As filed with the Securities and Exchange
Commission on November 30, 1998
Registration No. 2-63270
File No. 811-6146
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 30 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 32 [X]
BAILARD, BIEHL & KAISER INTERNATIONAL FUND GROUP, INC.
(Exact name of registrant as specified in charter)
950 Tower Lane, Suite 1900
Foster City, California 94404
(Address of principal executive offices)
Telephone number (including area code): (800) 882-8383
PETER M. HILL, CHAIRMAN
BAILARD, BIEHL & KAISER INTERNATIONAL FUND GROUP, INC.
950 Tower Lane, Suite 1900
Foster City, California 94404
(Name and address of agent for service of process)
Copies to:
ANDRE W. BREWSTER, ESQ.
HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN, A PROFESSIONAL CORPORATION
Three Embarcadero Center, 7th Floor
San Francisco, California 94111-4065
Approximate date of proposed public offering: As soon as practicable after this
post-effective amendment becomes effective.
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On __(date)____, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] On January 27, 1999, pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On __(date)____, pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Cross Reference Sheet Pursuant to Rule 481
of the Securities Act of 1933
Information Required in
Prospectus by Form N-1A
Registration Statement Prospectus Caption
- ----------------------- ------------------
Item 1. Cover Page ........................Prospectus Cover.
Item 2. Synopsis ..........................Costs and Expenses of the Fund
Borne by Stockholders; Prospectus
Summary.
Item 3. Condensed Financial
Information .......................Financial Highlights;
Performance Information
Item 4. General Description of
Registrant ........................The Fund; Investment Objectives
and Policies; Risk Factors.
Item 5. Management of the Fund ............Management; Transfer Agent and
Custodian.
Item 5A. Management's Discussion of Fund
Performance........................Inapplicable
Item 6. Capital Stock and Other
Securities ........................Description of Capital Stock; The
Fund; Distributions; Tax Aspects.
Item 7. Purchase of Securities
Being Offered .....................Net Asset Value; Purchase of
Shares.
Item 8. Redemption or Repurchase ..........Exchange and Redemption of
Shares.
Item 9. Legal Proceedings .................Inapplicable.
ii
<PAGE>
Information Required in
Statement of Additional
Information by Form N-1A Statement of Additional
Registration Statement Information Caption
- ------------------------ -------------------
Item 10. Cover Page ........................Cover Page.
Item 11. Table of Contents..................First Inside Page.
Item 12. General Information
and History .......................Investment Objectives and Policies.
Item 13. Investment Objectives
and Policies.......................Investment Objectives and
Policies; Brokerage.
Item 14. Management of the
Fund...............................Directors and Officers.
Item 15. Control Persons and
Principal Holders of
Securities.........................Stockholder Information.
Item 16. Investment Advisory and
Other Services.....................Investment Advisory and
Other Services.
Item 17. Brokerage Allocation
and Other Practices................Brokerage.
Item 18. Capital Stock and
Other Securities...................Inapplicable.
Item 19. Purchase, Redemption
and Pricing of Securities
Being Offered......................Net Asset Value for Purchase,
Exchange and Redemption of
Shares.
Item 20. Tax Status.........................Tax Aspects.
Item 21. Underwriters.......................Inapplicable.
Item 22. Calculation of
Performance Data...................Performance Data.
Item 23. Financial Statements...............Financial Statements.
iii
<PAGE>
BAILARD, BIEHL & KAISER INTERNATIONAL EQUITY FUND
(A NO LOAD FUND WITH NO 12B-1 PLAN
EMPHASIZING FOREIGN EQUITY INVESTMENTS)
950 TOWER LANE, SUITE 1900
FOSTER CITY, CALIFORNIA 94404
(800) 882-8383
Bailard, Biehl & Kaiser International Equity Fund (the "Fund") is a
non-diversified series of the Bailard, Biehl & Kaiser International Fund Group,
Inc., a Maryland corporation and 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 investment 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 the United States. Investing in foreign securities,
foreign currencies or foreign markets involves certain considerations comprising
both risk and opportunity not typically associated with investing in United
States securities in United States markets. See "Risk Factors". Of course, there
can be no assurance that the Fund will be able to achieve its objectives.
Investors should read and retain this Prospectus for future reference.
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing. A Statement of Additional
Information, dated January 27, 1999, has been filed with the Securities and
Exchange Commission and is available upon request without charge. The Statement
of Additional Information contains information about the Fund and its management
that is not included in this Prospectus, as well as more detailed information
concerning certain aspects of the Fund's operations that are discussed briefly
in this Prospectus. You can request a copy of the Statement of Additional
Information by contacting the Fund at the address and telephone number listed
above.
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 date of the Statement of Additional
Information is January 27, 1999, as each may be supplemented from time to time.
<PAGE>
TABLE OF CONTENTS
Page
----
Costs and Expenses of the Fund Borne by Stockholders........................ 3
Prospectus Summary.......................................................... 4
Financial Highlights........................................................ 6
The Fund.................................................................... 9
Investment Objectives and Policies.......................................... 9
Investment Practices........................................................ 11
Risk Factors................................................................ 14
Management.................................................................. 17
Net Asset Value............................................................. 18
Purchase of Shares.......................................................... 18
Exchange and Redemption of Shares........................................... 20
Distributions............................................................... 23
Tax Aspects................................................................. 23
Description of Capital Stock................................................ 26
Performance Information..................................................... 27
Distributor................................................................. 27
Administrative Services..................................................... 27
Transfer Agent and Custodian................................................ 27
Experts..................................................................... 28
Hedging and Other Transactions...................................... Appendix A
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Fund or its distributor or investment adviser.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction or to any
person to whom it is unlawful to make such offer in such jurisdiction.
2
<PAGE>
COSTS AND EXPENSES OF THE FUND BORNE BY STOCKHOLDERS
STOCKHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases........................................ None
Sales Load Imposed on Reinvested Dividends............................. None
Deferred Sales Load.................................................... None
Redemption Fees........................................................ None
Exchange Fee........................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees........................................................ 0.95%
12b-1 Fees............................................................. None
Other Expenses......................................................... 0.46%
Total Fund Operating Expenses...................................... 1.41%
EXAMPLE. The purpose of the following example 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. For more information regarding the fees and
expenses of the Fund, see "Management".
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: $14 $45 $77 $169
3
<PAGE>
PROSPECTUS SUMMARY
WHAT IS THE PURPOSE OF The Fund is designed to provide stockholders
THE FUND? with a specialized vehicle for investing outside
the United States using a multi-country,
multi-sector structured approach. It does not
represent a balanced investment program.
Moreover, investment risk cannot be eliminated
by an investment in the Fund.
WHAT IS THE FUND'S PRIMARY To seek capital appreciation through investments
INVESTMENT OBJECTIVE? in foreign equity securities.
ARE THERE ANY RISK FACTORS The Fund invests primarily in equity securities
REGARDING AN INVESTMENT of foreign issuers, including U.S. companies
IN THE FUND? whose assets are primarily located or whose
operations are primarily conducted outside the
United States. Investment in securities of this
type involves considerations that are different
from those relating to investments in U.S.-based
companies, such as possible adverse effects of
changes in currency exchange rates or of
exchange controls, possible expropriation or
nationalization of the assets of the companies
of which the Fund has purchased securities, less
public information with respect to issuers of
such securities, less liquid securities markets
in some instances and less governmental
supervision of stock exchanges, securities
brokers and issuers of securities.
In seeking to protect against the effects of
changes in currency exchange rates and market
conditions, the Fund may purchase and sell
forward contracts, options, futures contracts
and options on futures contracts relating to
foreign currencies and stock indices, for
hedging and other purposes and not for
speculation. Risks associated with such
transactions include: incorrect prediction of
the movement of currency exchange rates and
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 and stock indices.
Investments in emerging market countries may
involve significantly more volatility and risk
than their developed country counterparts.
4
<PAGE>
The Fund is deemed to be non-diversified within
the meaning of the Investment Company Act of
1940. Investment of a substantial percentage of
the Fund's assets in the securities of single
issuers will expose the Fund to a greater risk
of loss resulting from unfavorable price.
Substantially all of the Fund's shares are
currently held by advisory clients of the Fund's
investment adviser. Decisions by the investment
adviser to purchase or redeem Fund shares on
behalf of its clients may cause significant
volatility in the Fund's asset size. As a
result, the Fund may experience, from time to
time, increased expense ratios, liquidation of
portfolio positions at inopportune times for
certain stockholders, and increased brokerage
and other transaction costs. See "Risk Factors".
HOW ARE SHARES PURCHASED? Shares of Common Stock of the Fund are being
offered, 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. The minimum initial
investment in the Fund is $5,000 and each
subsequent investment must be at least $100; the
minimum initial investment for Bailard, Biehl &
Kaiser employees, officers and their relatives,
and directors of the Company is $2,000 and each
subsequent investment must be at least $100. See
"Purchase of Shares".
WHO IS THE FUND'S Bailard, Biehl & Kaiser, Inc. acts as the
INVESTMENT ADVISER AND investment adviser (the "Adviser") of the Fund.
WHAT FEES DOES THE FUND PAY? The Adviser also acts as the investment adviser
for the Bailard, Biehl & Kaiser International
Bond Fund (the other series of the Company) and
the Bailard, Biehl & Kaiser Diversa Fund. As of
October 31, 1998 , the Adviser managed
approximately $1.2 billion in assets invested
globally. The Adviser receives a monthly fee
calculated at an annual rate equal to .95% of
the average daily net assets of the Fund. See
"Management".
The total expenses incurred by the Fund for the
fiscal year ended September 30, 1998 represented
1.41% of the average net assets of the Fund. See
"Costs and Expenses of the Fund Borne by
Stockholders".
HOW OFTEN ARE Dividends from net investment income and net
DISTRIBUTIONS MADE? realized capital gains, if any, will be
distributed annually, generally in December. See
"Distributions".
HOW ARE SHARES REDEEMED? Shares in the Fund will be redeemed at the net
asset value next determined after receipt of
complete redemption instructions, as described
under "Net Asset Value" and "Exchange and
Redemption of Shares".
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose unqualified report thereon covering the most
recent five years is included in the Fund's annual report to stockholders for
the fiscal year ended September 30, 1998. Portions of the Fund's annual report
to stockholders for the fiscal year ended September 30, 1998 are incorporated by
reference into the Statement of Additional Information. This information should
be read in conjunction with the 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 stockholders for the
fiscal year ending September 30, 1998. A copy of the annual report is available,
upon request and without charge, by contacting Bailard, Biehl & Kaiser
International Fund Group, Inc., 950 Tower Lane, Suite 1900, Foster City,
California 94404.
6
<PAGE>
Bailard, Biehl & Kaiser International Equity Fund
Financial Highlights
For a share outstanding throughout the year:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,(1)(2)
------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 6.91 $ 6.05 $ 6.00 $ 6.10 $5.66 $ 4.80 $ 5.69 $ 5.26 $ 6.59 $ 5.50
------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.09 0.04(5) 0.05 0.06(3) 0.01 0.07 0.06 0.11 0.06 0.04
Net Realized/unrealized Gain (Loss)
on Securities and Foreign Currency (0.81) 1.23 0.37 0.06(4) 0.43 0.79 (0.87) 0.54 (1.32) 1.05
------------------------------------------------------------------------------------------
Total From Investment Operations (0.72) 1.27 0.42 0.12 0.44 0.86 (0.81) 0.65 (1.26) 1.09
------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Net Investment Income (0.13) (0.05) (0.06) -- -- -- (0.08) (0.11) (0.07) --
Capital Gains (0.14) (0.36) (0.31) (0.22) -- -- -- (0.11) -- --
------------------------------------------------------------------------------------------
Total Distributions (0.27) (0.41) (0.37) (0.22) -- -- (0.08) (0.22) (0.07) --
------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 5.92 $ 6.91 $ 6.05 $ 6.00 $6.10 $ 5.66 $ 4.80 $ 5.69 $ 5.26 $ 6.59
==========================================================================================
Total Return (10.61%) 22.22% 7.33% 2.13% 7.77% 17.92% (14.20%) 12.30% (19.38%) 19.82%
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,(1)(2)
-----------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
RATIOS/SUPPLEMENTAL DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets, End of Year (000'S) $108,297 $139,220 $100,382 $108,210 $204,788 $182,894 $127,092 $126,132 $64,904 $79,487
Ratio of Expenses to Average
Net Assets
Before Expenses Paid
Indirectly 1.44% 1.44% 1.54% 1.53% 1.39% 0.68% 1.05% 1.22% 1.30% 1.22%
After Expenses Paid
Indirectly 1.41% 1.44% 1.54% 1.53% 1.39% 0.68% 1.05% 1.22% 1.30% 1.22%
Ratio of Net Investment Income
to Average Net Assets 0.49% 0.79% 0.78% 0.97% 0.29% 1.88% 1.55% 1.93% 0.88% 1.07%
Portfolio Turnover Rate 78% 67% 103% 174% 176% 131% 77% 81% 134% 86%
</TABLE>
- ----------
(1) The investment adviser to the Fund beginning in April 1993 was Warburg
Investment Management International (Jersey) Limited (and its affiliate,
Warburg Investment Management International Limited). The investment
adviser to the Fund beginning in August 1990 were Nomura Capital
Management, Inc. (and its affiliates, Nomura Investment Management Co.,
Ltd. and Nomura Capital Management (U.S.) Limited), Acadian Asset
Management, Inc. and Bailard, Biehl & Kaiser, Inc. became the sole adviser
to the Fund in February 1993. The Fund's investment advisers have received
varying fees during the periods shown in the table. The Fund paid no
advisory fees from February 1, 1993 to September 30, 1993. The table does
not reflect separate advisory fees charged by Bailard, Biehl & Kaiser, Inc.
to its clients prior to October 1, 1993. If such fees were included at an
assumed 1% annual rate payable quarterly, pro-forma total return
information would be as follows (unaudited):
Fiscal Year Ended September 30,
-------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
16.74% (15.05%) 11.18% (20.18%) 18.62%
See "Management" for further discussion.
(2) Prior to July 31, 1990, the investment objective of the Fund was to seek a
total return on assets. Since that time, the Fund's primary investment
objective has been to seek capital appreciation.
(3) 1995 amounts are computed on the basis of average shares outstanding.
(4) The amount shown for each share outstanding may not accord with the change
in the aggregate gains and losses in the portfolio securities for the
period because of the timing of purchases and redemptions of shares in
relation to the fluctuating market value of the portfolio.
(5) Net investment income per share has been computed before adjustments for
book/tax differences.
8
<PAGE>
THE FUND
The Fund is a non-diversified series of the Bailard, Biehl & Kaiser
International Fund Group, Inc., a Maryland corporation and an open-end
management investment company (the "Company"). The Fund is not intended as a
complete investment program because of the specialized nature of its investment
objectives. Bailard, Biehl & Kaiser, Inc. (the "Adviser") has sponsored the
organization of the Fund primarily to provide investment opportunities in
foreign equity securities that may not otherwise be available. Of course, there
can be no assurance that the Fund will achieve its investment objectives, and,
as indicated below, under "Risk Factors", there are risks associated with
investing in foreign securities, foreign currencies and foreign markets that are
not present with respect to investing in U.S. securities denominated in U.S.
dollars and traded in U.S. markets.
The Fund issues to stockholders unaudited semi-annual reports and annual reports
containing audited financial statements of the Fund. Shortly after the end of
each calendar year, the Fund furnishes investors with information necessary for
the preparation of income tax returns.
The Fund is the successor to the Bailard, Biehl & Kaiser International Fund,
Inc., a Delaware corporation that was organized on March 12, 1979 and merged
into the Company on July 31, 1990. The Company's fiscal year ends on September
30 of each year.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's primary investment objective is to seek capital appreciation through
investment in foreign issuers, including U.S. companies whose assets are
primarily located or whose operations are primarily conducted outside the United
States. 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. To help achieve these objectives, the Fund will ordinarily invest at
least 65% of its assets in at least three countries other than the United States
in equity securities that have potential for growth of capital or income, or
both. For this purpose, "equity securities" will consist of common stocks,
preferred stocks and convertible securities (such as convertible debt securities
and warrants). The remainder of the portfolio will be invested in short-term
obligations of U.S. and foreign companies and governments pending investment or
for protection against market declines. Short-term obligations will consist of
short-term notes, commercial paper, certificates of deposit and, within certain
limitations, repurchase agreements. Such short-term obligations will be rated
Prime by Moody's Investors Service, Inc. ("Moody's") or A by Standard & Poor's
Corporation ("S&P"), or, if unrated, will be of a similar quality in the opinion
of the Adviser. Investors should be aware that warrants do not entitle the
holder to voting, liquidation or dividend rights with respect to the issuer of
the underlying securities. Repurchase agreements represent transactions in which
the Fund buys securities from the seller who agrees to repurchase such
securities at a later date. The seller's obligation to repurchase is fully
collateralized with other securities in which the Fund can invest, although the
Fund may experience delays in acquiring control of the collateral upon a default
by the seller. The Fund may also engage in certain hedging and other
transactions. See "Investment Practices".
The Fund will ordinarily invest its assets in securities of issuers that, in the
judgment of the Adviser, have their principal governing headquarters located
outside the United States, in order to provide investors in the Fund with
participation in companies located in, or the economies of, a number of
countries other than the United States. While there is no limitation on
countries in which the Fund may invest, other than those
9
<PAGE>
imposed from time to time by the Board of Directors, under ordinary
circumstances investments will be principally in companies based in the Far
East, Europe, the United Kingdom, Canada and Australia. Investments may be made
in companies based in developed as well as developing countries. The Fund may
also invest in securities traded domestically and abroad in the form of American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs") and
International Depository Receipts ("IDRs"), and in domestic and foreign
investment companies whose portfolios are invested primarily in the securities
of foreign issuers. The Fund's purchase of securities of another investment
company will result in the layering of expenses such that stockholders of the
Fund will not only bear the expenses of the Fund but also will indirectly bear a
proportionate share of the expenses of the other investment company.
As a general rule, the Fund will purchase securities that are traded on
exchanges or over-the-counter markets often located in the respective countries
in which the various issuers of such securities are principally based. There is
no limitation on the percentage of the Fund's assets that may be invested in
securities of issuers located within any one country, other than restrictions
that may be imposed from time to time by the Company's Board of Directors, nor
is there any minimum asset or net worth requirement with respect to issuers in
which the Fund's assets may be invested.
The Fund has certain "fundamental policies" that limit, to specified levels, the
Fund's investment in certain securities. Those policies include the following.
As much as 25% of the value of the Fund's assets may be invested in a single
industry. However, the Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer and will not invest for the purpose of
controlling or managing companies. The Fund may not purchase or sell commodities
or commodity contracts or invest in options except that the Fund may invest in,
purchase or write forward contracts on foreign currencies, and options, futures
contracts and options on futures contracts on foreign currencies and stock
indices in connection with foreign currency and market hedging transactions. The
Fund may not borrow money or pledge its assets, except from a bank as a
temporary measure for extraordinary or emergency purposes in amounts not
exceeding 5% of the value of the Fund's total assets. The Fund will not effect
short sales or purchase securities on margin, except for the deposit of initial
or variation margin in connection with hedging transactions. Moreover, the Fund
will not invest more than 10% of the value of its total assets in securities
subject to contractual or legal restrictions on disposition in all of the
principal markets where traded.
The investment objectives and policies described above may be changed by the
action of the Board of Directors of the Fund without stockholder approval,
except for the fundamental policy restrictions of the Fund, which may be changed
only with the approval of a majority of the stockholders of the Fund. A
description of the Fund's fundamental policies is contained in the Statement of
Additional Information.
PORTFOLIO TRADING
The Fund may engage in short-term trading if the disposition of securities held
for a short period is deemed to be advisable. An annual portfolio turnover rate
of 100% exceeds that of many other investment companies, including those which
emphasize capital appreciation as a primary investment objective. 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 "Tax Aspects".
10
<PAGE>
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 rates
and 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"), and call and
put options ("Options"), futures contracts ("Futures Contracts"), and call and
put options on futures contracts ("Options on Futures Con tracts") on foreign
currencies and stock indices. 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 "Risk Factors -- Hedging Transactions". For a more
detailed description of the uses, risks and costs of Hedging Transactions, see
Appendix A. In addition, certain provisions of the Internal Revenue Code may
limit the extent to which the Fund may enter into Hedging Transactions. See "Tax
Aspects -- Hedging and Other Transactions".
Generally, Hedging Transactions involving foreign currencies may directly hedge,
indirectly hedge or cross-hedge the currency risk associated with a particular
transaction or position. The Fund may directly hedge a currency risk when it
believes that the currency in which a particular portfolio security is
denominated may suffer a substantial adverse movement against the U.S. Dollar.
For example, to directly hedge a position, the Fund could sell an amount of such
foreign currency, or buy an amount of the U.S. Dollar, approximating the value
of some or all of the Fund's portfolio securities denominated in such foreign
currency.
Indirect hedges are similar to direct hedges, except that in an indirect hedge,
the Fund hedges a portfolio security's currency risk with a different, or proxy,
currency that is expected to trade closely to the portfolio security's
underlying currency. Indirect hedges will be used when the Fund believes that
the currency risk associated with a portfolio position can be hedged more
effectively through the purchase or sale of the proxy currency due to better
liquidity, lower transaction costs and/or relative currency expectations.
The Fund may enter into a cross-hedge when it believes that the currency in
which a particular portfolio security is denominated may suffer a substantial
adverse movement against a currency other than the U.S. Dollar. If one currency
is expected to decrease against another currency, the Fund may sell the currency
expected to weaken and buy the currency expected to strengthen. The Fund may
also initiate a foreign currency position that increases the exposure of the
Fund to that currency. Typically, this would be done when the Fund likes the
currency of a country better than the stocks of that country. To offset an
underweight securities (or no) 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 a transaction involving a
stock index Option, stock index Futures Contract or Option on a stock index
Futures Contract. A stock index is a composite of the market prices of the
stocks that make up the index. An index may be broad based (comprised of many
stocks 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. stocks (e.g., the S & P 500 Stock
Index) or foreign stocks (e.g., the International Market Index) or a combination
of both (e.g., the Morgan Stanley World Index).
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Stock indices are used as the underlying value of stock index Options, stock
index Futures and Options on stock index Futures.
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 A.
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 foreign currencies and
stock indices. Call Options on foreign currencies give the holder the right, in
exchange for a premium, to buy the underlying currency at a stated price while
the counterparty is obligated, upon exercise, to sell such currency. Put Options
on foreign currencies give the holder the right, in exchange for a premium, to
sell the underlying currency at a stated price while the counterparty is
obligated, upon exercise, to buy such currency. An Option on a stock index is
similar to an Option on a foreign currency, except that exercise of the Option
results in the payment of a cash settlement instead of the purchase or sale of
the stocks 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 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 foreign currencies,
securities 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.
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FUTURES CONTRACTS
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
foreign currency is the acquisition of a contractual obligation to deliver the
currency called for by the contract at a specified price in a fixed delivery
month. A purchase of a Futures Contract on a foreign currency means the
acquisition of a contractual obligation to acquire the currency called for by
the contract at a specified price in a fixed delivery month. A Futures Contract
on a stock index, like an Option on a stock index, results in the payment of a
cash settlement instead of the delivery of the stocks 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
rate and market movements. 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
The Fund may purchase and write call and put 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 normally expects to invest its cash
balances primarily in bank accounts or similar investments denominated in
foreign currencies in lieu of dollar-denominated bank accounts or investments.
This should permit the Fund to profit from declines in the value of the dollar
during periods when the dollar is declining relative to the foreign currencies
in which its cash balances are invested. There is, however, no guarantee that
the Fund 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.
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RISK FACTORS
FOREIGN SECURITIES
The Fund is intended to provide an investor with an opportunity to invest a
portion of his or her assets in equity securities of foreign companies or
companies (wherever organized) with significant foreign operations. Management
of the Fund believes that international investment of one's assets may decrease
the degree to which events in any one country, including the United States, will
affect one's entire investment holdings. Of course, international investment of
one's assets will not eliminate risks inherent in investing in securities.
Because of the Fund's investment objectives, the Fund is not intended to provide
a complete investment program for an investor.
Investors should recognize that investing in foreign companies, foreign
currencies and foreign markets involves certain considerations, including those
set forth below, that are not typically associated with investing in U.S.
securities denominated in U.S. dollars and traded in U.S. markets. Many of the
securities held by the Fund will not be registered with, nor will the issuers
thereof be subject to the reporting requirements of, the Securities and Exchange
Commission. Accordingly, there may be less publicly available information about
a foreign company than about a domestic company. Foreign companies are not
generally subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies. Securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Fixed commissions on foreign
stock exchanges are generally higher than negotiated commissions on United
States exchanges. There is generally less governmental supervision and
regulation of foreign stock exchanges, brokers and issuers than in the United
States.
In addition, with respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments that could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States economy in such respects as growth of gross domestic product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position.
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 markets countries tend to have
less mature economies and less stable political systems. Such countries may have
restrictions on foreign ownership or the repatriation 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.
