAGE
The Adviser is responsible for the allocation of brokerage and reviews
the efficiency of execution and reasonableness of the commissions charged. In
effecting portfolio transactions, the Adviser seeks to obtain the best net
results for the Fund, taking into account such factors as price, size of order,
difficulty of execution and operational facilities of the firm involved. The
Adviser generally seeks reasonably competitive commission rates in domestic and
foreign transactions. Ordinarily, the Adviser purchases securities from the
primary market, 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.
The Fund's purchases and sales of debt securities will generally be
made with an issuer or primary market maker on a net basis, without any
brokerage commission being paid by the Fund. Trading does, however,
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involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Transaction costs
may also include fees paid to third parties for information as to potential
purchasers or sellers of securities but only for the purpose of seeking the most
favorable net results, including such fee, on a particular transaction.
Purchases of underwritten issues may include an underwriting fee paid to the
underwriter.
Within the framework of the above policies, the Adviser may also
consider research, investment information and other related services, such as
price quotations, provided by brokers. In recognition of research services, the
Adviser has the authority to cause the Fund to pay brokerage commissions (which
are negotiated in the case of domestic stock exchange transactions, but which
are often fixed in the case of foreign stock exchange transactions) in excess of
that which other brokers might charge for effecting the same transaction. As a
consequence, the Fund could pay a broker that furnishes research services for
the Adviser a higher commission than that which might be paid to another broker
that does not furnish research services, or that furnishes research services
deemed to be of lesser value, if such commission is deemed reasonable in
relation to the value of the brokerage and research services provided by the
broker, viewed in terms of either the particular transaction or the overall
responsibilities of the Adviser with respect to the Fund. Research services that
could be provided could include analyses of industries, statistical or economic
information or analyses of issuers. It is not contemplated that there will be
any set formula or allocation with respect to brokerage. The Adviser will
review, from time to time, brokerage commissions paid on behalf of the Fund with
a view to determining their reasonableness in relation to brokerage commissions
paid by other similarly situated investors.
The extent to which commissions charged by brokers may reflect an
element of value for research services cannot presently be determined. To the
extent that research services of value 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 and of value 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
and of value 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.
There are occasions on 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 objectives. 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 that is deemed equitable by the Adviser to the accounts
involved, including the Fund.
No brokerage commissions will be paid to any broker that was at the
time of the transaction an "affiliated person" of the Fund or indirectly
affiliated with the Fund through a common "affiliated person" as that term is
defined in the 1940 Act. Neither the Adviser nor any of its affiliates receives
any brokerage commissions from portfolio transactions.
The Fund paid no brokerage commissions during the fiscal years ended
September 30, 1994, 1995 and 1996. The Fund's portfolio turnover rate for the
fiscal years ended September 30, 1994, 1995 and 1996 is set forth in the Fund's
Prospectus under "Financial Highlights". The decrease in the turnover rates for
1995 and 1996 were principally due to lower volatility in world markets and
therefore lower trading activity.
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<PAGE>
NET ASSET VALUE FOR PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
The net asset value per share, on which purchase, exchange and
redemption prices are based, is calculated in accordance with the formula and at
the times set forth in the Prospectus. As of the date of this Statement of
Additional Information, the Fund understands that the New York Stock Exchange
will be closed (and, thus, no net asset value will be calculated) on the
following U.S. holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
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 a
Fund is exercised, the proceeds are increased by the premium received. If a call
option written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, the Fund will
have a gain or loss depending on whether the premium was more or less than the
cost of the closing transaction. If a put option held by the Fund is exercised,
the amount the Fund receives on sale of the underlying investment is reduced by
the amount of the premium paid by the Fund.
Futures contracts 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 Directors 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 Directors in such manner as the Board of Directors in good faith deems
appropriate to reflect the fair value thereof.
The procedures for purchasing, exchanging and redeeming shares are
described in the Prospectus.
TAX ASPECTS
For the fiscal year ended September 30, 1996, the Fund believes that it
qualified for "pass-through" tax treatment as a regulated investment company and
intends to be able to so qualify in subsequent fiscal years. 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
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stock, securities or foreign currencies, or certain other sources, (b) derive in
each taxable year less than 30% of its gross income from the sale or other
disposition of stock, securities, certain foreign currency positions, and
certain other assets held for less than 3 months, (c) diversify its holdings so
that, at the end of each quarter of the taxable year, (I) at least 50% of the
market value of the Fund's assets is represented by cash, U.S. government
obligations and other securities limited in respect of any one issuer to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
government obligations or the securities of other regulated investment
companies), and (d) distribute in each year at least 90% of its investment
company taxable income.
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 stockholders will not be deductible by the Fund in
computing its taxable income, (c) the Fund's distributions, to the extent made
out of the Fund's current or accumulated earnings and profits, will be taxable
to its stockholders as dividends (regardless of whether they would otherwise
have been considered long-term capital gains), and (d) stockholders will not be
entitled to claim U.S. foreign tax credits. 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 stockholders may be subject to backup tax withholding at a 31%
rate. Generally, a stockholder will be subject to backup withholding if the
stockholder fails to provide the Fund with its correct taxpayer identification
number, or if the IRS notifies the Fund that the stockholder has underreported
interest or dividends. In addition, stockholders 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 Purchase Application accompanying the Prospectus.
Other Tax Consequences
----------------------
Dividends and interest received by the Fund 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.
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 advisers to determine the
effect of investment in the Fund upon their individual tax situations.
STOCKHOLDER INFORMATION
As of December 31, 1996 all officers and Directors of the Company as a
group held of record and beneficially less than 1% of the outstanding shares of
the Fund. No stockholders 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
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<PAGE>
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 annual compounded rate of
total return for the one year period ended September 30, 1996 was 9.32%. The
average annual compounded rate of total return for the Fund for the five year
period from October 1, 1991 to September 30, 1996 was 5.29%. The average annual
compounded rate of total return from October 1, 1990 (inception) to September
30, 1996 was 6.15%. These rates assume that all dividends and distributions by
the Fund were reinvested at net asset value on the reinvestment dates. Periods
prior to October 1, 1993 include an assumed 1% annual advisory fee, payable
quarterly, charged by the Adviser to its clients.
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. In addition, the advisory fees paid by
the Fund have changed over the periods covered by these figures. Therefore,
there is no assurance that this performance will be repeated in the future.
FINANCIAL STATEMENTS
Incorporated by reference herein are portions of the Fund's annual
report to stockholders for the fiscal year ended September 30, 1996 under the
headings: "PORTFOLIO 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 contacting Bailard, Biehl & Kaiser International Fund Group, Inc.,
2755 Campus Drive, San Mateo, California 94403, (800) 882-8383.
-----------------------------------------------------
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.
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