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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.
EURO
On January 1, 1999, eleven major European countries participating in the
Economic and Monetary Union ("EMU") adopted a single currency, the Euro,
overseen by the European Central Bank. Beginning on the first day of 1999, most
securities denominated in the currencies of participating countries were
redenominated in Euros.
As would be expected with any undertaking of this magnitude, there are areas of
uncertainty involving the actual conversion and the market's reaction. These
areas may include but are not limited to the ability of financial institutions
to prepare their operating systems and the creation of suitable clearing and
payment systems for the new currency. These and other factors, including
political and economic risk, could cause market disruptions after the
introduction of the Euro. While there can be no assurance that the Fund will not
be adversely affected, the Adviser is taking steps to effect the Fund's
transition to the Euro as smoothly as possible.
CURRENCY EXCHANGE RATES
The value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by fluctuations in currency rates and exchange control
regulations (including, but not limited to, actions 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 will
invest 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
buy and sell 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 stockholders for United States income tax purposes, rather than as ordinary
income, thereby reducing each stockholder's basis in his Fund shares.
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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 foreign currency and 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 rates and market movements; imperfect correlation of currency
movements in cross-hedges and indirect hedges; imperfect correlation in the
price movements of Options, 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. 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 cross-hedge transactions. In a cross-hedge, the foreign currency
in which a portfolio security is denominated is hedged against another foreign
currency, rather than the U.S. Dollar. Cross-hedges may also create a greater
risk of loss than other Hedging Transactions because they may involve hedging a
currency risk through the U.S. Dollar rather than directly to the U.S. Dollar or
another currency. Moreover, in some cases, the Fund's exposure to a foreign
currency will be greater than its exposure to the securities of that country.
In order to help reduce certain risks associated with Hedging Transactions, the
Board of Directors 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 Directors 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
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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 A.
NON-DIVERSIFICATION
The Fund is deemed to be non-diversified within the meaning of the Investment
Company Act of 1940 (the "1940 Act"), because it may invest more than 25% of its
assets in issuers in which it invests more than 5% of its assets. However, the
Fund still intends to qualify as a regulated investment company under the
Internal Revenue Code. In order to so qualify, the Fund may not, among other
things, invest more than 50% of its assets in such issuers. A more detailed
description of this and other requirements applicable to regulated investment
companies is set forth under "Tax Aspects" and in the Statement of Additional
Information under the caption "Tax Aspects". Investment of a substantial
percentage of the Fund's assets in the securities of single issuers will expose
the Fund to a greater risk of loss resulting from unfavorable price movements or
market conditions related to such issuers.
ASSET VOLATILITY
Substantially all of the Fund's shares are currently held by advisory clients of
the Adviser. As a result, decisions by the Adviser to purchase or redeem Fund
shares on behalf of its clients may cause the assets of the Fund to increase or
decrease by a significant amount from time to time. Any significant decline in
the Fund's assets is likely to result in an increase of the Fund's expenses as a
percentage of its net assets. In addition, in order to meet the redemption
requests of the Adviser's clients, the Fund may be required to liquidate
portfolio positions and realize gains and losses at inopportune times for
non-redeeming stockholders. Higher portfolio turnover also results in increased
brokerage and other transaction costs. Stockholders who are not clients of the
Adviser will not be notified of any changes in the Fund's assets that occur as a
result of decisions by the Adviser on behalf of its clients or otherwise.
YEAR 2000
The Year 2000 issue has received much attention in recent months. If the systems
on which the Fund relies are unable to process date related information before
or after January 1, 2000, the Fund could be adversely affected. At this time,
the Adviser does not expect any material issues to arise affecting the Fund in
regard to Year 2000 and is taking appropriate steps, it believes, in addressing
the issue. The Year 2000 issue affects nearly all companies and organizations,
however, the Adviser does not have control over external providers servicing the
Adviser or the Fund. As a result, as with any issue of this magnitude, there can
be no assurance that the Year 2000 issue will not have an adverse effect on the
companies whose securities are held by the Fund or on global markets or
economies generally.
MANAGEMENT
The Board of Directors of the Company is responsible for the management of the
Fund, including the general overall supervision of the Fund's portfolio
transactions. 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 in the Statement of Additional Information.
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The Fund and the Adviser have entered into an Investment Management Agreement
(the "Management Agreement") dated as of October 1, 1993. Under the Management
Agreement, the Adviser directs the purchase and sale of securities in the Fund's
investment portfolio and all hedging transactions in accordance with the Fund's
objectives and policies. The Adviser also selects and reviews firms to effect
portfolio transactions, and reviews commissions paid and the execution of
portfolio transactions for the Fund. In addition, the Adviser provides certain
managerial and administrative services to the Fund.
Rosemary Macedo has been primarily responsible for the day-to-day management of
the Fund's portfolio since November 1995. Ms. Macedo joined the Adviser in 1992
with responsibility for quantitative research and became a Senior Vice President
of the Adviser in 1995. She worked at First Quadrant Corporation conducting
quantitative research and systems development on equity and asset allocation
models from 1988 to 1992.
Since October 1, 1993, the Adviser has been paid a monthly fee calculated at an
annual rate equal to .95% of the average daily net assets of the Fund. While
this rate is higher than the rate charged by most other advisers, the Fund
believes that it is justified by the complexity of investing in multiple
international markets and engaging in Hedging Transactions and by the
administrative services provided by the Adviser. Prior to October 1, 1993, the
Fund employed other investment advisers and the Adviser received no fees from
the Fund. However, investors in the Fund who were advisory clients of the
Adviser paid separate advisory fees directly to the Adviser. Since October 1,
1993, the separate advisory fees payable to the Adviser by its advisory clients
have been reduced by an approximation of the amount of fees it receives from the
Fund attributable to the assets of its advisory clients.
The Fund pays all of its own expenses except for those expressly to be paid by
the Adviser. For the fiscal year ended September 30, 1998, the Fund's total
expenses represented 1.41% of average net assets for the year. Additional
information concerning the expenses of the Fund is contained in the Statement of
Additional Information.
The Adviser commenced business as a registered investment adviser 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, and acts as investment adviser to the Bailard, Biehl &
Kaiser International Bond Fund (the other series of the Company) and the
Bailard, Biehl & Kaiser Diversa Fund. As of October 31, 1998, the Adviser
managed portfolios with total holdings of approximately $1.2 billion in market
value.
NET ASSET VALUE
The net asset value per share, on which purchase and redemption prices are
based, is obtained by dividing the value of the net assets of the Fund (i.e.,
the market value of the securities and other assets of the Fund less its
liabilities, including expenses payable or accrued but excluding capital stock
and surplus), by the total number of shares outstanding. Net asset value is
calculated once daily, at the regular closing of the New York Stock Exchange
(generally 4:00 P.M. New York time), except that no net asset value per share is
calculated on Saturdays, Sundays or other days when the New York Stock Exchange
is closed. Because the Fund's investment securities are traded on foreign
markets that may be 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
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asset value is calculated. 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.
PURCHASE OF 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 is $5,000 and each subsequent investment must be
at least $100. The minimum initial investment for Bailard, Biehl & Kaiser
employees, officers and their relatives, and directors of the Company is $2,000
and each minimum subsequent investment is $100. The Fund reserves the right to
waive, reduce or increase the minimum for initial and subsequent investments.
Fund shares may also be purchased by various types of retirement plans,
including individual retirement accounts and Roth retirement accounts ("IRAs").
The minimum initial and subsequent investments of such plans correspond to the
minimum investment requirements for individuals. The Adviser offers the Bailard,
Biehl & Kaiser IRA for individuals wishing to establish an IRA. For information
concerning the Bailard, Biehl & Kaiser IRA, call (800) 882-8383.
The Fund reserves the right to 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 an offer in such
jurisdiction.
Shares may be purchased directly from the Fund by completing the Stockholder
Application form accompanying 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 Stockholder 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 bank wire by calling CGFSC at (800)
541-4366 (617/557- 8000 for Massachusetts residents) to receive a wire reference
control number and to notify CGFSC of your incoming wire. A properly completed
Stockholder Application form must be sent to CGFSC at the above address before
bank-wired investments can be redeemed. 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
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Attn:
Bailard, Biehl & Kaiser International Equity Fund
Stockholder'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 International Equity Fund account number
on your check or as part of your wiring instructions.
When an investor makes an initial investment, an account will be opened on the
books of the Fund and a confirmation will be sent of the opening of the account.
Thereafter, whenever a transaction takes place in the account, such as a
purchase of additional shares, exchange or redemption of shares, payment of
distributions or deposit or withdrawal of shares represented by certificates,
the stockholder will receive a confirmation statement giving complete details of
the transaction. In addition, the statement will show the details of every prior
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 stockholders.
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.
EXCHANGE AND REDEMPTION OF 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 Bond Fund (the "Bond Fund") or the Bailard, Biehl & Kaiser Diversa
Fund (the "Diversa Fund") on the basis of the relative net asset values per
share of the Fund and the Bond Fund or Diversa 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 "Purchase of Shares". Telephone
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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 Bond Fund's or Diversa Fund's
Prospectus, which may be obtained by contacting the Company 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 Bond Fund or Diversa 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 Bond Fund or Diversa
Fund are qualified for sale, and the dollar amount of an exchange must meet the
initial or subsequent minimum investment requirements of the Bond Fund or
Diversa Fund. The Fund does not place any limit on the number of exchanges that
may be made, and neither the Fund nor the Bond Fund or Diversa 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
A stockholder has the right to redeem shares by transmitting to CGFSC, at the
address indicated under "Purchase of 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 designee.
"Good order" means that certificates and stock powers must be endorsed by the
record owner(s) exactly as the shares are registered and, for redemptions in
excess of $50,000, the signature(s) must be accompanied by a signature
guarantee. A signature guarantee is a widely accepted way to protect
stockholders 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 ("STAMPSM") endorsed by the Securities Transfer Association. In some
cases, "good order" may require the furnishing of additional documents. In the
event that a stockholder needs assistance in determining which documents are
required in order to effect a redemption, he or she may contact CGFSC at (800)
541-4366 for assistance. Subject to the limitations set forth below, payment for
shares redeemed will ordinarily be made within seven days after receipt of the
foregoing documents in good order.
SYSTEMATIC WITHDRAWAL PLAN
A Systematic Withdrawal Plan ("SWP") may be established by a new or existing
stockholder if the shares in his or her account, when valued at the current net
asset value, equal $10,000 or more. Stockholders 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 stockholder as soon thereafter as
practicable. A transaction fee of $2 per check will be deducted from the
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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 stockholder, but until it has received such evidence,
CGFSC will not be liable for any payments made in accordance with the SWP. The
stockholder 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 stockholder 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 such shares were purchased with a cashier's or certified check.
SPECIAL REDEMPTION PROCEDURE
The Fund may redeem the shares of any stockholder who ceases to hold shares in
the Fund having an aggregate net asset value at least equal to the minimum
initial investment. However, the Fund will not effect such a redemption if the
decline in share value is caused by a reduction in the Fund's net asset value.
Stockholders will be given at least 30 days' written notice of any redemption to
be 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
Stockholder Application form accompanying this Prospectus. You may then exchange
and redeem shares of the Fund by telephoning CGFSC at (800) 541-4366 (or, from
outside the U.S., (617) 557-8000) prior to the regular closing of the New York
Stock Exchange (generally 4:00 P.M. New York time) on a day when the New York
Stock Exchange is open. Redemptions by telephone must be at least $1,000 and may
not exceed $150,000. Exchange and redemption requests received by CGFSC before
the regular closing will be processed that day. Otherwise processing will occur
on the next business day.
Interruptions in telephone service may mean that you will be unable to effect a
transaction by telephone when desired. When telephone transactions are difficult
to implement, you should mail or send by overnight delivery a written request to
CGFSC. By making telephone exchanges or redemptions you may be giving up a
measure of security that you may have had if such transactions had been in
writing. The Fund and CGFSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. The Fund and CGFSC may be
liable for any losses due to unauthorized or fraudulent instructions if such
procedures are not followed. For your protection, CGFSC records all telephone
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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 stockholders at their registered address or to a bank
account previously designated by the stockholder. 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.
DISTRIBUTIONS
The Board of Directors will determine the amounts to be distributed to the
holders of shares and the time or times such distributions will be made.
Presently it is contemplated that net investment income and net realized capital
gains, if any, will be distributed annually, generally in December.
Distributions of net income and capital gains, if any, will be reinvested
without a sales charge in full or fractional shares of the Fund on the payment
date, using the net asset value of the Fund on the ex-dividend date (the
business day following the record date). Distributions elected to be taken in
cash will be made on the payment date. (The Stockholder Application form
contains a distribution option election.) Once an election is made, it may be
changed at any time and will be effective for the next distribution the record
date of which is more than five days after receipt by CGFSC of the change of
election. (The notice of such a change should be sent to the address of CGFSC
set forth under "Purchase of Shares".) Investors electing to receive their
distributive share of the Fund's net investment income and any net realized
capital gains in Fund shares will have to pay any taxes on such distributions.
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. See "Tax Aspects" for
further information regarding the taxation of distributions.
TAX ASPECTS
For the fiscal year ended September 30, 1998, the Fund believes that it
qualified for tax treatment as a "regulated investment company" ("RIC") under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"), and intends to
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be able to continue to so qualify in future years. Qualification as a RIC allows
the Fund to qualify for "pass-through" tax 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 its stockholders. Accordingly, the Fund plans to distribute
substantially all of its net investment income and net capital gains to its
stockholders.
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.
The Fund intends to qualify for and, if the Fund determines it to be in the best
interest of the stockholders, to make the election provided for in Section 853
of the Code to treat certain foreign taxes paid by the Fund as paid by the
stockholders. As a result, each stockholder may be required to include in income
his proportionate share of such foreign taxes and may elect to deduct his share
of such foreign taxes or to credit such foreign taxes against his federal income
tax liability, subject to the provisions and limitations of the Code relating to
foreign tax credits.
Distributions of the Fund's net investment income and net realized short-term
capital gains will be taxable to stockholders as ordinary income. Distributions
paid from long-term capital gains will generally be taxable as long-term capital
gains, regardless of the holding period of the Fund shares. The Fund will inform
stockholders of the source and nature of the dividends and distributions at the
time they are paid.
Stockholders should take note that any dividends and distributions on Fund
shares received shortly after their purchase, although in effect a return of
capital, are also subject to federal income tax. Dividends and distributions
will be taxable to stockholders 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 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 stockholders 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 the stockholders 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 foreign currency exchange rates and market conditions and as
a substitute for an underlying investment. Certain of these transactions may be
"Section 1256 contracts". Gains or losses on Section 1256 contracts generally
are treated as 60% long-term and 40% short-term ("60/40") capital gains or
losses. 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.
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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 stockholders. 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 is 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 that must be distributed to
stockholders, and that will be taxed to stockholders 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 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 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 stockholders 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
stockholder 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.
DESCRIPTION OF CAPITAL STOCK
The Fund is a series within the Bailard, Biehl & Kaiser International Fund
Group, Inc., an open-end management investment company organized on June 12,
1990 as a Maryland corporation (the "Company"). Currently, the Company has two
series, the Fund and the Bailard, Biehl & Kaiser International Bond Fund (the
"Bond Fund"). Further series may be added without stockholder approval, but the
Company has no immediate plans to do so.
The Company has authorized the issuance of up to 1,000,000,000 shares of Common
Stock, par value $.0001, in one or more series. Currently, the Fund and the Bond
Fund are each authorized to issue 100,000,000 shares of Common Stock. When
issued, shares in the Fund will be fully paid and non-assessable and will have
no preemptive, conversion or exchange rights.
Shares of each series are entitled to one vote for all purposes. Shares of each
series vote as a single class with respect to matters, such as election of
directors, that affect all series in substantially the same manner. As to
matters affecting each series separately, such as approval of agreements with
investment advisers, shares of each series vote as separate series. Shares of
each series are entitled to dividends as determined by the Board of Directors
and, in liquidation of the Fund, are entitled to receive the net assets of that
series. Stockholders are entitled to require the Fund to redeem their shares,
and the Fund may redeem shares under certain circumstances, as set forth under
"Redemption of Shares". The transfer of shares, other than by redemption, is
subject to restrictions in some jurisdictions.
The voting rights of the shares are non-cumulative, which means that the holders
of more than 50% of the shares voting for the election of directors can elect
100% of the directors if they choose to do so. In such event, the holders of the
remaining shares voting will not be able to elect any director. The Company is
not required to hold annual meetings for the election of directors or otherwise.
Special meetings may be called by the Chairman of the Board, the Board of
Directors, or the President or by stockholders entitled to cast at least 10% of
the shares entitled to vote. The Company will assist in stockholder
communications with respect to any meeting duly called by the holders of its
shares.
A full statement of the designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
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series of stock that the Company is authorized to issue and the differences in
the relative rights and preferences between the shares of each series to the
extent that they have been set, and the authority of the Board of Directors to
set the relative rights and preferences of subsequent series, will be furnished
by the Company to any stockholder, without charge, upon request to the Secretary
of the Company at its principal office.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its total return. This figure is based
upon historic 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, including, for periods prior to October 1,
1993, an assumed 1% annual advisory fee charged by the Adviser to its clients.
See "Management". 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.
DISTRIBUTOR
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.
ADMINISTRATIVE SERVICES
The Company, on behalf of the Fund, has entered into an Administration Agreement
(the "Administration Agreement") with Investment Company Administration LLC
("ICA"). Pursuant to such agreement, ICA provides certain administrative
services in connection with the management of the Fund's operations. Such
services include: (i) assisting the Fund's accountants in preparing financial
reports, (ii) assisting the Fund's attorneys in preparing amendments to the
Fund's registration statement, any proxy materials and other forms and reports
to be filed with the SEC, (iii) preparing periodic reports to stockholders, (iv)
monitoring compliance with the Fund's investment policies and restrictions, and
(v) other administrative matters. As compensation for such services, the Fund
pays ICA an annual fee of $32,500.
TRANSFER AGENT AND CUSTODIAN
Transfer agent and dividend paying 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. CGFSC also files applications under
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state law to register the Fund's shares for sale, and to register the Company
and/or the Company's officers to sell the Fund's shares.
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109,
acts as Custodian of the Fund's assets and has been authorized to cause
securities and other assets of the Fund to be held in separate accounts with
various subcustodians in conformity with Section 17(f) of the 1940 Act and the
rules thereunder.
EXPERTS
PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, California 94105,
has been selected as independent accountants for the Fund and provides auditing
services, including review and consultation in connection with various filings
by the Fund with the SEC and tax authorities.
The information under "Financial Highlights" for the 10 years ended September
30, 1998 in this Prospectus and the financial statements as of September 30,
1998 incorporated by reference into the Statement of Additional Information have
been so included in reliance on the report of Price waterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
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APPENDIX A
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 Directors.
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 FOREIGN CURRENCIES. The Fund may write covered call and put options
and purchase call and put options ("Options") on foreign currencies that are
traded on United States and foreign exchanges and over-the-counter 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.
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 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
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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 currency 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
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 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 currency underlying the call Option (less any margin on
deposit) but not less than the strike price of the call Option, (ii) owning the
currency underlying the Option or (iii) purchasing a separate call Option on
that currency with a strike price no higher than the strike price of the Option
sold by the Fund (or, if higher, the Fund may segregate Liquid Assets equal to
the difference).
If the Fund, as the writer of an Option, wishes to terminate its obligation, it
may effect a closing purchase transaction. This is accomplished by buying an
Option of the same series as the Option previously written. The effect of the
purchase is that the Fund's position will be canceled. However, a writer may not
effect a closing purchase transaction after being notified of the exercise of an
Option. Likewise, where the Fund holds an Option, it may liquidate its position
by effecting a closing sale transaction. This is accomplished by selling an
Option of the same series as the Option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the Option or is more
than the premium paid to purchase the Option; the Fund will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the Option or is less than the premium paid to purchase
the Option. Because increases in the market price of a call Option will
generally reflect increases in the market price of the underlying 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 STOCK INDICES. The Fund may write covered put and call Options and
purchase put and call Options on stock indices to attempt to minimize the risks
to the Fund from adverse changes in market conditions and as a substitute for an
underlying investment. Options on stock indices are similar to Options on
foreign currencies. For additional information on the risks and benefits of
Options on stock indices, see "Options on Foreign Currencies".
Call Options on stock indices written by the Fund will be covered (i) by
segregating a portfolio of stocks 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
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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 stock 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 stock
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 FOREIGN CURRENCIES AND STOCK INDICES. The Fund may enter
into exchange-traded contracts for the purchase or sale for future delivery of
foreign currencies to attempt to minimize the risk to the Fund from adverse
changes in currency exchange rates and market conditions and as a substitute for
an underlying securities or currency position ("Futures Contracts").
The acquisition or sale of Futures Contracts is designed to protect the Fund
from fluctuations in currency exchange rates and market movements without
actually buying or selling the underlying currencies or securities. For example,
if the Fund expected a general market movement that would adversely affect its
portfolio securities, the Fund might enter into a Futures Contract for the sale
of a stock index that the Fund believes will be affected in a manner similar to
the expected effect on the Fund's portfolio. If the market did move in the
anticipated manner, the value of the Fund's portfolio securities would decline,
but the value of the Futures Contract to the Fund would increase, thereby
offsetting, in whole or in part, the reduction in the value of the Fund's
portfolio securities.
All Futures Contracts to which the Fund is a party will be covered. A Futures
Contract obligating the Fund to purchase a foreign currency or stock index 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 currency or
stock index 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
currency underlying the Futures Contract or, in the case of a stock index,
segregating a portfolio of stocks 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
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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.
Although Futures Contracts, by their terms, call for the actual delivery or
acquisition of an asset, in most cases the contractual obligation is fulfilled
(or "offset") before the expiration date of the Futures Contract without having
to make or take delivery of the underlying asset. Offset of a Futures Contract
is accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical Futures Contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the underlying asset.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions that may
prevent the Fund from successfully using Futures Contracts. First, all
participants in the futures markets are subject to initial and variation margin
requirements. Rather than meeting variation margin requirements, investors may
close Futures Contracts through offsetting transactions, which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures markets depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
make or take delivery, liquidity in the futures markets could be reduced, thus
producing distortion. Third, from the point of view of speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct prediction of general 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 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 exchange rates or market conditions
that would adversely affect the price of its portfolio securities and exchange
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 FOREIGN CURRENCIES AND STOCK INDICES. The Fund
may purchase and write options on Futures Contracts on foreign currencies and
stock indices to attempt to minimize the risk to the Fund from adverse changes
in currency exchange rates and market conditions and as a substitute for an
underlying securities or currency position ("Options on Futures Contracts").
A call Option on a Futures Contract written by the Fund constitutes a partial
hedge against declining prices of the asset that is deliverable upon exercise of
the Futures Contract. If the price of the Futures Contract at expiration of the
Option is below the exercise price, the Fund will retain the full amount of the
Option premium, which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio. A put Option on a Futures Contract written by
the Fund 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.
A-4
<PAGE>
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 currency underlying the Futures Contract on which the Fund holds the
Option, or with respect to a stock index, segregating a portfolio of stock
substantially replicating the movement of the index, or (iii) holding a separate
call Option permitting the Fund to purchase the same Futures Contract at a price
no higher than the strike price of the call Option on the Futures Contract sold
by the Fund (or, if higher, the Fund may segregate Liquid Assets equal to the
difference.)
In the case of the sale of a put Option on a Futures Contract obligating the
Fund to buy a Futures Contract, the Fund may establish a segregated account
containing Liquid Assets equal to the settlement value of the Futures Contract
underlying the Option on the 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, FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS. Hedging transactions may be effective to protect the Fund
against certain changes in currency exchange rates. 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 prices 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 stock index Options that it has written, stock index Futures
Contracts to which it is a party, and Options on stock index Futures Contracts
that it has written through the segregation of a portfolio of stocks that
substantially replicates the movement of the underlying stock 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.
A-5
<PAGE>
The Fund's ability to engage in transactions involving Options, Futures
Contracts and Options on Futures Contracts will depend on the degree to which
liquid secondary markets in such instruments exist. Reasons for the absence of a
liquid market include the following: (i) there may be insufficient trading
interest in a particular instrument; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of Options, Futures Contracts or Options on Futures
Contracts; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation ("OCC"), which effects the settlement of exchange traded
Options, may not at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of a particular
instrument (or a particular class or series of such instrument). There can be no
assurance that a liquid secondary market will exist for any particular
investment at any specific time. Thus it may not be possible for the Fund to
close certain of its positions.
The costs to the Fund of hedging transactions vary among the various hedging
techniques and also depend on such factors as the currency and stock 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 requirement 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.
A-6
<PAGE>
The exchanges on which Options, Futures Contracts and Options on Futures
Contracts are traded may impose additional limitations governing the maximum
number of positions on the same side of the market and involving the same
underlying instrument that may be held by a single investor, whether acting
alone or in concert with others (regardless of whether such positions are held
or written on the same or different exchanges or held or written in one or more
accounts or through one or more brokers). In addition, the CFTC and the various
markets have established limits, referred to as "speculative position limits,"
on the maximum net long or net short positions that any person may hold or
control in a particular Futures Contract or Option on a Futures Contract. An
exchange may order the liquidation of positions found to be in violation of
these limits and it may impose other sanctions or restrictions. The Fund does
not believe that these trading and position limits will have an adverse impact
on the strategies for hedging the portfolio of the Fund.
Forward Contracts, Options, Futures Contracts and Options on Futures Contracts
may be traded in foreign markets or on foreign exchanges. Such transactions are
subject to the risk of governmental actions affecting trading in or the prices
of foreign currencies. The value of such positions also could be adversely
affected by, among other things, (i) other foreign political and economic
factors, (ii) lesser availability than in the United States of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and (v) lesser
trading volume.
A-7
<PAGE>
INVESTMENT ADVISER
Bailard, Biehl & Kaiser, Inc.
950 Tower Lane, Suite 1900
Foster City, California 94404
TRANSFER AGENT
Chase Global Funds Services Company
Boston, Massachusetts
CUSTODIAN AND ACCOUNTANT
Brown Brothers Harriman & Co.
Boston, Massachusetts
COUNSEL
Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation
San Francisco, California
DISTRIBUTOR
BB&K Fund Services, Inc.
950 Tower Lane, Suite 1900
Foster City, California 94404
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
San Francisco, California
IRA CUSTODIAN
The Chase Manhattan Bank, N.A.
New York, New York
INTERNATIONAL EQUITY FUND DIRECTORS AND OFFICERS
Peter M. Hill, Chairman, Director
Burnice E. Sparks, Jr., President, Director
Shirley L. Clayton, Director
Scott F. Wilson, Director
James C. Van Horne, Director
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>
BAILARD, BIEHL & KAISER INTERNATIONAL BOND FUND
(A NO LOAD FUND WITH NO 12B-1 PLAN EMPHASIZING
FOREIGN DEBT INVESTMENTS)
950 TOWER LANE, SUITE 1900
FOSTER CITY, CALIFORNIA 94404
(800) 882-8383
The Bailard, Biehl & Kaiser International Bond Fund (the "Fund") is a
non-diversified series of the Bailard, Biehl & Kaiser International Fund Group,
Inc., a Maryland corporation and an open-end management investment company (the
"Company"). 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. The
Fund seeks to achieve its objective by investing primarily in debt securities of
foreign issuers. Foreign issuers include foreign corporations, foreign
governments, supra-national entities 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. The Fund may also invest
in securities of other U.S. issuers under certain circumstances. Investing in
foreign securities involves certain considerations comprising both risk and
opportunity not typically associated with investing in U.S. securities
denominated in U.S. dollars and traded in U.S. markets. See "Risk Factors". Of
course, there can be no assurance that the Fund will be able to achieve its
objective.
Investors should read and retain this Prospectus for future reference.
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing. A Statement of Additional
Information, dated January 27, 1999, has been filed with the Securities and
Exchange Commission and is available upon request without charge. The Statement
of Additional Information contains information about the Fund and its management
that is not included in this Prospectus, as well as more detailed information
concerning certain aspects of the Fund's operations that are discussed briefly
in this Prospectus. You can request a copy of the Statement of Additional
Information by contacting the Fund at the address and telephone number listed
above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus and the Statement of Additional Information is
January 27, 1999, as each may be supplemented from time to time.
<PAGE>
TABLE OF CONTENTS
Page
----
Costs and Expenses of the Fund Borne by Stockholders........................ 3
Prospectus Summary.......................................................... 4
Financial Highlights......................................................... 7
The Fund..................................................................... 9
Investment Objectives and Policies........................................... 9
Investment Practices........................................................ 13
Risk Factors................................................................ 17
Management.................................................................. 21
Net Asset Value............................................................. 22
Purchase of Shares.......................................................... 23
Exchange and Redemption of Shares........................................... 24
Distributions............................................................... 27
Tax Aspects................................................................. 28
Description of Capital Stock................................................ 30
Performance Information..................................................... 31
Distributor................................................................. 32
Administrative Services..................................................... 32
Transfer Agent and Custodian................................................ 32
Experts..................................................................... 32
Corporate Bond and Commercial Paper Ratings......................... Appendix A
Hedging and Other Transactions...................................... Appendix B
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Fund or its distributor or investment adviser.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction or to any
person to whom it is unlawful to make such offer in such jurisdiction.
2
<PAGE>
COSTS AND EXPENSES OF THE FUND BORNE BY STOCKHOLDERS
STOCKHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases......................................... None
Sales Load Imposed on Reinvested Dividends.............................. None
Deferred Sales Load..................................................... None
Redemption Fees......................................................... None
Exchange Fee............................................................ None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees......................................................... 0.75%
12b-1 Fees.............................................................. None
Other Expenses.......................................................... 0.51%
Total Fund Operating Expenses......................................... 1.26%
EXAMPLE
The purpose of the following example 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. For more information regarding the fees and expenses of
the Fund, see "Management".
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: $13 $40 $69 $152
3
<PAGE>
PROSPECTUS SUMMARY
WHAT IS THE PURPOSE OF The Fund is a series of Bailard, Biehl & Kaiser
THE FUND? International Fund Group, Inc. (the "Company"), and
is designed primarily to provide investors who wish
to invest beyond the United States with a
specialized vehicle to use in developing their
portfolios. It does not represent a balanced
investment program. Moreover, investment risk cannot
be eliminated by an investment in the Fund.
WHAT IS THE FUND'S To seek a total return on its assets from long-term
INVESTMENT OBJECTIVE? growth of capital and from income primarily through
investments in foreign debt securities.
ARE THERE ANY RISK FACTORS The net asset value of the shares of the Fund, which
REGARDING AN INVESTMENT IN invests in interest rate sensitive securities, will
THE FUND? change as the general levels of interest rates
fluctuate. When interest rates decline, the value of
a portfolio of such securities can be expected to
rise. Conversely, when interest rates rise, the
value of a portfolio of such securities can be
expected to decline.
The Fund invests in debt securities of foreign
issuers, including foreign corporations, foreign
governments, supra-national entities and United
States issuers whose assets are primarily located or
whose operations are primarily conducted outside the
United States or whose securities are denominated in
foreign currencies. The Fund may also invest in
securities of other U.S. issuers under certain
circumstances. Investment in foreign securities
involves considerations that are different from
those relating to investments in U.S. securities
denominated in U.S. dollars and traded in U.S.
markets, such as possible adverse effects of changes
in currency exchange rates or of exchange controls,
possible expropriation or nationalization of the
assets of the companies of which the Fund has
purchased securities, less public information with
respect to issuers of such securities, less liquid
securities markets in some instances and less
governmental supervision of stock exchanges,
securities brokers and issuers of securities.
Investments in emerging market countries may involve
significantly more volatility and risk than their
developed country counterparts.
The Fund may invest in indexed securities, whose
value is linked to interest rates, currencies,
commodities, indices or other financial indicators.
The interest rate or principal amount of such
securities may vary significantly as a result of
changes in the reference instruments, and such
securities may be more volatile and less liquid than
other debt securities.
In seeking to protect against the effects of changes
in interest and exchange rates, the Fund may
purchase and sell forward contracts, options,
futures contracts, options on futures contracts and
swaps relating to debt securities
4
<PAGE>
and foreign currencies, for hedging and other
purposes and not for speculation. Risks associated
with such transactions include: incorrect prediction
of the movement of interest or currency exchange
rates; 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 or
securities.
The Fund is deemed to be non-diversified within the
meaning of the Investment Company Act of 1940.
Investment of a substantial percentage of the Fund's
assets in the securities of single issuers will
expose the Fund to a greater risk of loss resulting
from unfavorable price movements or market
conditions related to such issuers.
Substantially all of the Fund's shares are currently
held by advisory clients of the Fund's investment
adviser. Decisions by the investment adviser to
purchase or redeem Fund shares on behalf of its
clients may cause significant volatility in the
Fund's asset size. As a result, the Fund may
experience, from time to time, increased expense
ratios, liquidation of portfolio positions at
inopportune times for certain stockholders, and
increased brokerage and other transaction costs. See
"Risk Factors".
HOW ARE SHARES PURCHASED? Shares of Common Stock of the Fund are being
offered, 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. The
minimum initial investment in the Fund is $5,000 and
each subsequent investment must be at least $100;
the minimum initial investment for Bailard, Biehl &
Kaiser employees, officers and their relatives, and
directors of the Company is $2,000 and each
subsequent investment must be at least $100. See
"Purchase of Shares".
WHO IS THE FUND'S Bailard, Biehl & Kaiser, Inc. acts as the investment
INVESTMENT ADVISER AND adviser (the "Adviser") of the Fund. The Adviser
WHAT FEES DOES THE also acts as the investment adviser for the Bailard,
FUND PAY? Biehl & Kaiser International Equity Fund (the other
series of the Company) and the Bailard, Biehl &
Kaiser Diversa Fund. As of October 31, 1998, the
Adviser managed approximately $1.2 billion in assets
invested globally. The Adviser receives a monthly
5
<PAGE>
fee calculated at an annual rate equal to .75% of
the average daily net assets of the Fund. See
"Management".
The total expenses incurred by the Fund for the
fiscal year ended September 30, 1998 represented
1.26% of the average net assets of the Fund. See
"Costs and Expenses of the Fund Borne by
Stockholders".
HOW OFTEN ARE All or a portion of net investment income, if any,
DISTRIBUTIONS MADE? will be distributed quarterly, and any remaining net
investment income and any net realized capital gains
will be distributed annually, generally in December.
See "Distributions".
HOW ARE SHARES REDEEMED? Shares of the Fund will be redeemed at the net asset
value next determined after receipt of complete
redemption instructions, as described under "Net
Asset Value" and "Exchange and Redemption of
Shares".
6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF THE FUND OUTSTANDING THROUGHOUT THE FISCAL YEAR)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose unqualified report thereon covering the most
recent five years is included in the Fund's annual report to stockholders for
the fiscal year ended September 30, 1998. Portions of the Fund's annual report
to stockholders for the fiscal year ended September 30, 1998 are incorporated by
reference into the Statement of Additional Information. This information should
be read in conjunction with the 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 stockholders for the
fiscal year ending September 30, 1998. A copy of the annual report is available,
upon request and without charge, by contacting Bailard, Biehl & Kaiser
International Fund Group, Inc., 950 Tower Lane, Suite 1900, Foster City,
California 94404.
7
<PAGE>
Bailard, Biehl & Kaiser International Bond Fund
Financial Highlights
For a share outstanding throughout the year:
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------------------
1998 1997(2) 1996 1995(2) 1994(2) 1993(1) 1992 1991
---- ------- ---- ------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 8.20 $ 8.38 $ 8.78 $ 8.02 $ 10.85 $ 11.29 $ 10.94 $ 10.00
---------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.25 0.42 0.59 0.47 0.61 0.67 0.85 0.73
Net Realized/Unrealized Gain (Loss)
on Securities and Foreign Currency 0.40 0.04 0.16 0.86 (2.39) 0.39 0.53 0.38
---------------------------------------------------------------------------------
Total from Investment Operations 0.65 0.46 0.75 1.33 (1.78) 1.06 1.38 1.11
---------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Net Investment Income (0.86) (0.17) (0.45) (0.45) (0.26) (1.08) (0.94) (0.17)
For Tax Purposes in Excess of Book
Net Investment Income -- (0.47) (0.70) (0.12) -- -- -- --
Capital Gains -- -- -- -- (0.27) (0.42) (0.09) --
Return of Capital -- -- -- -- (0.52) -- -- --
---------------------------------------------------------------------------------
Total Distributions (0.86) (0.64) (1.15) (0.57) (1.05) (1.50) (1.03) (0.17)
---------------------------------------------------------------------------------
Net Asset Value, End of Year $ 7.99 $ 8.20 $ 8.38 $ 8.78 $ 8.02 $ 10.85 $ 11.29 $ 10.94
=================================================================================
TOTAL RETURN 8.75% 5.75% 9.32% 17.33% (17.90%) 10.65% 13.57% 11.22%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000's) $55,028 $51,903 $65,381 $64,640 $136,366 $165,484 $115,628 $91,256
Ratio of Expenses to Average Net
Assets
Before Expenses Paid Indirectly 1.33% 1.35% 1.22% 1.16% 1.12% 0.42% 0.64% 0.53%
After Expenses Paid Indirectly 1.26% 1.35% 1.22% 1.16% 1.12% 0.42% 0.64% 0.53%
Ratio of Net Investment Income to
Average Net Assets 4.63% 4.72% 5.41% 5.66% 5.87% 6.25% 7.37% 7.33%
Portfolio Turnover Rate 40% 33% 61% 179% 319% 157% 140% 89%
</TABLE>
- ----------
(1) On October 1, 1993, the Fund and the Advisor entered into a new Investment
Management Agreement pursuant to which the Fund is required to pay certain
management fees to the Advisor. Prior to that date, advisory fees were
directly charged to clients of Bailard, Biehl & Kaiser, Inc. and the Fund
did not pay any management fees. See "Management" for further discussion.
If such directly charged fees were included as Fund expense at an assumed
1% annual rate payable quarterly, pro-forma total return (unaudited) would
be 9.55%,12.44% and e 10.12% for the years ended September 30, 1993, 1992
and 1991, respectively.
(2) Net investment income per share has been computed before adjustments for
book/tax differences. "Distributions for Tax Purposes in Excess of Book Net
Investment Income" represent amounts paid from foreign currency gains
reclassified to net investment income under the Internal Revenue Code.
8
<PAGE>
THE FUND
The Fund is a non-diversified series of the Bailard, Biehl & Kaiser
International Fund Group, Inc., a Maryland corporation and an open-end
management investment company (the "Company"). The Fund is not intended as a
complete investment program because of the nature of its investment objectives.
Bailard, Biehl & Kaiser, Inc. (the "Adviser") has sponsored the organization of
the Fund primarily to provide investment opportunities in foreign debt
securities that may not otherwise be available. Of course, there can be no
assurance that the Fund will achieve its investment objective, and, as indicated
below under "Risk Factors," there are risks associated with investing in foreign
securities, foreign currencies and foreign markets, that are not present with
respect to investing in U.S. securities denominated in U.S. dollars and traded
in U.S. markets.
The Fund issues to stockholders unaudited semi-annual reports and annual reports
containing audited financial statements of the Fund. Shortly after the end of
each calendar year, the Fund furnishes investors with information necessary for
the preparation of income tax returns.
The Company was organized as a Maryland corporation and the Fund was established
as a separate series of the Company on June 12, 1990. Prior to January 1996, the
name of the Fund was the Bailard, Biehl & Kaiser International Fixed-Income
Fund. The Company's fiscal year ends on September 30 of each year.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to seek a total return on its assets
primarily through investment in foreign debt securities. Total return consists
of capital appreciation or depreciation (realized and unrealized) in the value
of the Fund's assets and net income earned by the Fund. Investments may be made
for capital appreciation or for income or any combination of both for the
purpose of achieving a higher overall total return than could be achieved solely
from investing for appreciation of capital or for income alone. The value of the
Fund's assets will appreciate or depreciate depending on changes in interest
rates, currency exchange rates, credit quality and market and other conditions.
Net income consists primarily of the interest received on the Fund's debt
securities, less Fund expenses. Of course, there is no assurance that the Fund
will achieve its objectives. For example, when interest rates and the value of
the U.S. Dollar are generally stable or rising, the opportunity for capital
growth will be limited and the Fund may incur losses. See "Risk Factors --
Interest Rate Fluctuations, and -- Currency Exchange Rates."
To help achieve its objective, the Fund invests in debt securities and
obligations of foreign issuers, consisting of foreign governments,
supra-national entities, foreign corporation and banks and United States issuers
whose assets are primarily located or whose operations are primarily conducted
outside of the United States or whose securities are denominated in foreign
currencies ("Foreign Securities"). Ordinarily, the Fund invests at least 65% of
its assets in at least three countries other than the United States. The Fund
may also invest in securities and obligations of U.S. issuers under certain
circumstances.
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DEBT SECURITIES OF FOREIGN GOVERNMENTS AND SUPRA-NATIONAL ENTITIES
The Fund may invest in debt securities issued or guaranteed as to payment of
principal and interest by governments, semi-governmental entities and
governmental agencies of countries throughout the world denominated in the
currencies of such countries or other currencies. The Fund may also invest in
debt securities of supra-national entities, which may be denominated in dollars
or other currencies. A supra-national entity is an entity designated or
supported by a national government or governments to promote economic
reconstruction or development. Examples of supra-national entities in which the
Fund may invest include the World Bank (International Bank for Reconstruction
and Development), the European Investment Bank, the Asian Development Bank and
the European Coal and Steel Community. These supra-national entities do not have
taxing authority and therefore depend upon their members' continued support to
meet interest and principal payments.
FOREIGN CORPORATE DEBT SECURITIES
The Fund may invest in debt securities of foreign companies and U.S. companies
whose assets are primarily located or whose operations are primarily conducted
outside of the United States or whose securities are denominated in foreign
currencies. These securities will consist of all types of long or short-term
debt obligations, such as bonds, debentures, notes, mortgage and asset-backed
obligations, equipment lease certificates, equipment trust certificates,
conditional sales contracts and commercial paper. See "Domestic Debt Securities"
for information concerning mortgage-backed securities.
FOREIGN BANK OBLIGATIONS
The Fund may invest in obligations of foreign banks, bank holding companies and
other financial institutions (consisting of certificates of deposit, bankers'
acceptances and other short-term debt obligations) that, at the date of
investment, have total assets in excess of $1 billion. Under normal
circumstances, the Fund would not expect to invest a substantial portion of its
assets in such obligations. However, if short-term interest rates exceed
long-term interest rates, the Fund may hold a greater proportion of its assets
in these instruments.
INDEXED SECURITIES
The Fund may invest in indexed securities, the value of which is linked to
interest rates, currencies, commodities, indices or other financial indicators
("reference instruments"). Typically, the reference instruments will be debt
securities of foreign issuers, while the issuer of the indexed security may be a
domestic or foreign entity. Indexed securities may provide for periodic interest
payments to holders, or they may be structured as "zero coupon" instruments with
no payments to holders prior to maturity. They may be subject to a "cap" on the
maximum principal amount, or a "floor" on the minimum principal amount, to be
repaid to holders on maturity. Indexed securities may be traded on an exchange
or over-the-counter.
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Unlike other debt securities, the interest rate or the principal amount payable
at maturity of an indexed security may vary based on changes in one or more
reference instruments, such as a change in the interest rate of the reference
instrument compared with a fixed interest rate. The reference instrument need
not be related to the terms of the debt security. For example, the interest rate
or the principal amount of a U.S. dollar denominated indexed security may vary
based on a change in a foreign security or basket of foreign securities. An
indexed security may also be positively or negatively indexed, so that its value
may increase or decrease as the value of the reference instrument increases or
decreases. Further, the change in the interest rate or the principal amount
payable of an indexed security may be some multiple of the change (positive or
negative) in the value of the reference instrument. Indexed securities involve
certain risks, which are summarized below under "Risk Factors - - Indexed
Securities".
DOMESTIC DEBT SECURITIES
When the Adviser believes that international markets for debt securities may
experience excessive volatility or instability, or are otherwise unfavorable,
the Fund may invest up to 100% of its assets in debt securities of U.S. issuers.
Such securities will consist of U.S. Government securities, domestic corporate
debt securities, and obligations of domestic banks, bank holding companies and
other financial institutions, all of a nature and quality similar to the Fund's
investments in Foreign Securities.
The Fund's investments in U.S. Government securities will consist of: (i) U.S.
Treasury obligations, which differ only in their interest rates, maturities and
times of issuance, U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years), and U.S. Treasury bonds
(generally maturities of greater than ten years), all of which are backed by the
full faith and credit of the United States; and (ii) obligations issued or
guaranteed by U.S. Government agencies or instrumentalities, some of which are
backed by the full faith and credit of the United States (e.g., direct
pass-through certificates of the Government National Mortgage Association
("GNMA"), some of which are supported by the right of the issuer to borrow from
the U.S. Government (e.g., obligations of Federal Home Loan Banks) and some of
which are backed only by the credit of the issuer itself. Mortgage-backed
securities such as GNMAs are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying mortgage obligations. Thus, GNMAs may
be less effective than other types of securities as a means of "locking in"
attractive long-term interest rates. Also, GNMAs may have less potential for
capital appreciation during periods of declining interest rates than other debt
securities of comparable maturities because of the prepayment feature, although
such obligations may have a comparable risk of decline in market value during
periods of rising interest rates. U.S. Government securities generally do not
involve the credit risks associated with U.S. corporate debt securities and, as
a result, the yields available from U.S. Government securities are generally
lower than the yields available from U.S. corporate debt securities. Like other
debt securities, however, the values of U.S. Government securities change as
interest rates fluctuate.
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TEMPORARY INVESTMENTS
When the Adviser believes that investing for temporary defensive purposes is
appropriate (such as during periods of unusual market conditions or when it is
anticipated that interest rates will rise), the Fund may invest up to 100% of
its total assets in money market securities, denominated in dollars or in the
currency of any foreign country, issued by entities organized in the United
States or any foreign country, consisting of: short-term (less than twelve
months to maturity) and medium-term (not greater than five years to maturity)
obligations issued or guaranteed by the United States government or the
government of a foreign country or their agencies or instrumentalities; finance
company and corporate commercial paper, and other short-term corporate
obligations; and obligations of banks (including certificates of deposit, time
deposits and bankers' acceptances). The Fund's investment objective may not be
achieved when the Fund is invested for temporary defensive purposes.
RATINGS
The Fund may invest in any debt security rated at least A by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"), with the
exception that 5% of the Fund's assets may be invested in debt securities that
are rated Baa or BBB by Moody's or S&P, respectively. In addition, the Fund may
invest in money market securities rated Prime-1 or Prime-2 by Moody's, or A-1 or
A-2 by S&P. In any case in which a security is not rated, the Adviser will
determine if the security is of comparable quality. The Fund will not invest in
higher yielding, lower rated debt securities. For a description of ratings by
Moody's and S&P, see Appendix A.
OTHER CHARACTERISTICS OF BOND INVESTMENTS
The Fund will ordinarily invest its assets in Foreign Securities in order to
provide investors in the Fund with participation in companies located in, or the
economies of, a number of countries other than the United States. While there is
no limitation on countries in which the Fund may invest, other than those
imposed from time to time by the Board of Directors, under ordinary
circumstances the Fund will invest principally in debt securities with issuers
based in the Far East, Europe, the United Kingdom, Canada and Australia.
Investments may be made in debt securities with issuers based in developed as
well as developing countries. The Fund may also invest in domestic and foreign
investment companies whose portfolios are invested primarily in the securities
of foreign issuers. The Fund's purchase of the securities of another investment
company will result in the layering of expenses such that stockholders of the
Fund will not only bear the expenses of the Fund but also will indirectly bear a
proportionate share of the expenses of the other investment company.
The average maturity of the debt securities in the Fund's portfolio will
fluctuate depending on the Adviser's judgment as to future interest rate
changes. To protect against the risks of interest rate and currency exchange
rate fluctuations and as a substitute for an underlying investment, the Fund is
authorized to engage in forward foreign currency exchange transactions,
transactions in options, futures contracts and options on futures contracts on
interest rates and foreign currencies, and interest rate and foreign currency
swaps. See "Investment Practices".
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As a general rule, the Fund will purchase securities that are traded on
exchanges or over-the-counter markets often located in the respective countries
in which the various issuers of such securities are principally based. There is
no limitation on the percentage of the Fund's assets that may be invested in
securities of issuers located within any one country, other than restrictions
that may be imposed from time to time by the Company's Board of Directors, nor
is there any minimum asset or net worth requirement with respect to issuers in
which the Fund's assets may be invested.
FUNDAMENTAL POLICIES
The Fund has certain "fundamental policies" that limit, to specified levels, the
Fund's investment in certain securities. Those policies include the following.
As much as 25% of the value of the Fund's assets may be invested in a single
industry. However, the Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer and will not invest for the purpose of
controlling or managing companies. The Fund may not purchase or sell commodities
or commodity contracts or invest in options, except that the Fund may engage in
forward contracts on foreign currencies, options, futures contracts and options
on futures contracts on debt securities and foreign currencies, and interest
rate and foreign currency swaps in connection with hedging transactions. The
Fund may not borrow money or pledge its assets, except from a bank as a
temporary measure for extraordinary or emergency purposes in amounts not
exceeding 5% of the value of the Fund's total assets. The Fund will not effect
short sales or purchase securities on margin, except for the deposit of initial
or variation margin in connection with hedging transactions. Moreover, the Fund
will not invest more than 10% of the value of its total assets in securities
subject to contractual or legal restrictions on disposition in all of the
principal markets where traded.
The investment objectives and policies described above may be changed by the
action of the Board of Directors of the Company without stockholder approval,
except for the fundamental policy restrictions of the Fund, which may be changed
only with the approval of a majority of the stockholders of the Fund. A
description of the Fund's fundamental policies is contained in the Statement of
Additional Information.
PORTFOLIO TRADING
The Fund may engage in short-term trading if the disposition of securities held
for a short period is deemed to be advisable. Higher portfolio turnover results
in increased brokerage costs and may result in the realization of short-term
gains that are taxed to stockholders as ordinary income. See "Tax Aspects".
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 and
interest rates 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"); call and put options
("Options"), futures contracts ("Futures Contracts"), call and put options on
futures contracts ("Options on Futures Contracts") on debt securities and
foreign currencies; and interest rate and foreign currency swaps, and related
caps, floors and collars ("Swaps"). The Fund may also conduct foreign currency
exchange transactions on a spot basis at
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the rate prevailing in the foreign currency exchange market. These practices
involve certain risks, which are summarized below under "Risk Factors -- 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 "Tax Aspects -- Hedging and Other Transactions".
Generally Hedging Transactions involving currency exchange rate risks may
directly hedge, indirectly hedge or cross-hedge the currency risk associated
with a particular transaction or position. The Fund may directly hedge a
currency risk when it believes that the currency in which a particular portfolio
security is denominated may suffer a substantial adverse movement against the
U.S. Dollar. For example, to directly hedge a position, the Fund could sell an
amount of such foreign currency, or buy an amount of the U.S. Dollar,
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency.
Indirect hedges are similar to direct hedges, except that in an indirect hedge,
the Fund hedges a portfolio security's currency risk with a different, or proxy,
currency that is expected to trade closely to the portfolio security's
underlying currency. Indirect hedges will be used when the Fund believes that
the currency risk associated with a portfolio position can be hedged more
effectively through the purchase or sale of the proxy currency due to better
liquidity, lower transaction costs and/or relative currency expectations.
The Fund may enter into a cross-hedge when it believes that the currency in
which a particular portfolio security is denominated may suffer a substantial
adverse movement against a currency other than the U.S. Dollar. If one currency
is expected to decrease against another currency, the Fund may sell the currency
expected to weaken and buy the currency expected to strengthen. The Fund may
also initiate a foreign currency position that increases the exposure of the
Fund to that currency. Typically, this would be done when the Fund likes the
currency of a country better than the 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.
The Fund will not engage in a transaction involving Forward Contracts , Futures
Contracts or Swaps, and will not write Options or Options on Futures Contracts,
unless its obligation 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
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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 and
foreign currencies. Call Options give the holder the right, in exchange for a
premium, to buy the underlying asset at a stated price while the counterparty is
obligated, upon exercise, to sell such asset. Put Options give the holder the
right, in exchange for a premium, to sell the underlying asset at a stated price
while the counterparty is obligated, upon exercise, to buy such asset.
The purchase of an Option may constitute an effective hedge against fluctuations
in currency exchange or interest rates, although, in the event of rate 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 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
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 means the
acquisition of a contractual obligation to deliver the asset called for by the
contract at a specified price in a fixed delivery month. A purchase of a Futures
Contract means the acquisition of a contractual obligation to acquire the asset
called for by the contract at a specified price in a fixed delivery month. The
successful use of Futures Contracts will usually depend on the Fund's ability to
correctly predict currency exchange and interest rate movements. Should rates
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
The Fund may purchase and write call and put 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
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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".
SWAPS
Swap transactions are individually negotiated agreements to exchange the right
to receive payment on a particular type of obligation for a different type of
payment. In a typical interest rate Swap, one party agrees to pay a fixed rate
of interest while the counterparty agrees to pay a floating rate. Interest rate
Swaps also permit counterparties to exchange a floating rate obligation (based
on one or more reference rates, such as the London Interbank Offered Rate
("LIBOR"), a specified bank's prime rate or U.S. Treasury Bill rates), for a
floating rate obligation based on a different reference rate. A currency Swap
allows the parties to exchange fixed or floating rate obligations (and, in some
cases, principal obligations) denominated in different currencies.
Caps, floors and collars are forms of Swap transactions that have additional
features. The purchase of a cap permits the purchaser, to the extent that a
specified index exceeds a predetermined rate, to receive payments from the
seller. The purchase of a floor entitles the purchaser, to the extent that a
specified index falls below a predetermined rate, to receive payments from the
seller. A collar combines the elements of purchasing a cap and selling a floor
protecting against rate fluctuation above the maximum amount or to the minimum
amount. The Fund will deem the obligations owed to it under a Swap to be
illiquid for purposes of the restrictions on investments in illiquid securities,
except to the extent that a third party (such as a large commercial bank) has
guaranteed the Fund's ability to offset the Swap at any time.
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 normally expects to invest its cash
balances primarily in bank accounts or similar investments denominated in
foreign currencies in lieu of dollar-denominated bank accounts or investments.
This should permit the Fund to profit from declines in the value of the dollar
during periods when the dollar is declining relative to the foreign currencies
in which its cash balances are invested. There is, however, no guarantee that
the Fund 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.
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RISK FACTORS
INTEREST RATE FLUCTUATIONS
The value of the Fund's shares will vary as the aggregate value of its portfolio
securities increases or decreases. The net asset value of the Fund may change as
the general levels of interest rates fluctuate. When interest rates decline, the
value of a portfolio of debt securities can be expected to rise. Conversely,
when interest rates rise, the value of such a portfolio can be expected to
decline. If the Fund's expectations of changes in interest rates or its
evaluation of the normal yield relationship between two securities proves to be
incorrect, the Fund's income, net asset value and potential capital gain may be
decreased or its potential capital loss may be increased.
FOREIGN SECURITIES
The Fund is intended to provide an investor with an opportunity to invest a
portion of his or her assets primarily in debt securities issued by the
governments of foreign countries (or agencies or subdivisions thereof), by
supra-national entities and by companies (wherever organized) with significant
foreign operations. Management of the Fund believes that international
investment of one's assets may decrease the degree to which events in any one
country, including the United States, will affect one's entire investment
holdings. Of course international investing of one's assets will not eliminate
risks inherent in investing in securities. Because of the Fund's investment
objective, the Fund is not intended to provide a complete investment program for
an investor.
Investors should recognize that investing in foreign governments, supra-national
entities, foreign companies, foreign currencies and foreign markets involves
certain considerations, including those set forth below, that are not typically
associated with investing in U.S. securities denominated in U.S. dollars and
traded in U.S. markets. Many of the securities held by the Fund will not be
registered with, nor will the issuers thereof be subject to the reporting
requirements of, the Securities and Exchange Commission. Accordingly, there may
be less publicly available information about these issuers. Foreign companies
are not generally subject to uniform accounting and auditing and financial
reporting standards, practices and requirements comparable to those applicable
to domestic companies. Securities of some foreign companies are less liquid and
more volatile than securities of comparable domestic companies.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. There is generally less
governmental supervision and regulation of foreign stock exchanges, brokers and
issuers than in the United States.
In addition, with respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments that could affect United States investments in those countries.
Moreover,
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individual foreign economies may differ favorably or unfavorably from the United
States economy in such respects as growth of gross domestic product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The Fund may invest in the securities of issuers and companies located in
countries having developing or emerging markets or economies. While these
investments provide diversification and offer the opportunity for higher
returns, they generally involve significantly more volatility and risk than
their developed country counterparts. Emerging market countries tend to have
less mature economies and less stable political systems. Such countries may also
have restrictions on foreign ownership or the repatriation of assets. In
addition, the securities markets of emerging countries tend to have less
liquidity, higher transaction costs, less sophisticated settlement practices and
less regulatory protection for investors than their developed country
counterparts.
EURO
On January 1, 1999, eleven major European countries participating in the
Economic and Monetary Union ("EMU") adopted a single currency, the Euro,
overseen by the European Central Bank. Beginning on the first day of 1999, most
securities denominated in the currencies of participating countries were
redenominated in Euros.
As would be expected with any undertaking of this magnitude, there are areas of
uncertainty involving the actual conversion and the market's reaction. These
areas may include but are not limited to the ability of financial institutions
to prepare their operating systems and the creation of suitable clearing and
payment systems for the new currency. These and other factors, including
political and economic risk, could cause market disruptions after the
introduction of the Euro. While there can be no assurance that the Fund will not
be adversely affected, the Adviser is taking steps to effect the Fund's
transition to the Euro as smoothly as possible.
CURRENCY EXCHANGE RATES
The value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by fluctuations in currency rates and exchange control
regulations (including, but not limited to, actions 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 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
buy and sell various currencies. Thus, a dealer or bank normally will offer to
sell a foreign currency to the Fund at one rate, while offering
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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 stockholders for United States income tax purposes, rather
than as ordinary income, thereby reducing each stockholder's basis in his Fund
shares.
LOWER RATED BONDS
Bonds that are rated Baa by Moody's or BBB by S&P, or equivalent unrated bonds,
are medium grade obligations that are still considered investment grade bonds.
Changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case for
higher grade bonds. Such bonds lack outstanding investment characteristics and
may have speculative characteristics as well. The Fund does not have a policy
with respect to the retention of a bond whose rating falls below Baa or BBB,
respectively. The Fund will address such circumstances on a case by case basis.
INDEXED SECURITIES
Investment in indexed securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of price fluctuations
in response to changes in interest rates, the interest rate or principal amount
of indexed securities may decrease, sometimes substantially, as a result of
changes in the value of the reference instruments. Further, indexed securities
may be more volatile than the reference instruments, particularly those that are
negatively indexed to the reference instrument and those that are based on a
multiple of the change in the value of the reference instrument. Because it is
common for indexed securities to be individually negotiated with the issuer,
such securities also tend to be less liquid than other debt securities and may
be more difficult to value.
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 rate 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; 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 or securities. Hedging transactions may be effected in
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foreign markets or on foreign exchanges and are subject to the same types of
risks that affect foreign securities. See "Risk Factors -- Foreign Securities".
Indirect hedges and cross-hedges are more speculative than other hedges because
they are not directly related to the position or transaction being hedged. With
respect to indirect hedges, movements in the proxy currency may not precisely
mirror movements in the currency in which portfolio securities are denominated.
Accordingly, the potential gain or loss on an indirect hedge may be more or less
than if the Fund had directly hedged a currency risk. Similar risks are
associated with foreign currency cross-hedge transactions. In a cross-hedge, the
foreign currency in which a portfolio security is denominated is hedged against
another foreign currency, rather than the U.S. Dollar. Cross-hedges may also
create a greater risk of loss than other Hedging Transactions because they may
involve hedging a currency risk through the U.S. Dollar rather than directly to
the U.S. Dollar or another currency. Moreover, in some cases, the Fund's
exposure to a foreign currency will be greater than its exposure to the
securities of that country.
In order to help reduce certain risks associated with Hedging Transactions, the
Board of Directors has adopted the requirement that Forward Contracts, Options,
Futures Contracts, Options on Futures Contracts and Swaps 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 Directors has adopted
the following percentage restrictions on the use of Options, Futures Contracts,
Options on Futures Contracts and Swaps:
(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.
(iv) The Fund will not enter into a Swap if the aggregate notional
principal amount with respect to all such agreements exceeds the
net assets of the Fund.
In order to help reduce the risk of counterparty default in Forward Contracts,
Options traded over-the-counter and Swaps, 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.
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NON-DIVERSIFICATION
The Fund is deemed to be non-diversified within the meaning of the Investment
Company Act of 1940 (the "1940 Act"), because it may invest more than 25% of its
assets in issuers in which it invests more than 5% of its assets. However, the
Fund still intends to qualify as a regulated investment company under the
Internal Revenue Code. In order to so qualify, the Fund must, among other
things, invest less than 50% of its assets in such issuers. A more detailed
description of this and other requirements applicable to regulated investment
companies is set forth under "Tax Aspects" and in the Statement of Additional
Information under the caption "Tax Aspects". Investment of a substantial
percentage of the Fund's assets in the securities of single issuers will expose
the Fund to a greater risk of loss resulting from unfavorable price movements or
market conditions related to such issuers.
ASSET VOLATILITY
Substantially all of the Fund's shares are currently held by advisory clients of
the Adviser. As a result, decisions by the Adviser to purchase or redeem Fund
shares on behalf of its clients may cause the assets of the Fund to increase or
decrease by a significant amount from time to time. Any significant decline in
the Fund's assets is likely to result in an increase of the Fund's expenses as a
percentage of its net assets. In addition, in order to meet the redemption
requests of the Adviser's clients, the Fund may be required to liquidate
portfolio positions and realize gains and losses at inopportune times for
non-redeeming stockholders. Higher portfolio turnover also results in increased
brokerage and other transaction costs. Stockholders who are not clients of the
Adviser will not be notified of any changes in the Fund's assets that occur as a
result of decisions by the Adviser on behalf of its clients or otherwise.
YEAR 2000
The Year 2000 issue has received much attention in recent months. If the systems
on which the Fund relies are unable to process date related information before
or after January 1, 2000, the Fund could be adversely affected. At this time,
the Adviser does not expect any material issues to arise affecting the Fund in
regard to Year 2000 and is taking appropriate steps, it believes, in addressing
the issue. The Year 2000 issue affects nearly all companies and organizations,
however, the Adviser does not have control over external providers servicing the
Adviser or the Fund. As a result, as with any issue of this magnitude, there can
be no assurance that the Year 2000 issue will not have an adverse effect on the
companies whose securities are held by the Fund or on global markets or
economies generally.
MANAGEMENT
The Board of Directors of the Company is responsible for the management of the
Fund, including the general overall supervision of the Fund's portfolio
transactions. 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 in the Statement of Additional Information.
The Fund and the Adviser have entered into an Investment Management Agreement
(the "Management Agreement") dated as of October 1, 1993. Under the Management
Agreement, the Adviser directs the purchase and sale of securities in the Fund's
investment portfolio and all hedging transactions in accordance
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with the Fund's objectives and policies. The Adviser also selects and reviews
firms to effect portfolio transactions, and reviews commissions paid and the
execution of portfolio transactions for the Fund. In addition, the Adviser
provides certain managerial and administrative services to the Fund.
Arthur A. Micheletti has been the senior investment strategist and lead
portfolio manager for the Fund since June 1992. Mr. Micheletti has been with the
Adviser and has managed international and domestic debt portfolios since 1981.
Mr. Micheletti was a Vice President, portfolio manager and investment analyst
for the Adviser from 1981 to 1992, and has been a Senior Vice President and
investment strategist and the Chief Economist of the Adviser since 1992. Michael
J. Faust joined the international bond team in February 1993. Mr. Faust assumed
primary responsibility for the day-to-day management of the Fund in September
1994. Prior to joining the Adviser in 1993, Mr. Faust worked as a fixed income
and currency analyst for MMS International. Eric Leve joined the international
bond team in October 1997. Mr. Leve is a Vice President of the Adviser and has
been with the Adviser since June 1987.
Since October 1, 1993, the Adviser has been paid a monthly fee calculated at an
annual rate equal to .75% of the average daily net assets of the Fund. While
this rate is higher than the rate charged by most other advisers, the Fund
believes that it is justified by the complexity of investing in multiple
international markets and engaging in Hedging Transactions and by the
administrative services provided by the Adviser. Prior to October 1, 1993, the
Adviser received no fees from the Fund. However, investors in the Fund who were
advisory clients of the Adviser paid separate advisory fees directly to the
Adviser. Since October 1, 1993, the separate advisory fees payable to the
Adviser by its advisory clients have been reduced by an approximation of the
amount of fees it receives from the Fund attributable to the assets of its
advisory clients.
The Fund pays all its own expenses except those expressly to be paid by the
Adviser. For the fiscal year ended September 30, 1997, the Fund's total expenses
represented 1.35% of average net assets for the year. Additional information
concerning the expenses of the Fund is contained in the Statement of Additional
Information.
The Adviser commenced business as a registered investment adviser 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, and acts as investment adviser to the Bailard, Biehl &
Kaiser International Equity Fund (the other series of the Company) and the
Bailard, Biehl & Kaiser Diversa Fund. As of October 31, 1998, the Adviser
managed portfolios with total holdings of approximately $1.2 billion in market
value.
NET ASSET VALUE
The net asset value per share, on which purchase and redemption prices are
based, is obtained by dividing the value of the net assets of the Fund (i.e.,
the market value of the securities and other assets of the Fund
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less its liabilities, including expenses payable or accrued but excluding
capital stock and surplus), by the total number of shares outstanding. Net asset
value is calculated once daily, at the regular closing of the New York Stock
Exchange (generally 4:00 P.M. New York time), except that no net asset value per
share is calculated on Saturdays, Sundays or other days when the New York Stock
Exchange is closed. Because the Fund's investment securities are traded on
foreign markets that may be 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 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.
PURCHASE OF 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 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 directors of the Company is
$2,000 and each minimum subsequent investment is $100. The Fund reserves the
right to waive, reduce or increase the minimum for initial and subsequent
investments.
Fund shares may also be purchased by various types of retirement plans,
including individual retirement accounts and Roth retirement accounts ("IRAs").
The minimum initial and subsequent investments of such plans correspond to the
minimum investment requirements for such individuals. The Adviser offers the
Bailard, Biehl & Kaiser IRA for individuals wishing to establish an IRA. For
information concerning the Bailard, Biehl & Kaiser IRA, call (800) 882-8383.
The Fund reserves the right to 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 an offer in such
jurisdiction.
Shares may be purchased directly from the Fund by completing the Stockholder
Application form accompanying 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 Stockholder 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 bank wire by calling CGFSC at (800)
541-4366 (617/557- 8000 for Massachusetts residents) to receive a wire reference
control number and to notify CGFSC of your incoming wire. A properly completed
Stockholder Application form must be sent to CGFSC at the above
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address before bank-wired investments can be redeemed. 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 International Bond Fund
Stockholder'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 International Bond Fund account number
on your check or as part of your wiring instructions.
When an investor makes an initial investment, an account will be opened on the
books of the Fund and a confirmation will be sent of the opening of the account.
Thereafter, whenever a transaction takes place in the account, such as a
purchase of additional shares, exchange or redemption of shares, payment of
distributions or deposit or withdrawal of shares represented by certificates,
the investor will receive a confirmation statement giving complete details of
the transaction. In addition, the statement will show the details of every prior
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 stockholders.
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.
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EXCHANGE AND REDEMPTION OF 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
Diversa Fund (the "Diversa Fund") on the basis of the relative net asset values
per share of the Fund and the Equity Fund or Diversa 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 "Purchase of 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 Diversa Fund's
Prospectus, which may be obtained by contacting the Company 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 Diversa 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 Diversa
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
Diversa 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 Diversa 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
A stockholder has the right to redeem shares by transmitting to CGFSC, at the
address indicated under "Purchase of Shares", either the related certificates
and a stock power in good order for transfer, or if no certificates have been
issued, a written request for redemption. Redemption will be made at the net
asset value next computed after receipt by CGFSC of the necessary documents in
good order. See "Purchase of Shares" for procedures for acceptance of redemption
orders by authorized brokers and their designees.
"Good order" means that certificates and stock powers must be endorsed by the
record owner(s) exactly as the shares are registered and for redemptions in
excess of $50,000, the signature(s) must be accompanied by a signature
guarantee. A signature guarantee is a widely accepted way to protect the
stockholders and the Fund by verifying the signature on the request. Such
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(SM)") endorsed by the Securities Transfer Association. In some
cases, "good order" may require the furnishing of additional documents. In
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<PAGE>
the event that a stockholder needs assistance in determining what documents are
required in order to effect a redemption, he or she may contact CGFSC at (800)
541-4366 for assistance. Subject to the limitations set forth below, payment for
shares redeemed will ordinarily be made within seven days after receipt of the
foregoing documents in good order.
SYSTEMATIC WITHDRAWAL PLAN
A Systematic Withdrawal Plan ("SWP") may be established by a new or existing
stockholder if the shares in his or her account, when valued at the current net
asset value, equal $10,000 or more. Stockholders 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 stockholder 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 stockholder, but until it has received such evidence,
CGFSC will not be liable for any payments made in accordance with the SWP. The
stockholder 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 stockholder 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 such shares were purchased with a cashier's or certified check.
SPECIAL REDEMPTION PROCEDURE
The Fund may redeem the shares of any stockholder who ceases to hold shares in
the Fund having an aggregate net asset value at least equal to the minimum
initial investment. However, the Fund will not effect such a redemption if the
decline in share value is caused by a reduction in the Fund's net asset value.
Stockholders will be given at least 30 days' written notice of any redemption to
be effected in accordance with this paragraph.
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TELEPHONE TRANSACTIONS
You may establish telephone exchange and redemption privileges if you have
checked the appropriate box and supplied the necessary information on the
Stockholder Application form accompanying this Prospectus. You may then exchange
and redeem shares of the Fund by telephoning CGFSC at (800) 541-4366 (or, from
outside the U.S., (617) 557-8000) prior to the regular closing of the New York
Stock Exchange (generally 4:00 P.M. New York time) on a day when the New York
Stock Exchange is open. Redemptions by telephone must be at least $1,000 and may
not exceed $150,000. Exchange and redemption requests received by CGFSC before
the regular closing will be processed that day. Otherwise processing will occur
on the next business day.
Interruptions in telephone service may mean that you will be unable to effect a
transaction by telephone when desired. When telephone transactions are difficult
to implement, you should mail or send by overnight delivery a written request to
CGFSC. By making telephone exchanges or redemptions you may be giving up a
measure of security that you may have had if such transactions had been in
writing. The Fund and CGFSC will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. The Fund and CGFSC may be
liable for any losses due to unauthorized or fraudulent instructions if such
procedures are not followed. For your protection, CGFSC records all telephone
calls. Exchanges can only be made between accounts with identical registrations
and only if your account registration has not changed within 30 days. Redemption
proceeds are sent only to stockholders at their registered address or to a bank
account previously designated by the stockholder. 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 the stockholder 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.
DISTRIBUTIONS
The Board of Directors will determine the amounts to be distributed to the
holders of shares and the time or times such distributions will be made.
Currently, it is contemplated that all or a portion of net investment income, if
any, will be distributed quarterly, and that any remaining net investment income
and any net realized capital gains will be distributed annually, generally in
December. The amount of net investment income to be distributed, and the
characterization of Fund distributions for tax purposes, may be affected, among
other factors, by foreign currency exchange losses. See "Tax Aspects".
Distributions of net income and capital gains, if any, will be reinvested
without a sales charge in full or fractional shares of the Fund on the payment
date using the net asset value of the Fund determined on the
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ex-dividend date (the business day after the record date). Distributions elected
to be taken in cash will be made on the payment date. (The Stockholder
Application form contains a distribution option election.) Once an election is
made, it may be changed at any time and will be effective for the next
distribution the record date of which is more than five days after receipt by
CGFSC of the change of election. (The notice of such a change should be sent to
the address of CGFSC set forth under "Purchase of Shares".) Investors electing
to receive their distributive share of the fund's net investment income and any
net realized capital gains in fund shares will have to pay any taxes on such
distributions.
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. See "Tax Aspects" for
further information regarding the taxation of distributions.
TAX ASPECTS
For the fiscal year ended September 30, 1998, the Fund believes that it
qualified for tax treatment 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" tax 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 its stockholders. Accordingly, the Fund plans to distribute
substantially all of its net investment income and net capital gains to its
stockholders.
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.
The Fund intends to qualify for and, if the Fund determines it to be in the best
interest of the stockholders, to make the election provided for in Section 853
of the Code to treat certain foreign taxes paid by the Fund as paid by the
stockholders. As a result, each stockholder may be required to include in income
his proportionate share of such foreign taxes and may elect to deduct his share
of such foreign taxes or to credit such foreign taxes against his federal income
tax liability, subject to the provisions and limitations of the Code relating to
foreign tax credits.
Distributions of the Fund's net investment income and net realized short-term
capital gains will generally be taxable to stockholders as ordinary income.
Distributions paid from long-term capital gains will generally be taxable as
long-term capital gains, regardless of the holding period of the Fund shares.
The Fund will inform stockholders of the source
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<PAGE>
and nature of the dividends and 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.
Stockholders should take note that any dividends and distributions on Fund
shares received shortly after their purchase, although in effect a return of
capital, are also subject to federal income tax. Dividends and distributions
paid out of the Fund's income and gains will be taxable to stockholders 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
stockholders 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 stockholders 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
Options, Futures Contracts, Options on Futures Contracts and Swaps to hedge
against changes in interest rates and foreign currency exchange rates and as a
substitute for an underlying investment. Certain of these transactions may be
"Section 1256 contracts". Gains or losses on Section 1256 contracts generally
are treated as 60% long-term and 40% short-term ("60/40") capital gains or
losses. 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 such 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 stockholders. 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 is 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.
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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 that must be distributed to
stockholders, and that will be taxed to stockholders as ordinary income or
long-term capital gain, may be increased or decreased as compared to a fund that
did not engage in such 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 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 Forward Contracts, Options,
Futures Contracts, Options on Futures Contracts or Swaps.
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 stockholders as
ordinary income, rather than increasing or decreasing the amount of the Fund's
capital gains or losses.
CERTAIN FOREIGN TAX CONSEQUENCES
Foreign securities such as those to be purchased by the Fund may be subject to
foreign taxes, which could reduce the yield on such securities, although a
stockholder 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.
30
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DESCRIPTION OF CAPITAL STOCK
The Fund is a series within the Bailard, Biehl & Kaiser International Fund
Group, Inc., an open-end management investment company organized on June 12,
1990 as a Maryland corporation (the "Company"). Currently, the Company has two
series, the Fund and the Bailard, Biehl & Kaiser International Equity Fund (the
"Equity Fund"). Further series may be added, without stockholder approval, but
the Company has no immediate plans to do so.
The Company has authorized the issuance of up to 1,000,000,000 shares of Common
Stock, par value $.0001, in one or more series. Currently, the Fund and the
Equity Fund are each authorized to issue 100,000,000 shares of Common Stock.
When issued, shares in the Fund will be fully paid and non-assessable and will
have no preemptive, conversion or exchange rights.
Shares of each series are entitled to one vote for all purposes. Shares of each
series vote as a single class with respect to matters, such as election of
directors, that affect all series in substantially the same manner. As to
matters affecting each series separately, such as approval of agreements with
investment advisers, shares of each series vote as separate series. Shares of
each series are entitled to dividends as determined by the Board of Directors
and, in liquidation of the Fund, are entitled to receive the net assets of that
series. Stockholders are entitled to require the Fund to redeem their shares,
and the Fund may redeem shares under certain circumstances, as set forth under
"Redemption of Shares". The transfer of shares, other than by redemption, is
subject to restrictions in some jurisdictions.
The voting rights of the shares are non-cumulative, which means that the holders
of more than 50% of the shares voting for the election of directors can elect
100% of the directors if they choose to do so. In such event, the holders of the
remaining shares voting will not be able to elect any director. The Company is
not required to hold annual meetings for the election of directors or otherwise.
Special meetings may be called by the Chairman of the Board, the Board of
Directors, or the President or by stockholders entitled to cast at least 10% of
the shares entitled to vote. The Company will assist in stockholder
communications with respect to any meeting duly called by the holders of its
shares.
A full statement of the designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
series of stock which the Company is authorized to issue and the differences in
the relative rights and preferences between the shares of each series to the
extent that they have been set, and the authority of the Board of Directors to
set the relative rights and preferences of subsequent series, will be furnished
by the Company to any stockholder, without charge, upon request to the Secretary
of the Company at its principal office.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its total return. This figure is based
upon historic 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
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<PAGE>
appreciation or depreciation of the Fund's assets and all expenses incurred by
the Fund for the stated period, including, for periods prior to October 1, 1993,
an assumed 1% annual advisory fee charged by the Adviser to its clients. See
"Management". 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.
DISTRIBUTOR
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.
ADMINISTRATIVE SERVICES
The Company, on behalf of the Fund, has entered into an Administration Agreement
(the "Administration Agreement") with Investment Company Administration LLC
("ICA"). Pursuant to such agreement, ICA provides certain administrative
services in connection with the management of the Fund's operations. Such
services include: (i) assisting the Fund's accountants in preparing financial
reports, (ii) assisting the Fund's attorneys in preparing amendments to the
Fund's registration statement, any proxy materials and other forms and reports
to be filed with the SEC, (iii) preparing periodic reports to stockholders, (iv)
monitoring compliance with the Fund's investment policies and restrictions, and
(v) other administrative matters. As compensation for such services, the Fund
pays ICA an annual fee of $32,500.
TRANSFER AGENT AND CUSTODIAN
Transfer agent and dividend paying 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. CGFSC also files applications under
state law to register the Fund's shares for sale.
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109,
acts as Custodian of the Fund's assets and has been authorized to cause
securities and other assets of the Fund to be held in separate accounts with
various subcustodians in conformity with Section 17(f) of the 1940 Act and the
rules thereunder.
EXPERTS
PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, California 94105,
has been selected as independent accountants for the Fund and provides auditing
services, including review and consultation in connection with various filings
by the Fund with the SEC and tax authorities.
The information under "Financial Highlights" for the eight years ended September
30, 1998 in this Prospectus and the financial statements as of September 30,
1998 incorporated by reference into the Statement of Additional Information have
been so included in reliance on the report of Price waterhouseCoopers 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 investment characteristics and may have speculative characteristics
as well. They are still considered investment grade bonds.
STANDARD & POOR'S CORPORATION ("S&P"). Bonds rated AAA are considered by S&P to
be the highest grade obligations, and the capacity to pay interest and principal
is extremely strong. Bonds rated AA by S&P are judged by S&P to have a very
strong capacity to pay interest and principal and differ only in a small degree
from issues rated AAA. Bonds rated A by S&P have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
S&P's BBB rated bonds, or medium-grade category bonds, are regarded as having
adequate capacity to pay principal and interest. Whereas BBB bonds normally
exhibit adequate protection parameters, adverse economic conditions or changes
in circumstances are more likely to lead to a weakened capacity to pay interest
and principal. They are still considered investment grade bonds.
COMMERCIAL PAPER
MOODY'S. The Prime rating is the highest commercial paper rating assigned by
Moody's. Issuers within this Prime category may be given ratings 1, 2 or 3,
depending on their capacity for repayment. Issuers rated Prime-1 (or supporting
institutions) have a superior ability for repayment of senior short-term debt
obligations. Prime 1 repayment ability will often be evidenced by the issuer's
leading market position in well-established industries, high rates of return on
funds employed, conservative capitalization structures with moderate reliance on
debt, and ample asset protection. Also, a Prime-1 issuer may have broad margins
in earnings coverage of fixed financial charges, high internal cash generation
and a well established access to a range of financial markets and assured
sources of alternative liquidity.
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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. Capital characteristics may be more affected by external conditions.
Ample 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.
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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 such 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 Directors.
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
put and call options and purchase put and call 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 risk to the Fund from adverse
changes in currency exchange and interest rates and as a substitute for an
underlying securities or currency position ("Options").
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
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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, if the Fund anticipates a decline in the market value of a portfolio
security due to rising interest rates, it may purchase put Options on the
security. If the value of the security does decline, the Fund will have the
right to sell the security for a fixed amount and will thereby offset, in whole
or in part, the adverse effect that would otherwise have been caused by rising
interest rates.
Where the Fund predicts a change in the market value of a security to be
acquired that would increase the cost of such security, the Fund may purchase
call Options thereon. The purchase of such Options could offset, at least
partially, the effect of declining interest rates. The use of Options to hedge
against adverse movements in interest rates is subject to the same limitations
and risks of loss as the use of Options to hedge against adverse movements in
exchange rates.
The Fund may write put and call Options for the same types of hedging purposes.
For example, when the 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 received, and only if interest or currency 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) holding 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
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holds an Option, it may liquidate its position by effecting a closing sale
transaction. This is accomplished by selling an Option of the same series as the
Option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the Option or is more
than the premium paid to purchase the Option; the Fund will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the Option or is less than the premium paid to purchase
the Option. Because increases in the market price of a call Option will
generally reflect increases in the market price of the underlying security or
currency, any loss resulting from the purchase of a call Option to close out a
previously written call Option is likely to be offset in whole or in part by
appreciation of the Fund's portfolio securities denominated in such currency.
FUTURES CONTRACTS ON DEBT SECURITIES AND FOREIGN CURRENCIES. The Fund may enter
into exchange-traded contracts for the purchase or sale for future delivery of
debt securities and foreign currencies to attempt to minimize the risk to the
Fund from adverse changes in currency exchange and interest rates and as a
substitute for an underlying securities or currency position ("Futures
Contracts").
With respect to debt securities, the acquisition or sale of Futures Contracts is
designed to protect the Fund from fluctuations in interest rates without
actually buying or selling the underlying 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
is more liquid that the cash market, the use of Futures Contracts as an
investment technique allows the Funds 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 debt security or foreign currency is
covered if the Fund segregates, in a special account with the Custodian, Liquid
Assets equal to the purchase 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, in a special account with the Custodian, Liquid Assets
equal to the market value of the security or currency underlying the Futures
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
such a Futures Contract by (i) owning
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the security or currency underlying the Futures Contract or (ii) holding a call
option permitting the Fund to purchase the same Futures Contract at a price no
higher then the price at which the short 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.
Although Futures Contracts, by their terms, call for the actual delivery or
acquisition of an asset, in most cases the contractual obligation is fulfilled
(or "offset") before the expiration date of the Futures Contract without having
to make or take delivery of the underlying asset. Offset of a Futures Contract
is accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical Futures Contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the underlying asset.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions that may
prevent the Fund from successfully using Futures Contracts. First, all
participants in the futures markets are subject to initial and variation margin
requirements. Rather than meeting variation margin requirements, investors may
close Futures Contracts through offsetting transactions, which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures markets depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
make or take delivery, liquidity in the futures markets could be reduced, thus
producing distortion. Third, from the point of view of speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct prediction of general interest rate and currency exchange
rate trends 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 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 that would adversely
affect the price of its portfolio securities and such rates 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 AND FOREIGN CURRENCIES. The Fund
may purchase and write options on Futures Contracts to minimize the risk to the
Fund from adverse changes in currency exchange and interest rates and as a
substitute for an underlying securities or currency position ("Options on
Futures Contracts").
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A call Option on a Futures Contract written by the Fund constitutes a partial
hedge against declining prices of the securities or currency that are
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 holdings. A
put Option on a Futures Contract written by the Fund constitutes a partial hedge
against increasing prices of the securities or currency that are 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 (iii) holding a separate call Option permitting the
Fund to purchase the same Futures Contract at a price no higher than the strike
price of the call Option on the Futures Contract sold by the Fund (or, if
higher, the Fund may segregate Liquid Assets equal to the difference.)
In the case of the sale of a put Option on a Futures Contract obligating the
Fund to buy a Futures Contract, the Fund may establish a segregated account
containing Liquid Assets equal to the settlement value of the Futures Contract
underlying the Option on a Futures Contract. Alternatively, the Fund may cover
the Option on a Futures Contract by holding a put Option permitting the Fund to
sell the same Futures Contract at a price the same as or higher than the strike
price of the put Option sold by the Fund (or, if lower, the Fund may segregate
Liquid Assets equal to the difference).
The amount of risk the Fund assumes when it purchases an Option on a Futures
Contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of such an
option also entails the risk that changes in the value of the underlying Futures
Contract will not be fully reflected in the value of the option purchased.
SWAPS AND RELATED CAPS, FLOORS AND COLLARS
The Fund may enter into interest rate and foreign currency swaps and related
caps, floors and collars to minimize the risk to the Fund from adverse changes
in currency exchange and interest rates and as a substitute for an underlying
securities or currency position (collectively, "Swaps").
An interest rate Swap is an agreement between two borrowers to exchange a stream
of interest payments on an agreed hypothetical or "notional" principal amount.
No principal amount is exchanged between the counterparties to an interest rate
Swap. In the typical Swap, one party agrees to pay a fixed rate on a notional
principal amount, while the counterparty pays a floating rate based on one or
more reference interest rates such as the London Interbank Offered Rate
("LIBOR"), a specified bank's prime rate, or U.S.
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Treasury Bill rates. Interest rate Swaps also permit counterparties to exchange
a floating rate obligation based upon one reference interest rate (such as
LIBOR) for a floating rate obligation based upon another reference interest rate
(such as U.S. Treasury Bill rates).
A currency Swap is an agreement to exchange fixed or floating rate interest
obligations - and, in some transactions, principal obligations - in different
currencies on the basis of (i) the actual principal amount or a notional
principal amount and (ii) one or more reference interest rates.
For example, the Fund may have the right to receive interest at fixed rates on
some of its portfolio securities. If interest rates were rising (and therefore
the value of portfolio securities were declining), the Fund could hedge the
value of such securities by swapping its right to receive a fixed rate of
interest for a counterparty's right to receive a floating rate. Similarly, the
Fund may have the right to receive interest payments on its portfolio securities
denominated in the French Franc. If the Franc were suffering an adverse movement
of its exchange rate, the Fund could hedge the value of such securities by
swapping its right to receive Francs for the right to receive U.S. Dollars or
another currency.
The Fund will usually enter into Swaps on a net basis, i.e., where the two
parties make net payments, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The net amount of the excess, if
any, of the Fund's obligations over its entitlements, with respect to each Swap
will be accrued, and an amount of Liquid Assets having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account. If the Fund enters into a Swap on other than a net basis, the Fund will
maintain in the segregated account the full amount of the Fund's obligations
under the Swap. Neither a Swap nor any margin or collateral arrangement with
respect to a Swap is deemed to involve a pledge of the Fund's assets, the
issuance of a senior security or a borrowing.
The Swap market has grown substantially in recent years with a significant
number of banks and financial services firms acting both as principals and as
agents utilizing standardized Swap documentation. Caps, floors and collars are
more recent innovations, and they are less liquid than other Swaps. There can be
no assurance that the Fund will be able to enter into or offset Swaps at any
specific time or at prices or on other terms that are advantageous. In addition,
although the terms of Swaps may provide for termination under certain
circumstances, there can be no assurance that the Fund will be able to terminate
or offset a Swap on favorable terms.
ADDITIONAL RISKS OF FORWARD CONTRACTS, OPTIONS, FUTURES CONTRACTS, OPTIONS ON
FUTURES CONTRACTS AND SWAPS. Hedging transactions may be effective to protect
the Fund against certain changes in interest and currency exchange rates.
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, Options on
Futures Contracts and Swaps depends on the degree to which price movements in
underlying debt securities or currencies 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 Contracts or an Option on a Futures Contract moves more or
less than the price of the hedged debt securities or currency, 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.
B-6
<PAGE>
The Fund's ability to engage in transactions involving Options, Futures
Contracts, Options on Futures Contracts and Swaps will depend on the degree to
which liquid secondary markets in such instruments exist. Reasons for the
absence of a liquid market include the following: (i) there may be insufficient
trading interest in a particular instrument; (ii) restrictions may be imposed by
an exchange on opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of Options, Futures Contracts or Options on Futures
Contracts; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation ("OCC"), which effects the settlement of exchange traded
Options, may not at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of a particular
instrument (or a particular class or series of such instrument). There can be no
assurance that a liquid secondary market will exist for any particular
investment at any specific time. Thus it may not be possible for the Fund to
close certain of its positions.
The costs to the Fund of hedging transactions vary among the various hedging
techniques and also depend on such factors as the security or currency involved,
market conditions and the length of the contract or option period. Forward
Contracts and Swaps are usually conducted on a principal basis, and no brokerage
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 and Swaps 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 principals or agents. 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, Forward Contracts
or Swaps is not guaranteed by the OCC or any other settlement agency, there is a
risk of counterparty default. Option writers and traders of Forward Contracts
and Swaps 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
such Options 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
B-7
<PAGE>
procedures on exercise and settlement, such as technical changes in the
mechanics of delivery, the fixing of dollar settlement prices or prohibitions on
exercise.
The exchanges on which Options, Futures Contracts and Options on Futures
Contracts are traded may impose additional limitations governing the maximum
number of positions on the same side of the market and involving the same
underlying instrument that may be held by a single investor, whether acting
alone or in concert with others (regardless of whether such positions are held
or written on the same or different exchanges or held or written in one or more
accounts or through one or more brokers). In addition, the CFTC and the various
markets have established limits, referred to as "speculative position limits,"
on the maximum net long or net short positions that any person may hold or
control in a particular Futures Contract or Option on a Futures Contract. An
exchange may order the liquidation of positions found to be in violation of
these limits and it may impose other sanctions or restrictions. The Fund does
not believe that these trading and position limits will have an adverse impact
on the strategies for hedging the portfolio of the Fund.
Forward Contracts, Options, Futures Contracts, Options on Futures Contracts and
Swaps may be traded in foreign markets or on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies. The value of such positions also could
be adversely affected by, among other things, (i) other foreign political and
economic factors, (ii) lesser availability than in the United States of data on
which to make trading decisions, (iii) delays in the Fund's ability to act upon
economic events occurring in foreign markets during non-business hours in the
United States, (iv) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the United States and (v) lesser
trading volume.
B-8
<PAGE>
INVESTMENT ADVISER
Bailard, Biehl & Kaiser, Inc.
950 Tower Lane, Suite 1900
Foster City, California 94404
TRANSFER AGENT
Chase Global Funds Services Company
Boston, Massachusetts
CUSTODIAN AND ACCOUNTANT
Brown Brothers Harriman & Co.
Boston, Massachusetts
COUNSEL
Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation
San Francisco, California
DISTRIBUTOR
BB&K Fund Services, Inc.
950 Tower Lane, Suite 1900
Foster City, California 94404
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
San Francisco, California
IRA CUSTODIAN
The Chase Manhattan Bank, N.A.
New York, New York
INTERNATIONAL BOND FUND DIRECTORS AND OFFICERS
Peter M. Hill, Chairman, Director
Burnice E. Sparks, Jr., President, Director
Shirley L. Clayton, Director
Scott F. Wilson, Director
James C. Van Horne, Director
Barbara V. Bailey, Treasurer
Janis M. Horne, Secretary and Chief Compliance Officer
Sofi Kyriakidis, Assistant Secretary and Assistant Treasurer
INVESTOR SERVICES DEPARTMENT
(800) 882-8383
<PAGE>
As filed with the Securities and Exchange
Commission on November 30, 1998
Registration No. 2-63270
File No. 811-6146
================================================================================
Part B
of
Form N-1A
REGISTRATION STATEMENT
BAILARD, BIEHL & KAISER INTERNATIONAL FUND GROUP, INC.
================================================================================
<PAGE>
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 27, 1999 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-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
----------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT
CONSTITUTE AN OFFER TO SELL SECURITIES.
----------------------------------------------------
The date of this Statement of Additional Information
is January 27, 1999.
<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 and as a
substitute for an underlying securities or currency position. 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
B-2
<PAGE>
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 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
securities(1). 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.)
- --------
(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>
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 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:
Principal Occupations
Office(s) Held and Other Affiliations
Name and Address With the Fund During the Past 5 Years
- ---------------- ------------- -----------------------
Peter M. Hill(1) Director and Director, officer and currently
950 Tower Lane, Suite 1900 Chairman Chief Investment Officer of
Foster City, CA 94404 Bailard, Biehl & Kaiser, Inc.
(the "Adviser"). Director of
BB&K Fund Services, Inc., a NASD
registered broker-dealer ("Fund
Services"), since June 1992.
Burnice E. Sparks, Jr.(1) Director and Director, officer and currently
950 Tower Lane, Suite 1900 President President of the Adviser.
Foster City, CA 94404 Director and Chief Executive
Officer of Fund Services since
June 1992. President of Bailard,
Biehl & Kaiser Fund Group, a
registered investment company
(the "Fund Group").
Barbara V. Bailey(1) Treasurer Treasurer of BB&K Holdings, Inc.
950 Tower Lane, Suite 1900 and Senior Vice President and
Foster City, CA 94404 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 Real Estate Investment
Trust 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.
Janis M. Horne(1) Secretary Senior Vice President,
950 Tower Lane, Suite 1900 and Chief Investment Counselor and Chief
Foster City, CA 94404 Compliance Officer Compliance Officer of the
Adviser. Secretary and Chief
Compliance Officer of the Fund
Group.
- --------
(1) "Interested person" of the Company, as defined in the 1940 Act.
B-5
<PAGE>
Principal Occupations
Office(s) Held and Other Affiliations
Name and Address With the Fund During the Past 5 Years
- ---------------- ------------- -----------------------
Sofi Kyriakidis(1) Assistant Treasurer Employee of the Adviser since
950 Tower Lane, Suite 1900 and Assistant November 1995, most recently
Foster City, CA 94404 Secretary as Vice President. Assistant
Treasurer and Assistant
Secretary of the Fund Group
since September 1996.
Assistant Treasurer of
Bailard, Biehl & Kaiser REIT
since June 1996. Treasurer of
Fund Services since January
1996. Correspondence
Specialist at Franklin
Resources, Inc. from July 1994
to May 1995.
Shirley L. Clayton(2) Director Chief Financial Officer of
122 Campo Bello Lane Orquest, a biotechnology
Menlo Park, CA 94025 company, since 1998. President
and Chief Operating Officer of
TopoMetrix from 1993 to 199 8.
Chief Financial Officer of
Cygnus Therapeutic Systems,
Inc., a biotechnology company,
from March 1990 to June 1993.
Trustee of the Fund Group.
Scott F. Wilson(2) Director General Partner of
Transcontinental Capital Transcontinental Capital
Partners Partners, an investment
540 Cowper Street banking firm, since 1991.
Palo Alto, CA 94301 Shareholder of Milbank
Winthrop & Co., an investment
adviser, since 1981. Trustee
of the Fund Group.
James C. Van Horne(2) Director A.P. Giannini Professor of
Graduate School of Business Finance at Graduate School of
Stanford University Business of Stanford
Stanford, CA 94305 University from September 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.
- ----------
(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, 1998.
Compensation Table
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Accrued Annual From Company and
Name of Person Compensation as Part of Company Benefits Upon Fund Complex(1)
and Position from Company Expenses 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 $13,333(3) $0 $0 $20,000
Director
David B. Shippey $ 0 $0 $0 $ 0
Director
Scott F. Wilson $13,333(3) $0 $0 $20,000
Director
James C. Van Horne $13,333(3) $0 $0 $20,000
Director
</TABLE>
- ----------
(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 $8,000 annual director fee plus $1,333 for each Board meeting
attended in person.
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.
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, 1996, 1997 and 1998 the Fund paid
investment management fees of $988,625, $1,176,349 and $1,280,698 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
B-8
<PAGE>
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, 1998, the
Fund reimbursed the Adviser approximately $42,691.
The Adviser has agreed to reduce the investment management fee payable to
it in any fiscal year by the amount by which the expenses of the Fund exceed the
most stringent limits prescribed by any state in which the Fund's shares are
offered for sale. 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, 1996, 1997
and 1998, no expense reimbursement was required. The imposition of an expense
limitation by California or any other state after October 1996 appears to be
prohibited by the National Securities Markets Improvement Act of 1996.
BB&K Fund Services, Inc., 950 Tower Lane, Suite 1900, Foster City,
California 94404 ("Fund Services"), serves as the 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 1996, 1997 and 1998 fiscal years, the Fund
paid the Custodian $392,252, $424,690 and $466,363, 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 LLC.
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. 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. For the fiscal year ended
September 30, 1998, the Adviser estimates that the Fund paid $787,498 brokerage
commissions, involving $221,938,804 of portfolio transactions, to brokers with
whom the Adviser had an arrangement to receive research or related services.
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.
B-10
<PAGE>
During the Fund's fiscal years ended September 30, 1996, 1997 and 1998, the
Fund paid brokerage commissions on portfolio transactions of approximately
$804,280, $588,691 and $732,427, respectively. The Fund's portfolio turnover
rate for the fiscal years ended September 30, 1996, 1997 and 1998 is set forth
in the Fund's Prospectus under "Financial Highlights". The increase in brokerage
commissions and portfolio turnover rate from 1997 and 1998 was primarily due to
higher volatility in world equity markets and therefore more 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, Martin Luther King, Jr.'s Birthday, 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.
B-11
<PAGE>
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
The Fund believes that it has qualified for "pass-through" tax treatment as
a regulated investment company for its fiscal year ended September 30, 1998, and
intends to be able to continue to so qualify. To qualify as a regulated
investment company, the Fund must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, gains
from the sale or other disposition of stock, 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 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
B-12
<PAGE>
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 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 October 12, 1998 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, 1998 was (10.61%). The average annual compounded rate of total
return for the Fund for the five year period from October 1, 1993 to September
30, 1998 was 5.18%. The average annual compounded rate of total return for the
Fund for the ten year period from October 1, 1988 to September 30, 1998 was
2.94%. 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.
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, 1998 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 BB & K Fund Services,
Inc., 950 Tower Lane, Suite 1900, Foster City, California 94404, (800) 882-8383.
B-13
<PAGE>
------------------------------
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, Suite 1900
Foster City, California 94404
This Statement of Additional Information is not a Prospectus, but contains
information in addition to that contained in the Prospectus which may be of
interest to some investors. This Statement of Additional Information should be
read in conjunction with the Prospectus dated January 27, 1999 You can request
the Prospectus by writing directly to us at the address above or by calling us
at (800) 882-8383.
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-12
8. Stockholder Information...............................................B-13
9. Performance Data......................................................B-13
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 27, 1999.
<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 principally be in debt securities
with issuers based in the Far East, Europe, the United Kingdom, Canada and
Australia and in governmental entities within those geographic areas.
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 interest and currency exchange rates and as a substitute
for an underlying securities or currency position. 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.
B-2
<PAGE>
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 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 securities(1). 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.
- ----------
(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>
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 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:
Principal Occupations
Office(s) Held and Other Affiliations
Name and Address With the Fund During the Past 5 Years
- ---------------- ------------- -----------------------
Peter M. Hill(1) Director and Director, officer and currently
950 Tower Lane, Suite 1900 Chairman Chief Investment Officer of
Foster City, CA 94404 Bailard, Biehl & Kaiser, Inc.
(the "Adviser"). Director of
BB&K Fund Services, Inc., a NASD
registered broker-dealer ("Fund
Services"), since June 1992.
Burnice E. Sparks, Jr.(1) Director and Director, officer and currently
950 Tower Lane, Suite 1900 President President of the Adviser.
Foster City, CA 94404 Director and Chief Executive
Officer of Fund Services since
June 1992. President of Bailard,
Biehl & Kaiser Fund Group, a
registered investment company
(the "Fund Group").
Barbara V. Bailey(1) Treasurer Treasurer of BB&K Holdings, Inc.
950 Tower Lane, Suite 1900 and Senior Vice President and
Foster City, CA 94404 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 Real Estate Investment
Trust 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.
Janis M. Horne(1) Secretary and Senior Vice President,
950 Tower Lane, Suite 1900 Chief Compliance Investment Counselor and Chief
Foster City, CA 94404 Officer Compliance Officer of the
Adviser. Secretary and Chief
Compliance Officer of the Fund
Group.
Sofi Kyriakidis(1) Assistant Employee of the Adviser since
950 Tower Lane, Suite 1900 Treasurer November 1995, most recently as
Foster City, CA 94404 and Assistant Vice President. Assistant
Secretary Treasurer and Assistant
Secretary of the Fund Group
since September 1996. Assistant
Treasurer of Bailard, Biehl &
Kaiser REIT since June 1996.
Treasurer of Fund Services since
January 1996. Correspondence
Specialist at Franklin
Resources, Inc. from July 1994
to May 1995.
- ----------
(1) "Interested person" of the Company, as defined in the 1940 Act.
B-5
<PAGE>
Principal Occupations
Office(s) Held and Other Affiliations
Name and Address With the Fund During the Past 5 Years
- ---------------- -------------- -----------------------
Shirley L. Clayton(2) Director Chief Financial Officer of
122 Campo Bello Lane Orquest, a biotechnology
Menlo Park, CA 94025 company, since 1998. President
and Chief Operating Officer of
TopoMetrix from 1993 to 1998.
Chief Financial Officer of
Cygnus Therapeutic Systems,
Inc., a biotechnology company,
from March 1990 to June 1993.
Trustee of the Fund Group.
Scott F. Wilson(2) Director General Partner of
Transcontinental Capital Transcontinental Capital
Partners Partners, an investment banking
540 Cowper Street firm, since 1991. Palo Alto,
Palo Alto, CA 94301 Shareholder of Milbank Winthrop
& Co., an investment adviser,
since 1981. Trustee of the Fund
Group.
James C. Van Horne(2) Director A.P. Giannini Professor of
Graduate School of Business Finance at Graduate School of
Stanford University Business of Stanford University
Stanford, CA 94305 from September 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.
- ----------
(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, 1998.
Compensation Table
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Accrued Annual From Company and
Name of Person Compensation as Part of Company Benefits Upon Fund Complex(1)
and Position from Company Expenses 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 $13,333(3) $0 $0 $20,000
Director
David B. Shippey $ 0 $0 $0 $ 0
Director
Scott F. Wilson $13,333(3) $0 $0 $20,000
Director
James C. Van Horne $13,333(3) $0 $0 $20,000
Director
</TABLE>
- ----------
(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 $8,000 annual director fee plus $1,333 for each Board meeting
attended in person.
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.
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, 1996, 1997 and 1998, the Fund paid
investment management fees of $461,792, $376,061 and $391,334 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,
1998, the Fund reimbursed the Adviser approximately $38,639.
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
B-8
<PAGE>
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 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, 1996, 1997
and 1998 no expense reimbursement was required. The imposition of an expense
limitation by California or any other state after October 1996 appears to be
prohibited by the National Securities Markets Improvement Act of 1996.
BB&K Fund Services, Inc., 950 Tower Lane, Suite 1900, Foster City,
California 94404 ("Fund Services"), serves as the 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 $144,326, $109,974 and $109,602
during the 1996, 1997 and 1998 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 LLC.
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
B-9
<PAGE>
execution and operational facilities of the firm involved. The Adviser generally
seeks reasonable execution costs 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, 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. 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
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<PAGE>
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, 1996, 1997 and 1998. The Fund's portfolio turnover rate for the
fiscal years ended September 30, 1996, 1997 and 1998 is set forth in the Fund's
Prospectus under "Financial Highlights". Keeping an eye on trading costs helped
decrease the turnover rates for 1997 and 1998.
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 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.
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.
B-11
<PAGE>
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, 1998, 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 stock, 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 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.
B-12
<PAGE>
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 October 12, 1998 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 one year period ended September 30, 1998
was 8.75%. The average annual compounded rate of total return for the Fund for
the five year period from October 1, 1993 to September 30, 1998 was 3.90%. The
average annual compounded rate of total return from October 1, 1990 (inception)
to September 30, 1998 was 6.40% . 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, 1998 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
BB & K Fund Services, Inc., 950 Tower Lane, Suite 1900, Foster City, California
94404, (800) 882-8383.
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<PAGE>
------------------------------------
The Prospectus and this Statement of Additional Information, together, do
not contain all of the information set forth in our registration statement filed
with the Securities and Exchange Commission. Certain information is omitted in
accordance with rules and regulations of the Commission. The registration
statement may be inspected at the Public Reference Room of the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and
copies thereof may be obtained from the Commission at prescribed rates.
B-14
<PAGE>
As filed with the Securities and Exchange
Commission on November 30, 1998
Registration No. 2-63270
File No. 811-6146
================================================================================
Part C
of
Form N-1A
REGISTRATION STATEMENT
BAILARD, BIEHL & KAISER INTERNATIONAL FUND GROUP, INC.
================================================================================
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Incorporated by reference in Part
B (Statement of Additional
Information) under the heading
"Financial Statements"
Financial Highlights:
Included in Part A (Prospectus)
(b) Exhibits:
EXHIBIT NUMBER AND DESCRIPTION
1 Articles of Incorporation of Registrant
(incorporated by reference to Exhibit No. 1 of
Post-Effective Amendment No. 29, dated June 29,
1998).
2 By-laws of Registrant (incorporated by reference
to Exhibit No. 2 of Post-Effective Amendment No.
29, dated June 29, 1998).
3 Inapplicable.
4.1 Specimen of the share certificate representing
shares of common stock of Bailard, Biehl & Kaiser
International Equity Fund (incorporated by
reference to Exhibit No. 4 of Post-Effective
Amendment No. 14, dated July 26, 1990).
4.2 Specimen of the share certificate representing
shares of common stock of Bailard, Biehl & Kaiser
International Bond Fund.
5 Investment Management Agreement between
Registrant and Bailard, Biehl & Kaiser, Inc.
dated as of October 1, 1993 (incorporated by
reference to Exhibit No. 5 of Post-Effective
Amendment No. 29, dated June 29, 1998)
6 Distribution Agreement between Registrant and
BB&K Fund Services, Inc. dated as of October 1,
1993 (incorporated by reference to Exhibit No. 6
of Post-Effective Amendment No. 29, dated June
29, 1998)
7 Inapplicable.
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<PAGE>
8.1 Custodian Agreement between Registrant and Brown
Brothers Harriman & Co., dated June 12, 1990, as
amended December 22, 1995 and June 15, 1998.
8.2 Foreign Custody Manager Delegation Agreement
between Registrant and Brown Brothers Harriman &
Co., dated as of June 15, 1998.
9 Administration Agreement between Registrant and
Investment Company Administration Corporation,
dated October 1, 1993, as amended July 1, 1995
(incorporated by reference to Exhibit 9 of
Post-Effective Amendment No. 29 to Registrant's
Form N-1A Registration Statement dated June 29,
1998.)
10.1 Opinion and Consent of Orrick, Herrington &
Sutcliffe.
10.2 Opinion and Consent of Piper & Marbury.
11 Consent of PricewaterhouseCoopers LLP.
12 Inapplicable.
13 Copies of investment letters provided in
connection with the shares issued to raise
initial capital (incorporated by reference to
Exhibit 13 of Pre-Effective Amendment No. 2 to
Registrant's Form N-1 Registration Statement).
14 Inapplicable.
15 Inapplicable.
27. Financial Data Schedule.
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<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant's organization has been sponsored by Bailard, Biehl & Kaiser,
Inc. (the "Adviser"), a California corporation and a wholly owned subsidiary of
BB&K Holdings, Inc., a California corporation ("Holdings"). Peter M. Hill,
Burnice E. Sparks, Jr., Janis M. Horne, Barbara V. Bailey, and Sofi Kyriakidis,
who are Directors and/or officers of Registrant, are also Directors and/or
officers of the Adviser and/or BB&K Fund Services, Inc. (the "Distributor"), a
California corporation and a wholly owned subsidiary of Holdings. Mr. Hill, Mr.
Sparks, Ms. Bailey and Ms. Horne are also each shareholders of Holdings.
Registrant's shares are offered to investment advisory or counseling clients and
employees (including officers and relatives of employees and officers) and
Directors of the Adviser. As a result, Holdings, the Adviser and/or the
Distributor may be deemed to be directly or indirectly under common control with
Registrant.
Mr. Sparks, Ms. Bailey, Ms. Horne and Ms. Kyriakidis, who are officers
and/or Directors of Registrant, are also officers and/or Directors of Bailard,
Biehl & Kaiser Fund Group, a Massachusetts business trust and registered
investment company (the "Fund Group"). Shirley L. Clayton, Scott F. Wilson and
James C. Van Horne, Directors of Registrant, are also Trustees of the Fund
Group. The Adviser serves as the investment adviser to the Fund Group and the
Distributor as the distributor of the Fund Group. As a result, the Fund Group
may be deemed to be directly or indirectly under common control with Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of October 31, 1998:
Number of
Title of Class Shares Outstanding Record Holders
- -------------- ------------------ --------------
Equity Fund Series 18,238,492 542
Bond Fund Series 7,018,721 502
ITEM 27. INDEMNIFICATION
Registrant participates in a policy of insurance that insures the Fund and
its directors, officers and employees against any liability arising by reason of
any actual or alleged breach of duty, neglect, error, misstatement, misleading
statement or other act or omission within the scope of their duties.
The By-laws of Registrant provide for indemnification of Registrant's
directors, officers, employees and agents under certain circumstances as
permitted by Section 2-418 of the Maryland General Corporation Law, and such
provisions may be sufficiently broad to permit indemnification for liabilities
arising under the Securities Act of 1933 (the "1933 Act") and the Investment
Company Act of 1940, but only to the extent permitted under Section 17(h) of the
1940 Act.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted for directors, officers and controlling persons of Registrant
pursuant to the foregoing provisions, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification by Registrant is against public policy, as expressed in the 1933
Act, and therefore may be unenforceable. In the event that a claim for such
indemnification (except insofar as it provides for the
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<PAGE>
payment by Registrant of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted against Registrant by such director, officer or controlling person
and the Securities and Exchange Commission is still of the same opinion,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The principal business of the Adviser is investment management, and the
principal business address of the Adviser and each of its officers and Directors
is 950 Tower Lane, Suite 1900, Foster City, California 94404. Set forth below is
a list of each other business, profession, vocation or employment of a
substantial nature during the past two fiscal years of each Director and officer
of the Adviser who is a Director or officer of Registrant:
Position(s) Held Other
Name with the Adviser Employment
- ---- ---------------- ----------
Peter M. Hill Chief Investment Officer Director of the Distributor;
and Director Chairman of Registrant
Burnice E. Sparks, Jr. President and Director Chief Executive Officer and
Director of the Distributor;
President of the Fund Group;
President and Director of
Registrant
Barbara V. Bailey Senior Vice President Senior Vice President and
and Treasurer/Secretary Treasurer of Holdings;
Secretary of the Distributor;
Treasurer of Registrant and
the Fund Group; Treasurer
and Secretary of Bailard,
Biehl & Kaiser REIT
Janis M. Horne Senior Vice President Secretary and Chief
and Chief Compliance Compliance Officer of the
Officer Fund Group and Registrant
For additional information as to any other business, profession, vocation
or employment of a substantial nature of Bailard, Biehl & Kaiser, its Directors
and officers, reference is made to Part B of this Registration Statement and to
Form ADV, as amended on June 22, 1998, filed under the Investment Advisers Act
of 1940 by Bailard, Biehl & Kaiser, SEC File No. 801-8562.
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<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
The Distributor, located at 950 Tower Lane, Suite 1900, Foster City,
California 94404, is the principal underwriter for the Registrant and for the
Fund Group. Certain information with respect to the officers and Directors of
the Distributor is set forth below. The principal business address of each such
person is 950 Tower Lane, Suite 1900, Foster City, California, 94404.
Name Position(s) With Other
the Distributor Employment
--------------- ----------
Thomas E. Bailard Chairman of the Board Chairman of the Board and
Chief Executive Officer of
Holdings; Chairman of the
Board and Chief Executive
Officer of the Adviser;
Chairman of the Board and
Trustee of the Fund Group;
Chairman of Bailard, Biehl &
Kaiser REIT.
Peter M. Hill Director Director, Chief Investment
Officer of the Adviser;
Chairman of the Board of
Registrant
Burnice E. Sparks, Jr. Chief Executive Director and President of the
Officer and Director Adviser; President of the
Fund Group; President and
Director of Registrant
Sofi Kyriakidis Treasurer Employee of the Adviser since
November 1995, most recently
as Vice President. 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.
Barbara V. Bailey Secretary Senior Vice President and
Treasurer/Secretary of the
Adviser; Senior Vice
President and Treasurer of
Holdings; Treasurer of the
Fund Group and Registrant;
Treasurer and Secretary of
Bailard, Biehl & Kaiser REIT
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<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Name and Address
Maintaining Records, Books and
Physical Possession Accounts Required By:
------------------- ---------------------
Brown Brothers Harriman & Co. Rule 31a-1(b)(1), (2) (i)-
40 Water Street (iii), (3), (7) and (8).
Boston, MA 02109
Bailard, Biehl & Kaiser, Inc. Rule 31a-1(b)(4)(5), (6),
950 Tower Lane, Suite 1900 (9), (10) and (11)
Foster City, CA 94404
Chase Global Funds Services Company Rule 31a-1(b)(2)(iv)
73 Tremont St.
Boston, MA 02108-3913
ITEM 31. MANAGEMENT SERVICES
Inapplicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to call a stockholders meeting, if requested
to do so by the holders of at least 10% of Registrant's outstanding
shares, for the purpose of voting upon the question of removal of a
director or directors and to assist in communications with other
stockholders as required by Section 16(c) of the 1940 Act.
Registrant undertakes to furnish each person to whom a Prospectus is
delivered with a copy of Registrant's latest annual report to
stockholders, upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Foster City, State of California, on the 30th day of November, 1998.
BAILARD, BIEHL & KAISER
INTERNATIONAL FUND GROUP, INC.
By /s/ Peter M. Hill
-----------------------------------
Peter M. Hill
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Peter M. Hill Chairman; November 30, 1998
- ------------------------------- Director
Peter M. Hill(1)
/s/ Burnice E. Sparks, Jr. President; November 30, 1998
- ------------------------------- Director
Burnice E. Sparks, Jr.
/s/ Barbara V. Bailey Treasurer November 30, 1998
- -------------------------------
Barbara V. Bailey(2)
/s/ Shirley L. Clayton Director November 30, 1998
- -------------------------------
Shirley L. Clayton
/s/ Scott F. Wilson Director November 30, 1998
- -------------------------------
Scott F. Wilson
/s/ James C. Van Horne Director November 30, 1998
- -------------------------------
James C. Van Horne
- ----------
(1) Principal Executive Officer
(2) Principal Financial and Accounting Officer
C-7
<PAGE>
As filed with the Securities and Exchange
Commission on November 30, 1998
Registration No. 2-63270
File No. 811-6146
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 30 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 32 [X]
BAILARD, BIEHL & KAISER INTERNATIONAL FUND GROUP, INC.
(Exact name of registrant as specified in charter)
950 Tower Lane, Suite 1900
Foster City, California 94404
(Address of principal executive offices)
Registrant's telephone number, including area
code:
(800) 882-8383
Exhibits 8.1, 8.2, 10.1, 10.2, 11 and 27
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- -------
8.1 Custodian Agreement between Registrant
and Brown Brothers Harriman & Co.
8.2 Foreign Custody Manager Delegation Agreement
between Registrant and Brown Brothers Harriman
& Co.
10.1 Opinion and Consent of Orrick, Herrington & Sutcliffe
10.2 Opinion and Consent of Piper & Marbury
11 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedules
CUSTODIAN AGREEMENT
AGREEMENT made this 12th day of June, 1990, between BAILARD, BIEHL & KAISER
INTERNATIONAL FUND GROUP, INC. (the "Company") on behalf of the Bailard, Biehl.
& Kaiser International Equity Fund and the Bailard, Biehl & Kaiser International
Fixed-Income Fund portfolio that may be designated from time (the "Funds"), and
Brown Brothers Harriman and any other separate to time by the Company & Co. (the
"Custodian")
WITNESSETH: That in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. The Company hereby employs and appoints the Custodian as a custodian for
the term and Subject to the provisions of this Agreement. The Custodian shall
not be under any duty or obligation to require the Company to deliver to it any
securities or funds owned by the Company and shall have no responsibility or
liability for or on account of securities or funds not so delivered. The Company
will deposit with the Custodian copies of the Articles of Incorporation and
By-Laws (or comparable documents) of the Company arid all amendments thereto,
and copies of such votes and other proceedings of the Company as may be
necessary for or convenient to the Custodian in the performance of its duties.
- 1 -
<PAGE>
2. Except for-securities and funds held by subcustodians appointed pursuant
to the provisions of Section 3 hereof, the Custodian shall have and perform the
following powers and duties:
A. SAFEKEEPING - To keep safely the securities of each Fund that have been
delivered to the Custodian and from time to time to receive delivery of
securities for safekeeping.
B. MANNER OF HOLDING SECURITIES - To hold securities of each Fund (1) by
physical possession of the share certificates or other instruments representing
such securities in registered or bearer form, or (2) in book-entry form by a
Securities System (as said term is efined in Section 2U).
C. REGISTERED NAME; NOMINEE - To hold registered securities of each Fund
(1) in the name or any nominee name of the Custodian or the Fund, or in the name
or any nominee name of any agent appointed pursuant to Section 6E, or (2) in
street certificate form, so-called, and in any case with or without any
indication of fiduciary capacity.
D. PURCHASES - Upon receipt of Proper Instructions, as defined in Section X
on Page 15, insofar as funds are available for the purpose, to pay for and
receive securities purchased for the account of the Fund, payment being made
only upon receipt of the securities (1) by the Custodian, or (2) by a clearing
corporation of a national securities exchange of which the Custodian is a
member, (3) by a Securities System or (4) by a Subcustodian. However, (i) in the
case of repurchase agreements
- 2 -
<PAGE>
entered into by the Fund, the Custodian may release funds to a Securities System
or to a Subcustodian prior to the receipt of advice from the Securities System
or Subcustodian that the securities underlying such repurchase agreement have
been transferred by book entry into the Account (as defined in Section 2U) of
the Custodian maintained with such Securities System or Subcustodian, so long as
the payment instructions to such Securities System or Subcustodian include a
requirement that delivery is only against payment of securities, and (ii) in the
case of time deposits, call account deposits, currency deposits, and other
deposits, contracts or options pursuant to Sections 2L, 2M and 2N, the Custodian
may make payment therefor without receiving an instrument evidencing said
deposit so long as the payment instructions detail specific securities to be
acquired.
E. EXCHANGES - Upon receipt of Proper Instructions, to exchange securities
held by it for the account of a Fund for other securities in connection with any
reorganization, recapitalization, split-up of shares, change of par value,
conversion or other event, and to deposit any such securities in accordance with
the terms of any reorganization or protective plan. Without such instructions,
the Custodian may surrender securities in temporary form for definitive
securities, may surrender securities for transfer into a name or nominee name as
permitted in Section 2C, and may surrender securities for a different number of
certificates or instruments representing the
- 3 -
<PAGE>
same number of shares or same principal amount of indebtedness, provided the
securities to be issued are to be delivered to the Custodian and further
provided Custodian shall at the time of surrendering securities or instruments
receive a receipt or other evidence of ownership thereof.
F. SALES OF SECURITIES - Upon receipt of Proper Instructions, to make
delivery of securities which have been sold for the account of a Fund, but only
against payment therefor (1) in cash, by a certified check, bank cashier's
check, bank credit, or bank wire transfer, or (2) by credit to the account of
the Custodian with a clearing corporation of a national securities exchange of
which the Custodian is a member, or (3) by credit to the account of the
Custodian or an Agent of the Custodian with A Securities System.
G. DEPOSITARY RECEIPTS - Upon receipt of Proper Instructions, to instruct a
subcustodian appointed pursuant to Section 3 hereof (a "Subcustodian") or an
agent of the Custodian appointed pursuant to Section 6E hereof (an "Agent") to
surrender securities to the depositary used by an issuer of American Depositary
Receipts or International Depositary Receipts (hereinafter collectively referred
to as "ADRs") for such securities against a written receipt therefor adequately
describing such securities and written evidence satisfactory to the Subcustodian
or Agent that the depositary has acknowledged receipt of instructions to issue
with respect to such securities
- 4 -
<PAGE>
ADRs in the name of the Custodian, or a nominee of the Custodian, for delivery
to the Custodian in Boston, Massachusetts, or at such other place as the
Custodian may from time to time designate.
Upon receipt of Proper Instructions, to surrender ADRs to the issuer
thereof against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depositary to
deliver the securities underlying such ADRs to a Subcustodian or an Agent.
H. EXERCISE OF RIGHTS; TENDER OFFERS - Upon timely receipt of Proper
Instructions, to deliver to the issuer or trustee thereof, or to the agent of
either, warrants, puts, calls, rights or similar securities for the purpose of
being exercised or sold, provided that the new securities and cash, if any,
acquired by such action are to be delivered to the Custodian, and, upon receipt
of Proper Instructions, to deposit securities upon invitations for tenders of
securities, provided that the consideration is to be paid or delivered or the
tendered securities are to be returned to the Custodian.
I. STOCK DIVIDENDS, RIGHTS, ETC. - To receive and collect all stock
dividends, rights and other items of like nature; and to deal with the same
pursuant to Proper Instructions relative thereto.
- 5 -
<PAGE>
J. 0PTIONS - Upon receipt of Proper Instructions, to receive and retain
confirmations or other documents evidencing the purchase or writing of an option
on a security or securities index by the Fund; to deposit and maintain in a
segregated account, either physically or by book-entry in a Securities System,
securities subject to a covered call option written by the Fund; and to release
and./or transfer such securities or other assets only in accordance with a
notice or other communication evidencing the expiration, termination or exercise
of such covered option furnished by The Options Clearing Corporation, the
securities or options exchange on which such covered option is traded or such
other organi2ation as may be responsible for handling such options transactions.
K. BORROWINGS - Upon receipt of Proper Instructions, to deliver securities
of a Fund to lenders or their agents as collateral for borrowings effected by
the Fund, provided that such borrowed money is payable to or upon the
Custodian's order as Custodian for the Fund.
L. DEMAND DEPOSIT BANK ACCOUNTS - To open and operate an account or
accounts in the name of a Fund on the Custodian's books subject only to draft or
order by the Custodian. All funds received by the Custodian from or for the
account of the Fund shall be deposited in said account(s). The responsibilities
of the Custodian to the Fund for deposits accepted on the Custodian's books
shall be that of a U. S. bank for a similar deposit.
- 6 -
<PAGE>
If and when authorized by Proper Instructions, the Custodian may open and
operate an additional account(s) in such other banks or trust companies as may
be designated by a Fund in such instructions (any such bank or trust company so
designated by a Fund being referred to hereafter as a "Banking Institution"),
provided that such account(s) shall be in the name of the Custodian for account
of the Fund and subject only to the Custodian's draft or order. Such accounts
may be opened with Banking Institutions in the United States and in other
countries and may be denominated in either U. S. Dollars or other currencies as
the Fund may determine. All such deposits shall be deemed to be portfolio
securities of the Fund and accordingly the responsibility of the Custodian
therefor shall be the same as and no greater than the Custodian's responsibility
in respect of other portfolio securities of the Fund.
M. INTEREST BEARING CALL OR TIME DEPOSITS - To place interest bearing fixed
term and call deposits with such banks and in such amounts as a Fund may
authorize pursuant to Proper Instructions. Such deposits may be placed with the
Custodian or with Subcustodians or other Banking Institutions as the Fund may
determine. Deposits may be denominated in U. S. Dollars or other currencies and
need not be evidenced by the issuance or delivery of a certificate to the
Custodian, provided that the Custodian shall include in its record:3 with
respect to the assets of the Fund, appropriate notation as to the amount and
- 7 -
<PAGE>
currency of each such deposit, the accepting Banking Institution, and other
appropriate details. Such deposits, other than those placed with the Custodian,
shall be deemed portfolio securities of the Fund and the responsibilities of the
Custodian therefor shall be the same as those for demand deposit bank accounts
placed with other banks, as described in Section L of this agreement. The
responsibility of the Custodian for such deposits accepted on the Custodian's
books shall be that of a U. S. bank for a similar deposit.
N. FOREIGN EXCHANGE TRANSACTIONS - Pursuant to Proper Instructions, to
enter into foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf and for the account of a Fund.
Such transactions may be undertaken by the Custodian with such Banking
Institutions, including the Custodian and Subcustodian(s) as principals, as
approved and authorized by the Fund. Foreign exchange contracts and options
other than those executed with the Custodian, shall be deemed to be portfolio
securities of the Fund and the responsibilities of the Custodian therefor shall
be the same as those for demand deposit bank accounts placed with other banks as
described in Section 2-L of this agreement.
0. FUTURES CONTRACTS - Upon receipt of Proper Instructions, to receive and
retain confirmations evidencing the purchase or sale of a futures contract or an
option on a futures contract by a Fund; to deposit and maintain in a segregated
account, for the benefit of any futures commission, merchant or to pay to such
- 8 -
<PAGE>
futures commission merchant, assets designated by the Fund as initial,
maintenance or variation "margin" deposits intended to secure the Fund's
performance of its obligations under any futures contracts purchased or sold or
any options on futures contracts written by the Fund, in accordance with the
provisions of Any agreement or agreements among any of the Fund, the Custodian
and such futures commission merchant, designated to comply with the rules of the
Commodity Futures Trading Commission and/or any contract market, the Securities
and Exchange Commission or any similar organization or organizations, regarding
such margin deposits; and to release and/or transfer assets in such margin
accounts only in accordance with any such agreements or rules.
P. STOCK LOANS - Upon receipt of Proper Instructions, to deliver securities
of a Fund, in connection with loans of securities by the Fund, to the borrower
thereof upon the receipt of the cash collateral, if any, for such borrowing. In
the event U. S. Government securities are to be used as collateral, the
Custodian will not release the securities to be loaned until it has received
confirmation that such collateral has been delivered to the Custodian. The
Custodian and the Funds understand that the timing of receipt of such
confirmation will normally require that the delivery of securities to be loaned
will be made one day after receipt of the U. S. Government collateral.
- 9 -
<PAGE>
Q. COLLECTIONS - To collect, receive and deposit in said account or
accounts all income and other payments with respect TO the securities held
hereunder, and to execute ownership and other certificates and affidavits for
all federal and state tax purposes in connection with receipt of income or other
payments with respect to securities of a Fund or in connection with transfer of
securities, and pursuant to Proper Instructions to take such other actions with
respect to collection or receipt of funds or transfer of securities which
involve an investment decision.
R. DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS - Upon receipt of Proper
Instructions from a Fund, or upon receipt of instructions from the Fund's
shareholder servicing agent or agent with comparable duties (the "Shareholder
Servicing Agent") (given by such person or persons and in such manner on behalf
of the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities to the Shareholder Servicing Agent
or otherwise apply funds or securities, insofar as available, for the payment of
dividends or other distributions to Fund shareholders. Upon receipt of Proper
Instructions from a Fund, or upon receipt of instructions from the Shareholder
Servicing Agent (given by such person or persons and in such manner on behalf of
the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities, insofar as available, to the
- 10 -
<PAGE>
Shareholder Servicing Agent or as such Agent shall otherwise instruct for
payment to Fund shareholders who have delivered to such Agent a request for
repurchase or redemption of their shares of capital stock of the Fund.
S. PROXIES, NOTICES, ETC. - Promptly to deliver or mail to a Fund all forms
of proxies and all notices of meetings and any other notices or announcements
affecting or relating to securities owned by the Fund that are received by the
Custodian, and upon receipt of Proper Instructions, to execute and deliver or
cause its nominee to execute and deliver such proxies or other authorizations as
may be required. Neither the Custodian nor its nominee shall vote upon any of
such securities or execute any proxy to vote thereon or give any consent or take
any OTHER action with respect thereto (except as otherwise herein provided)
unless ordered to do so by Proper Instructions.
T. NONDISCRETIONARY DETAILS - Without the necessity of express
authorization from a Fund, (1) to attend to all nondiscretionary details in
connection with the sale, exchange, substitution, purchase, transfer or other
dealings with securities, funds or other property of that Fund held by the
Custodian except as otherwise directed from time to time by the Directors of the
Company, and (2) to make payments to itself or others for minor expenses of
handling securities or other similar items relating to the Custodian's duties
under this Agreement, provided that all such payments shall be accounted for to
the Fund.
- 11 -
<PAGE>
U. BILLS - Upon receipt of Proper Instructions, to pay or cause to be paid,
insofar as funds are available for the purpose, bills, statements, or other
obligations of a Fund.
V. DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS - The Custodian may deposit
and/or maintain securities owned by a Fund in (i) The Depository Trust Company,
(ii) any book-entry system as provided in Subpart 0 of Treasury Circular No.
300, 31 CFR 306, Subpart B of 31 CFR Part 350, or the book-entry regulations of
federal agencies substantially in the form of Subpart 0, or (iii) any other
domestic clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934 which acts as a
securities depository and whose use the Fund has previously approved in writing
(each of the foregoing being referred to in this Agreement as a "Securities
System"). Utilization of a Securities System shall be in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission rules
and regulations, if any, and subject to the following provisions:
1) The Custodian may deposit and/or maintain Fund securities, either
directly or through one or more Agents appointed by the Custodian (provided that
any such agent shall be qualified to act as a custodian of the Fund pursuant to
the Investment Company Act of 1940 and the rules and regulations thereunder), in
a Securities System provided that such securities are represented in an account
- 12 -
<PAGE>
("Account") of the Custodian or such Agent in the Securities System which shall
not include any assets of the Custodian or Agent other than assets held as a
fiduciary, custodian, or otherwise for customers;
2) The records of the Custodian with respect to securities of a Fund which
are maintained in a Securities System shall identify by book-entry those
securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account of a
Fund upon (i) receipt of advice from the Securities System that such securities
have been transferred to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and transfer for the account of
that Fund. The Custodian shall Transfer securities sold for the account of a
Fund upon (i) receipt of advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the Securities System of
transfers of securities for the account of a Fund shall identify the Fund, be
maintained for that Fund by the Custodian or an Agent as referred to above, and
be provided to that Fund at its request. The Custodian shall furnish a Fund
confirmation of each transfer to or from the account of the Fund in the form of
a written advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the Securities System
for the account of the Fund on the next business day;
- 13 -
<PAGE>
4) The Custodian shall provide a Fund with any report obtained by the
Custodian or any Agent as referred to above on the Securities System's
accounting system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System; and the Custodian and such Agents
shall send to the Fund such reports on their own systems of internal accounting
control as the Fund may reasonably request from time to time.
5) At the written request of a Fund, the Custodian will terminate the use
of any such Securities System on behalf of the Fund as promptly as practicable.
W. OTHER TRANSFERS - Upon receipt of Proper Instructions, to deliver
securities, funds and other property of a Fund to a Subcustodian or another
custodian of the Fund; and, upon receipt of Proper Instructions, to make such
other disposition of securities, funds or other property of a Fund in a manner
other than or for purposes other than as enumerated elsewhere in this Agreement,
provided that the instructions relating to such disposition shall include a
statement of the purpose for which the delivery is to be made, the amount of
securities to be delivered and the name of the person or persons to whom
delivery is to be made..
X. INVESTMENT LIMITATIONS - In performing its duties generally, and more
particularly in connection with the purchase, sale and exchange of securities
made by or for a Fund, the Custodian may assume, unless and until notified in
- 14 -
<PAGE>
writing to the contrary that Proper Instructions received by it are not in
conflict with or in any way contrary to any provisions of the Company's Articles
of Incorporation or By-Laws (or comparable documents) or votes or proceedings of
the stockholders or Directors of the Company. The Custodian shall in no event be
liable to a Fund and shall be indemnified by the Fund for any violation which
occurs in the course of carrying out instructions given by the Fund of any
investment limitations to which the Fund is subject or other limitations with
respect to the Fund's powers to make expenditures, encumber securities, borrow
or take similar actions affecting its portfolio.
Y. PROPER INSTRUCTIONS - Proper instructions shall mean a tested telex from
a Fund or a written request, direction, instruction or certification signed or
initialled on behalf of the Fund by one or more person or persons as the Board
of Directors of a Fund shall have from time to time authorized, provided,
however, that no such instructions directing the delivery of securities or the
payment of funds to an authorized signatory of the Fund shall be signed by such
person. Those persons authorized to give Proper Instructions may be identified
by the Board of Directors by name, title or position and will include at least
one officer empowered by the Board to name other individuals who are authorized
to give Proper Instructions on behalf of the Fund. Telephonic or other oral
- 15 -
<PAGE>
instructions given by any one of the above persons will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. Oral instructions will be confirmed by tested telex or in writing in
the manner set forth above but the lack of such confirmation shall in no way
affect any action taken by the Custodian in reliance upon such oral
instructions. The Company authorizes the Custodian to tape record any and all
telephonic or other oral instructions given to the Custodian by or on behalf of
a Fund (including any of its officers, Directors, employees or agents) and will
deliver to the Custodian a similar authorization from any investment manager or
adviser or person or entity with similar responsibilities which is authorized to
give Proper Instructions on behalf of the Fund to the Custodian. Proper
instructions may relate to specific transactions or to types or classes of
transactions, and may be in the form of standing instructions.
Proper instructions may include communications effected directly between
electro-mechanical or electronic devices or systems, in addition to tested
telex, provided that the Company and the Custodian agree to the use of such
device or system.
3. Securities, funds and other property of a Fund may be held by
subcustodians appointed pursuant to the provisions of this Section 3 (a
"Subcustodian"). The Custodian may, at any time and from time to time, appoint
any bank or trust company or securities depository (meeting the requirements of
- 16 -
<PAGE>
a custodian or a foreign custodian under the Investment Company Act of 1940 and
the rules and regulations thereunder) to act as a Subcustodian for a Fund,
provided that the Fund shall have approved in writing (1) any such bank or trust
company or securities depository and the subcustodian agreement to be entered
into between such bank or trust company and the Custodian or any Subcustodian,
and (2) if the subcustodian is a bank, trust company or securities depository
organized under the laws of a country other than the United States, the holding
of securities, cash and other property of the Fund in the country in which it is
proposed to utilize the services of such subcustodian. Upon such approval by the
Fund, the Custodian is authorized on behalf of the Fund to notify each
Subcustodian of its appointment as such. The Custodian may, at any time in its
discretion, remove any bank or trust company or securities depository that has
been appointed as a Subcustodian but will promptly notify the Fund of any such
action.
Those Subcustodians, their offices or branches which each Fund has approved
to date are set forth on Appendix A hereto. Such Appendix shall be amended from
time to time as Subcustodians, branches or offices are changed, added or
deleted. A Fund shall be responsible for informing the Custodian sufficiently in
advance of a proposed investment which is to be held at a location not listed on
Appendix A, in order that there shall be sufficient time for the Fund to give
- 17 -
<PAGE>
the approval required by the preceding paragraph and for the Custodian to put
the appropriate arrangements in place with such Subcustodian pursuant to such
subcustodian agreement.
Although a Fund does not intend to invest in a country before the foregoing
procedures have been completed, in the event that an investment is made prior to
approval, if practical, such security shall be removed to an approved location
or if not practical such security shall be held by such agent as the Custodian
may appoint. In such event, the Custodian shall be liable to a Fund for the
actions of such agent if and only to the extent the Custodian shall have
recovered from such agent for any damages caused the Fund by such agent and
provided that the Custodian shall pursue its rights against such agent.
With respect to the securities and funds held by a Subcustodian, either
directly or indirectly, including demand and interest bearing deposits,
currencies or other deposits and foreign exchange contracts as referred to in
Sections 2L, 2M, 2N, or 20 the Custodian shall be liable to a Fund if and only
to the extent that such Subcustodian or any other Subcustodian is liable to the
Custodian and the Custodian recovers under the applicable subcustodian agreement
provided that the custodian shall pursue its rights against such agent. The
Custodian shall nevertheless be liable to the Fund for its own negligence in
transmitting any instructions received by it from the Fund and for its own
negligence in connection with the delivery of any securities or funds held by it
to any such Subcustodian.
- 18 -
<PAGE>
In the event that any Subcustodian appointed pursuant to the provisions of
this Section 3 fails to perform any of its obligations under the terms and
conditions of the applicable subcustodian agreement, the Custodian shall use its
best efforts to cause such Subcustodian to perform such obligations. In the
event that the Custodian is unable to cause such Subcustodian to perform fully
its obligations thereunder, the Custodian shall forthwith upon a Fund's request
terminate such Subcustodian and, if necessary or desirable, appoint another
subcustodian in accordance with the provisions of this Section 3. At the
election of the Fund, it shall have the right to enforce, to the extent
permitted by the subcustodian agreement and applicable law, the Custodian's
rights against any such Subcustodian for loss or damage caused the Fund by such
Subcustodian.
At the written request of a Fund, the Custodian will terminate any
Subcustodian appointed pursuant to the provisions of this Section 3 in
accordance with the termination provisions under the applicable subcustodian
agreement. The Custodian will not amend any subcustodian agreement or agree to
change or permit any changes thereunder except upon the prior written approval
of the Fund.
In the event the Custodian receives a claim from a Subcustodian under the
indemnification provisions of any subcustodian agreement, the Custodian shall
promptly give written notice to the Fund of such claim. No more than thirty days
after written notice to the Fund of the Custodian's intention to make a payment
- 19 -
<PAGE>
under such indemnification provisions, the Fund will reimburse the Custodian the
amount of such payment except in respect of any negligence or misconduct of the
Custodian or any Subcustodian.
4. The Custodian may assist generally in the preparation of reports to Fund
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
5. Each Fund hereby also appoints the Custodian as its financial agent.
With respect to the appointment as financial agent, the Custodian shall have and
perform the following powers and duties:
A. RECORDS - To create, maintain and retain such records relating to its
activities and obligations under this Agreement as are required under the
Investment Company Act of 1940 and the rules and regulations thereunder
(including Section 31 thereof and Rules 3la-1 and 3la-2 thereunder) and under
applicable Federal and State tax laws. All such records will be the property of
the Fund and in the event of termination of this Agreement shall be delivered to
the successor custodian, and the Custodian agrees to cooperate with the Fund in
execution of documents and other actions necessary or desirable in order to
substitute the successor custodian for the Custodian under this agreement.
- 20 -
<PAGE>
B. ACCOUNTS - To keep books of account and render statements, including
interim monthly and complete quarterly financial statements, or copies thereof,
from time to time as reasonably requested by Proper Instructions.
C. ACCESS TO RECORDS - Subject to security requirements of the Custodian
applicable to its own employees having access to similar records within the
Custodian and such regulations as may be reasonably imposed by the Custodian,
the books and records maintained by the Custodian pursuant to Sections 5A and 5B
shall be open to inspection and audit at reasonable times BY officers of,
attorneys for, and auditors employed BY, the Fund.
D. CALCULATION OF NET ASSET VALUE - To compute and determine the net asset
value per share of capital stock of the Fund as of the close of business on the
New York Stock Exchange on each day on which such Exchange is open, unless
otherwise directed by Proper Instructions. Such computation and determination
shall be made in accordance with (1) the provisions of the Articles of
Incorporation or By-Laws of the Company, as they may from time to time be
amended and delivered to the Custodian, (2) the votes of the Board of Directors
of the Company at the time in force and applicable, as they may from time to
time be delivered to the Custodian, and (3) Proper instructions from such
officers of the Company or other persons as are from time to time authorized by
the Board of Directors of the Company to give instructions with respect to
computation and determination of the net asset value. On each day that the
- 21 -
<PAGE>
Custodian shall compute the net asset value per share of the Fund, the Custodian
shall provide the Fund with written reports which permit the Fund to verify that
portfolio transactions have been recorded in accordance with the Fund's
instructions.
In computing the net asset value, the Custodian may rely upon any
information furnished by Proper Instructions, including without limitation any
information (1) as to accrual of liabilities of the Fund and as to liabilities
of the Fund not appearing on the books of account kept by the Custodian, (2) as
to the existence, status and proper treatment of reserves, if any, authorized by
the Fund, (3) as to the sources of quotations to be used in computing the net
asset value, including those listed in Appendix B, (4) as to the fair value to
be assigned to any securities or other property for which price quotations are
not readily available, and (5) as to the sources of information with respect to
"corporate actions" affecting portfolio securities of the Fund, including those
listed in Appendix B. (Information as to "corporate actions" shall include
information as to dividends, distributions, stock splits, stock dividends,
rights offerings, conversions, exchanges, recapitalizations, mergers,
redemptions, calls, maturity dates and similar transactions, including the ex-
and record dates and the amounts or other terms thereof.)
In like manner, the Custodian shall compute and determine the net asset
value as of such other times as the Board of Directors of the Company from time
to time may reasonably request.
- 22 -
<PAGE>
Notwithstanding any other provisions of this Agreement, including Section
6C, the following provisions shall apply with respect to the Custodian's
foregoing responsibilities in this Section 5D: The Custodian shall. be held to
the exercise of reasonable care in computing and determining net asset value as
provided in this Section 5D, but shall not be held accountable or liable for any
losses, damages or expenses the Fund or any shareholder or former shareholder of
the Fund may suffer or incur arising from or based upon errors or delays in the
determination of such net asset value unless such error or delay was due to the
Custodian's negligence, gross negligence or reckless or willful misconduct in
determination of such net asset value. (The parties hereto acknowledge, however,
that the Custodian's causing an error or delay in the determination of net asset
value may, but does not in and of itself, constitute negligence, gross
negligence or reckless or willful misconduct.) In no event shall the Custodian
be liable or responsible to a Fund, any present or former shareholder of a Fund
or any other party for any error or delay which continued or was undetected
after the date of an audit performed by the certified public accountants
employed by a Fund if, in the exercise of reasonable care in accordance with
generally accepted accounting standards, such accountants should have become
aware of such error or delay in the course of performing such audit. The
Custodian's liability for any such negligence, gross negligence or reckless or
- 23 -
<PAGE>
willful misconduct which results in an error in determination of such net asset
value shall be limited to the direct, out-of-pocket loss a Fund, shareholder or
former shareholder shall actually incur, measured by the difference between the
actual and the erroneously computed net asset value, and any expenses a Fund
shall incur in connection with correcting the records of a Fund affected by such
error (including charges made by a Fund's registrar and transfer agent for
making such corrections) or communicating with shareholders or former
shareholders of the Fund affected by such error.
Without limiting the foregoing, the Custodian shall not be held accountable
or liable to the Fund, any shareholder or former shareholder thereof or any
other person for any delays or losses, damages or expenses any of them may
suffer or incur resulting from (1) the Custodian's failure to receive timely and
suitable notification concerning quotations or corporate actions relating to or
affecting portfolio securities of a Fund or (2) any errors in the computation of
the net asset value based upon or arising out of quotations or information as to
corporate actions if received by the Custodian either (i) from a source which
the Custodian was authorized pursuant to the second paragraph of this Section 5D
to rely upon, or (ii) from a source which in the Custodian's reasonable judgment
was as reliable a source for such quotations or information as the sources
authorized pursuant to that paragraph. Nevertheless, the Custodian will use its
- 24 -
<PAGE>
best judgment in determining whether to verify through other sources any
information it has received as to quotations or corporate actions if the
Custodian has reason to believe that any such information might be incorrect.
In the event of any error, or delay in the determination of such net asset
value for which the Custodian may be liable, the Fund and the Custodian will
consult and make good faith efforts to reach agreement on what actions should be
taken in order to mitigate any loss suffered by the Fund or its present or
former shareholders, in order that the Custodian's exposure to liability shall
be reduced to the extent possible after taking into account all relevant factors
and alternatives. Such actions might include the Fund or the Custodian taking
reasonable steps to collect from any shareholder or former shareholder who has
received any overpayment upon redemption of shares such overpaid amount or to
collect from any shareholder who has underpaid upon a purchase of shares the
amount of such underpayment or to reduce the number of shares issued to such
shareholder. It is understood that in attempting to reach agreement on the
actions to be taken or the amount of the loss which should appropriately be
borne by the Custodian, the Fund and the Custodian will consider such relevant
factors as applicable law, the amount of the loss involved, the Fund's desire to
avoid loss of shareholder good will, the fact that other persons or entities
could have been reasonably expected to have detected the error sooner than the
- 25 -
<PAGE>
time it was actually discovered, the appropriateness of limiting or eliminating
the benefit which shareholders or former shareholders might have obtained by
reason of the error, and the possibility that other parties providing services
to a Fund might be induced to absorb a portion of the loss incurred.
E. DISBURSEMENTS - Upon receipt of Proper Instructions, to pay or cause to
be paid, insofar as funds are available for the purpose, bills, statements and
other obligations of the Fund (including but not limited to interest charges,
taxes, management fees, compensation to Company officers and employees, and
other operating expenses of the Fund).
6. A. The Custodian shall not be liable for any action taken or omitted in
reliance upon Proper Instructions believed by it to be genuine or upon any other
written notice, request, direction, instruction, certificate or other instrument
believed by it to be genuine and signed by the proper party or parties.
The Secretary or Assistant Secretary of the Company shall certify to the
Custodian the names, signatures and scope of authority of all persons authorized
to give Proper Instructions or any other such notice, request, direction,
instruction, certificate or instrument on behalf of each Fund, the names and
signatures of the officers of the Company, the name and address of the
Shareholder Servicing Agent, and any resolutions, votes, instructions or
directions of the Company's Board of Directors or shareholders. Such certificate
- 26 -
<PAGE>
may be accepted and relied upon by the Custodian as conclusive evidence of the
facts set forth therein and may be considered in full force and effect until
receipt of a similar certific.1te to the contrary.
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement.
The Custodian shall be entitled, at the expense of a Fund, to receive and
act upon advice of counsel (who may be counsel for a Fund) on all matters, and
the Custodian shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
B. With respect to the portfolio securities, cash and other property of a
Fund held by a Securities System, the Custodian shall be liable to that Fund
only for any loss or damage to the Fund resulting from use of the Securities
System if caused by any negligence, misfeasance or misconduct of the Custodian
or any of its agents or of any of its or their employees or from any failure of
the Custodian or any such agent to enforce effectively such rights as it may
have against the Securities System.
C. Except as may otherwise be set forth in this Agreement with respect to
particular matters, the Custodian shall be held only to the exercise of
reasonable care and diligence in carrying out the provisions of this Agreement,
- 27 -
<PAGE>
provided that the Custodian shall not thereby be required to take any action
which is in contravention of any applicable law. However, nothing herein shall
exempt the Custodian from liability due to its own negligence or willful
misconduct. The Company agrees to indemnify and hold harmless the Custodian and
its nominees from all claims and liabilities (including counsel fees) incurred
or assessed against it or its nominees in connection with the performance of
this Agreement, except such as may arise from its or its nominee's breach of the
relevant standard of conduct set forth in this Agreement. Without limiting the
foregoing indemnification obligation of the Company, the Company agrees to
indemnify the Custodian and its nominees against any liability the Custodian or
such nominee may incur by reason of taxes assessed to the Custodian or such
nominee or other costs, liability or expense incurred by the Custodian or such
nominee resulting directly or indirectly from the fact that portfolio securities
or other property of a Fund is registered in the name of the Custodian or such
nominee.
In order that the indemnification provisions contained in this Paragraph
6-C shall apply, however, it is understood that in any case the Company may be
asked to indemnify or hold the Custodian harmless, the Company shall be fully
and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Custodian will use all
reasonable care to identify and notify the company promptly concerning any
- 28 -
<PAGE>
situation which presents or appears likely to present the probability of such a
claim for indemnification against the Company. The Company shall have the option
to defend the Custodian against any claim which may be the subject of this
indemnification, and in the event that the Company so elects it will so notify
the Custodian, and thereupon the Company shall take over complete defense of the
claim, and the Custodian shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification under this Paragraph 6-C.
The Custodian shall in no case confess any claim or make any compromise in any
case in which the Company will be asked to indemnify the Custodian except with
the Company's prior written consent.
It is also understood that the Custodian shall not be liable for any loss
involving any securities, currencies, deposits or other property of the Company,
whether maintained by it, a Subcustodian, an agent of the Custodian or a
Subcustodian, a Securities System, or a Banking Institution, or a loss arising
from a foreign currency transaction or contract, resulting from a Sovereign
Risk. A "Sovereign Risk" shall mean nationalizaton, expropriation, devaluation,
revaluation, confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
- 29 -
<PAGE>
restrictions, exchange controls, taxes, levies or other charges affecting the
Company's property; or acts of war, terrorism, insurrection or revolution; or
any other similar act or event beyond the Custodian's control.
D. The Custodian shall be entitled to receive reimbursement from a Fund on
demand, in the manner provided in Section 7, for its cash disbursements,
expenses and charges (including the fees and expenses of any Subcustodian or any
Agent) in connection with this Agreement, but excluding salaries and usual
overhead expenses.
E. The Custodian may at any time or times in its discretion appoint (and
may at any time remove) any other bank or trust company as its agent (an
"Agent") to carry out such of the provisions of this Agreement as the Custodian
may from time to time direct, provided, however, that the appointment of such
Agent (other than an Agent appointed pursuant to the third paragraph of Section
3) shall not relieve the Custodian of any of its responsibilities under this
Agreement.
F. Upon request, a Fund shall deliver to the Custodian such proxies, powers
of attorney or other instruments as may be reasonable and necessary or desirable
in connection with the performance by the Custodian or any Subcustodian of their
respective obligations under this Agreement or any applicable subcustodian
agreement.
7. Each Fund shall pay the Custodian a custody fee based on such fee
schedule as may from time to time be agreed upon in writing by the Custodian and
the Fund. Such fee, together with all amounts for which the Custodian is to be
- 30 -
<PAGE>
reimbursed in accordance with Section 6D, shall. be billed to each Fund in such
a manner as to permit payment by a direct cash payment to the Custodian or by
placing Fund portfolio transactions with the Custodian resulting in an
agreed-upon amount of commissions being paid to the Custodian resulting in an
agreed-upon period of time.
8. This Agreement shall continue in full force and effect until terminated
by either party by an instrument in writing delivered or mailed, postage
prepaid, to the other party, such termination to take effect not sooner than
seventy five (75) days after the date of such delivery or mailing. In . the
event of termination the Custodian shall be entitled to receive prior to
delivery of the securities, funds and other property held by it all accrued fees
and unreimbursed expenses the payment of which is contemplated by Sections 6D
and 7, upon receipt by the Fund of a statement setting forth such fees and
expenses.
In the event of the appointment of a successor custodian, it is agreed that
the funds and securities owned by a Fund and HELD by the Custodian or any
Subcustodian shall be delivered to the successor custodian, and the Custodian
agrees to cooperate with the Company in execution of documents and performance
of other actions necessary or desirable in order to substitute the successor
custodian for the Custodian under this Agreement.
- 31 -
<PAGE>
9. This Agreement constitutes the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof. No provision of this
Agreement may be amended or terminated except by a statement in writing signed
by the party against which enforcement of the amendment or termination is
sought.
In connection with the operation of this Agreement, the Custodian and the
Company may agree in writing from time to time on such provisions interpretative
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. No
interpretative or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
10. This instrument is executed and delivered in The Commonwealth of
Massachusetts and shall be governed by and construed according to the laws of
said Commonwealth.
11. Notices and other writings delivered or mailed postage prepaid to the
Fund addressed to the Company at 2755 Campus Drive, San Mateo, CA 94403 or to
such other address as the Company may have designated to the Custodian in
writing, or to the Custodian at 40 Water Street, Boston, Massachusetts 02109,
Attention: Manager, Securities Department, or to such other address as the
Custodian may have designated to the Company in writing, shall be deemed to have
been properly delivered or given hereunder to the respective addressee.
- 32 -
<PAGE>
12. This Agreement shall be binding on and shall inure to the benefit of
the Company and the Custodian and their respective successors and assigns,
provided that neither party hereto may assign this Agreement or any of its
rights or obligations hereunder without the prior written consent of the other
party.
13. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original. This Agreement shall become effective when
one or more counterparts have been signed and delivered by each of the parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
BAILARD, BIEHL & KAISER INTERNATIONAL FUND GROUP, INC.
By /s/
----------------------------
BROWN BROTHERS HARRIMAN & CO
- 33 -
<PAGE>
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
BAILARD, BIEHL & KAISER INTERNATIONAL EQUITY FUND
APPENDIX A
COUNTRY SUBCUSTODIAN DEPOSITORY
- ------- ------------ ----------
ARGENTINA CITIBANK, N.A., BUENOS AIRES Caja de Valores
Citibank, N.A., New York Agt. 7/16/81 CRYL
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
AUSTRALIA NATIONAL AUSTRALIA BANK LTD., MELBOURNE Austraclear Ltd,
National Australia Bank Agt. 5/l/85 Reserve Bank of
Agreement Amendment 2/13/92 Australia
Omnibus Amendment 11/22/93
AUSTRIA CREDITANSTALT BANKVEREIN OeKB
Creditanstalt Bankverein Agreement 12/18/89
Omnibus Amendment 1/17/94
BELGIUM BANQUE BRUXELLES LAMBERT CIK
Banque Bruxelles Lambert Agt. 11/15/90 Banque Nationale
Omnibus Amendment 3/l/94 de Belgique
BERMUDA THE BANK OF N.T. BUTTERFIELD & SON LTD. None
The Bank of N.T. Butterfield & Son Ltd.
Agreement 5/27/97
BRAZIL BANKBOSTON, N.A., SAO PAULO BOVESPA
The First National Bank of Boston CLC
Agreement 1/5/88
Omnibus Amendment 2/22/94
Amendment 7/29/96
CANADA CANADIAN IMPERIAL BANK OF COMMERCE Bank of Canada
Canadian Imperial Bank of Commerce CDS
Agreement 9/9/88
Omnibus Amendment 12/1/93
CHILE CITIBANK, N.A., SANTIAGO DCV
Citibank, N.A., New York Agreement 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
CZECH REPUBLIC CESKOSLOVENSKA OBCHODNI BANKA, A.S., PRAGUE SCP
Ceskoslovenska Obchodni Banka Czech National
Agreement 2/28/94 Bank
DENMARK DEN DANSKE BANK VP
Den Danske Bank Agreement l/l/89
Omnibus Amendment 12/1/93
FINLAND MERITA BANK CSD
Union Bank of Finland Agreement 2/27/89
Omnibus Amendment 4/6/94
FRANCE BANQUE PARIBAS SICOVAM
Morgan Guaranty Trust Company Banque de France
Agreement 4/2/93
Consent and Transfer Agreement 4/4/96
GERMANY DRESDNER BANK DKV
Dresdner Bank Agreement 10/6/95
GREECE CITIBANK, N.A., ATHENS Apothetirion
Citibank, N.A., New York Agreement 7/16/81 Titlon A.E.
New York Agreement Amendment 8/31/90 Bank of Greece
New York Agreement Amendment 7/26/96
PAGE 1 OF 4
<PAGE>
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
BAILARD, BIEHL & KAISER INTERNATIONAL EQUITY FUND
APPENDIX A
COUNTRY SUBCUSTODIAN DEPOSITORY
- ------- ------------ ----------
HONG KONG STANDARD CHARTERED BANK~ HONG KONG HKSCC
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
HIJNGARY CITIBANK BUDAPEST RT. for CITIBANK, N.A. KELER Ltd.
Citibank, N.A., New York Agreement 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank, N.A. Subsidiary Amendment 10/19/95
Citibank, N.A./Citibank Budapest
Agreement 1/24/92
INDONESIA CITIBANK, N.A., JAKARTA LPP
Citibank, N.A., New York Agreement 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
IRELAND ALLIED IRISH BANKS PLC Crestco.
Allied Irish Banks Agreement 1/10/89 Gilt Settlement
Omnibus Amendment 4/8/94 Office
ISRAEL BANK HAPOALIM B.M. TASE
Bank Hapoalim Agreement 8/27/92 Clearinghouse Ltd.
ITALY BANCA COMMERCIALE ITALIANA Monte Titoli
Banca COMMERCIALE ITALIANA AGREEMENT 5/8/89 Banca D'Italia
Agreement Amendment 10/8/93
Omnibus Amendment 12/14/93
JAPAN SUMITOMO TRUST & BANKING COMPANY, LTD. JASDEC
Sumitomo Trust & Banking Agreement 7/17/92 Bank of Japan
OMNIBUS Amendment 1/13/94
KOREA CITIBANK, N.A., SEOUL KSD
Citibank, N.A., New York Agreement 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank, Seoul Agreement Supplement 10/28/94
MALAYSIA HONGKONG BANK MALAYSIA BERHAD Bank Negara
Hongkong & Shanghai Banking Corp. Malaysia MCD
Agt. 4/19/91
Omnibus Supplement 12/29/93
Schedule 5/14/96
Malaysia Subsidiary Supplement 5/23/94
Side letter Agreement dated 7/28/97
MEXICO CITIBANK MEXICO, S. A. Indeval
Citibank, N.A., New York Agreement 7/16/81 Banco de Mexico
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank Mexico, S.A. Amendment 2/7/95
NETHERLANDS ABN-AMRO BANK NECIGEF
AB'N-AMRO Agreement 12/19/88
De Nederlandsche Bank
NEW ZEALAND NATIONAL AUSTRALIA BANK LTD., AUCKLAND Reserve Bank
National Australia Bank Agreement 5/1/85 of New Zealand
Agreement Amendment 2/13/92
Omnibus Amendment 11/22/93
New Zealand Addendum 3/7/89
PAGE 2 OF 4
<PAGE>
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
BAILA,RD, BIEHL & KAISER INTERNATIONAL EQUITY FUND
APPENDIX A
COUNTRY SUBCUSTODIAN DEPOSITORY
- ------- ------------ ----------
NORWAY DEN NORSKE BANK VPS
Den norske Bank Agreement 11/16/94
PERU CITIBANK, N.A., LIMA CAVALI
Citibank, N.A., New York Agreement 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
PHILIPPINES CITIBANK, N.A., MANILA PCD
Citibank, N.A., New York Agreement 7/16181 ROSS
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
POLAND CITIBANK (POLAND), S.A. for CITIBANK, N.A. NDS
Citibank, N.A., New York Agreement 7/16/81 National Bank
New York Agreement Amendment 8/31/90 of Poland
New York Agreement Amendment 7/26/96
Citibank Subsidiary Amendment 10/19/95
Citibank, N.A./Citibank Poland S.A. Agt. 11/6/92
PORTUGAL BANCO ESPIRITO SANTO E COMERCIAL Interbolsa
DE LISBOA, S.A.
BESCL Agreement 4/26/89
Omnibus Amendment 2/23/94
SINGAPORE STANDARD CHARTERED BANK, SINGAPORE CDP
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
SOUTH AFRICA FIRST NATIONAL BANK OF SOUTHERN AFRICA CD
First National Bank of Southern Africa Agt. 8/7/91
SPAIN BANCOSANTANDER. SCLV Banco
Banco Santander Agreement 12/14/88 de Espana
SWEDEN SKANDINAVISKA ENSKILDA BANKEN VPC
Skandinaviska Enskilda Banken Agreement 2/20/89
Omnibus Amendment 12/3/93
SWITZERLAND SWISS BANK CORPORATION SEGA
Swiss Bank Corporation Agreement 3/l/94
TAIWAN STANDARD CHARTERED BANK, TAIPEI TSCD
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
THAILAND HONGKONG & SHANGHAI BANKING COR.P.LTD., BANGKOK TSDC
Hongkong & Shanghai Banking Corp. Agt. 4/19/91
Omnibus Amendment 12/29/93
Schedule 5/14/96
TRANSNATIONAL BROWN BROTHERS HARRIMAN & CO. Cedel
Euroclear
TURKEY CITIBANK, N.A., ISTANBUL Takasbank
Citibank, N.A., New York Agreement 7/16/81 Central Bank
New York Agreement Amendment 8/31/90 of Turkey
New York Agreement Amendment 7/26/96
PAGE 3 OF 4
<PAGE>
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
BAILARD, BIERL & KAISER INTERNATIONAL EQUITY FUND
APPENDIX A
COUNTRY SUBCUSTODIAN DEPOSITORY
- ------- ------------ ----------
UNITED KINGDOM RBS TRUST BANK LTD. CGO
Royal Bank of Scotland Agreement 5/24/96 CMO
CrestCo.
I HEREBY CERTIFY THAT AT ITS MEETING ON _________________________ THE BOARD
APPROVED THE COUNTRIES, SUBCUSTODIANS, AGREEMENTS, AND CENTRAL DEPOSITORIES
LISTED ON THIS APPENDIX.
- ------------------------------- ---------------------
(SIGNATURE) (DATE)
- -------------------------------
(TITLE)
PAGE 4 OF 4
<PAGE>
AMENDMENT TO THE
CUSTODIAN AGREEMENT
Amendment made as of December 22, 1995 (the "Amendment"), between Bailard,
Biehl & Kaiser International Fund Group, Inc. (the "Company") and Brown Brothers
Harriman & Co. (the "Custodian") to the Custodian Agreement dated June 12, 1990,
on behalf of Bailard, Biehl & Kaiser International Equity Fund and Bailard (the
"Fund"), Biehl & Kaiser International Fixed-Income Fund (the "Fund") and any
other separate portfolio that may be designated from time to time by the Fund
and Brown Brothers Harriman & Co.
In consideration of the mutual covenants and agreements herein
contained, the Fund and the Custodian agree that the Custodian Agreement is
hereby amended as follows:
I. Section [y], PROPER INSTRUCTIONS, is amended in its entirety as follows:
"[y]. PROPER INSTRUCTIONS - Proper instructions shall include, in order of
preference, authenticated electro-mechanical communications including SWIFT and
tested telex; a written request signed by two or more authorized persons as set
forth below; telefax transmissions and oral instructions. Each of the foregoing
methods of communicating proper instructions is described and defined below and
may from time to time be further described and defined in written operating
memoranda between the Custodian and the Fund.
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices or systems, including authenticated
SWIFT and tested telex transmissions. The media through which such Proper
Instructions shall be transmitted and the data which must be contained in such
Proper Instructions in order for such instruction to be complete shall be set
forth in certain operating memoranda to which the Custodian and the Fund shall
from time to time agree. The Fund shall be responsible for sending instructions
which meet the requirements set forth therein and the Custodian shall be only be
responsible for acting on instructions which meet such requirements. The
Custodian shall not be liable for direct or consequential losses resulting from
technical failures of any kind in respect of instructions sent via
electro-mechanical or electronic communications.
<PAGE>
Proper Instructions shall include a written request, direction, instruction
or certification signed or initialed on behalf of the Fund by two or more
persons as the Board of Trustees or Directors of the Fund shall have from time
to time authorized, provided, however, that no such instructions directing the
delivery of securities or the payment of funds to an authorized signatory of the
Fund shall be signed by such persons. Those persons authorized to give proper
instructions may be identified by the Board of Trustees or Directors by name,
title or position and will include at least one officer empowered by the Board
to name other individuals who are authorized to give proper instructions on
behalf of the Fund. Telephonic or other oral instructions or instructions given
by facsimile transmission may be given by any one of the above persons and will
be considered proper instructions if the Custodian reasonably believes them to
have been given by a person authorized to give such instructions with respect to
the transaction involved.
With respect to telefax transmissions, the Fund and the Custodian hereby
acknowledge that (i) receipt of legible instructions cannot be assured, (ii) the
Custodian cannot verify that authorized signatures on telefax instructions are
original, and (iii) the Custodian shall not be responsible for losses or
expenses incurred through actions taken in reliance on such telefax
instructions.
The Custodian may act on oral instructions provided such instructions will
be confirmed by authenticated electro-mechanical communications in the manner
set forth above but the lack of such confirmation shall in no way affect any
action taken by the Custodian in reliance upon such oral instructions. The Fund
authorizes the Custodian to tape record any and all telephonic or other oral
instructions given to the Custodian by or on behalf of the Fund (including any
of its officers, Directors, Trustees, employees or agents or any investment
manager or adviser or person or entity with similar responsibilities which is
authorized to give proper instructions on behalf of the Fund to the Custodian.)
Proper instructions may relate to specific transactions or to types or
classes or transactions, and may be in the form of standing instructions."
<PAGE>
Except as amended above, all the provisions of the Custodian Agreement as
hereto effect shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
Bailard, Biehl & Kaiser International Fund Group, Inc.
- ----------------------------------
(signature)
- ----------------------------------
(name/title)
BROWN BROTHERS HARRIMAN & CO.
<PAGE>
CONTRACT AMENDMENT
Reference is made to the Custodian Agreement dated June 12, 1990, as
amended December 22, 1995 (the "Custodian Agreement") between Bailard , Biehl &
Kaiser International Fund Group, Inc. (the "Company"), on behalf of the Bailard,
Biehl & Kaiser International Equity Fund and the Bailard, Biehl & Kaiser
International Bond Fund (the "Funds"), and BROWN BROTHERS HARRIMAN & CO. (the
"Custodian"). Said Agreement is hereby amended by replacing Section 3 of said
agreement with the following:
3. Subject to the provisions hereinafter set forth in this Section 3, the
Company hereby authorizes the Custodian to utilize Subcustodians to act on
behalf of the Funds. Unless otherwise indicated, capitalized terms shall have
the meaning provided in Rule 17f-5 under the Investment Company Act of 1940 (the
"1940 Act"), or any successor rule or regulation ("Rule 17f-5").
A. DEPOSIT AND MAINTENANCE OF SECURITIES or FUNDS WITH FOREIGN
SUBCUSTODIANS - The Custodian may deposit and/or maintain non-U.S. investments
of a Fund in any non-U.S. Securities Depository or Clearing Agency provided such
Securities Depository or Clearing Agency meets the requirements of an "Eligible
Foreign Custodian" under Rule 17f-5 or which by order of the Securities and
Exchange Commission is exempted therefrom. Additionally, the Custodian may, at
any time and from time to time, appoint (a) any bank, trust company or other
entity meeting the requirements of an Eligible Foreign Custodian under Rule
l7f-5 or which by order of the Securities and Exchange Commission is exempted
therefrom, or (b) any bank as defined in Section 2(a)(5) of the 1940 Act meeting
the requirements of a custodian under Section 17(f) of the 1940 Act and the
rules and regulations thereunder, to act on behalf of the Fund for purposes of
holding investments of the Fund outside the United States. Such Securities
Depositories, Clearing Agencies, banks, trust companies and other entities are
referred to herein as "Subcustodians".
1
<PAGE>
Unless and except to the extent that review of certain matters concerning
the appointment of Subcustodians shall have been delegated to the Custodian
pursuant to the next paragraph, the Custodian shall, prior to the appointment of
any Subcustodian for purposes of holding property of the Fund outside the United
States, obtain written confirmation of the approval of the Board of Directors of
the Company (the "Board") or its delegate (other than the Custodian) with
respect to the Subcustodian and any Subcustodian agreement which shall govern
such appointment. Each such duly approved Subcustodian shall be listed on
Schedule I attached hereto as the same may from time to time be amended.
From time to time, the Custodian may offer, and the Company may accept,
that the custodian perform certain reviews of Subcustodians and of Subcustodian
contracts as delegate of the Board. In such event, the Custodian's duties and
obligations with respect to this delegated review will be performed in
ACCORDANCE WITH THE TERMS OF THE separate delegation agreement between the
Company and the Custodian.
With respect to securities and funds held by a Subcustodian, either
directly or indirectly, including demand and interest bearing deposits,
currencies or other deposits and foreign exchange and futures contracts as
referred to in Sections 2L, 2M, 2N, or 20 the Custodian shall be liable to a
Fund (in addition to any liability it may have under the separate delegation
agreement described in the preceding paragraph) if and only to the extent that
such Subcustodian or any other Subcustodian is liable to the Custodian and the
Custodian recovers under the applicable Subcustodian agreement provided that the
Custodian shall pursue its right against such agent. The Custodian shall
nevertheless be liable to the Fund for its own negligence in transmitting any
instruction received by it from the Fund and for its own negligence in
connection with the delivery of any securities or funds held by it to any such
Subcustodian.
In the event that any Subcustoidan appointed pursuant to the provisions of
this Section 3 fails to perform any of its obligations under the terms and
conditions of the applicable subcustodian agreement, the Custodian shall use its
best efforts to cause such Subcustodian to perform such obligations. In the
event that the Custodian is unable to cause such Subcustodian to perform fully
its obligations thereunder, the Custodian shall forthwith upon the Fund's
request terminate such Subcustodian and, if necessary or desirable, appoint
2
<PAGE>
another Subcustodian in accordance with the provisions of this Section 3. At the
election of the Fund, it shall have the right to enforce, to the extent
permitted by the subcustodian agreement and applicable law, the Custodian's
rights against any such Subcustodian for loss or damage caused the Fund by such
Subcustodian.
In the event the Custodian receives a claim from a Subcustodian under the
indemnification provisions of any subcustodian agreement the Custodian shall
promptly give written notice to the Fund of such claim. No more than thirty days
after written notice to the Fund of the Custodian's intention to make a payment
under such indemnification provisions, the Fund will reimburse the Custodian the
amount of such payment except in respect of any negligence or misconduct of the
Custodian or any Subcustodian.
B. DEALING IN FOREIGN SECURITIES AND CASH - With respect to securities and
funds held by a Subcustodian, notwithstanding any provisions of this Agreement
to the contrary, payment for securities purchased and delivery of securities
sold may be made prior to receipt of securities or payment, respectively, and
securities or payment may be received in a form, in accordance with Proper
Instructions.
3
<PAGE>
EFFECTIVE as of June 15, 1998.
BAILARD, BIEHL & KAISER INTERNATIONAL FUND GROUP, INC. on behalf of the BAILARD,
BIEHL & KAISER INTERNATIONAL EQUITY FUND and the BAILARD, BIEHL & KAISER
INTERNATIONAL BOND FUND
By:
-----------------------------------
Title
---------------------------------
BROWN BROTHERS HARRIMAN & CO.
By:
-----------------------------------
Name: Kristen Fitzwilliam Giarrusso
---------------------------------
Title: Partner
--------------------------------
4
FOREIGN CUSTODY MANAGER DELEGATION AGREEMENT
AGREEMENT made as of the 15th day of June, 1998 between Bailard, Biehl &
Kaiser International Fund Group, Inc. (the "Company"), on behalf of the Bailard,
Biehl & Kaiser International Equity Fund and the Bailard, Biehl & Kaiser
International Bond Fund (the "Funds"), each a management investment company
registered with the Securities and Exchange Commission (the "Commission") under
the Investment Company Act of 1940, as amended (the "Act"), acting through its
Board of Directors (the "Board") or its duly appointed representative, and BROWN
BROTHERS HARRIMAN & CO., a New York limited partnership with an office in
Boston, Massachusetts (the "Delegate").
WITNESSETH
WHEREAS the Company has appointed the Delegate as custodian (the "Custod of
the Funds' Assets pursuant to a Custodian Agreement dated June 12, 1990, as
amended December 22, 1995 (the "Custodian Agreement");
WHEREAS the Company may, from time to time, determine to invest and some or
all of the Funds' Assets outside the United States;
WHEREAS, in accordance with Rule 17f-5 under the Act, as amended ("Rule
17f- the Board wishes to delegate to the Delegate certain functions with respect
to the custody OF the Funds' Assets outside the United States;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Company and the Delegate agree as follows. Capitalized
terms shall have the meaning indicated in Section 14 unless otherwise indicated.
1. MAINTENANCE OF FUNDS' ASSETS ABROAD. The Company, acting through its
Board or its duly authorized representative, hereby authorizes Delegate pursuant
to the terms of the Custodian Agreement to place and maintain the Funds' Assets
within the countries listed in Schedule I attached to the Custodian Agreement
("Schedule I") (as such Schedule may be amended from time to time in accordance
herewith). Such authorization shall be deemed to include an instruction to use
any Compulsory Securities Depository approved by the Board in
Page 1
<PAGE>
any such country. Countries may be added to and deleted from Schedule 1 by
written instruction of the Company that is accepted in writing by the Delegate
as an amendment to Schedule 1. With respect to amendments adding countries to
Schedule 1, the Company acknowledges that - (a) the Delegate shall perform
services hereunder only with respect to the countries where it provides
custodial services to the Company under the Custodian Agreement; (b) depending
on conditions in the particular country, advance notice may be required before
the Delegate shall be able to perform its duties hereunder in or with respect to
such country (such advance notice to be reasonable in light of the specific
facts and circumstances attendant to performance of duties in such country); and
(c) nothing in this Agreement shall require the Delegate to provide delegated or
custodial services in any country not listed in Schedule 1 until such amended
Schedule 1 has been accepted by the Delegate in accordance herewith.
2. DELEGATION. Pursuant to the provisions of Rule 17f-5, the Board hereby
delegates to the Delegate, and the Delegate hereby accepts such delegation and
agrees to perform, only those duties set forth in this Agreement concerning the
safekeeping of the Funds' Assets in each of the countries set forth in Schedule
1. The Delegate is hereby authorized to take such actions on behalf of or in the
name of the Company as are reasonably required to discharge its duties under
this Agreement, including, without limitation, to cause the Funds' Assets to be
placed with a particular Eligible Foreign Custodian in accordance herewith. The
Company confirms to the Delegate that the Company or its investment adviser has
considered the Sovereign Risk and prevailing country risk as part of its
continuing investment decision process, including such factors as may be
reasonably related to the systemic risk of maintaining the Funds' Assets in a
particular country, including, but not limited to, financial infrastructure,
prevailing custody and settlement systems and practices, and the laws relating
to the safekeeping and recovery of the Funds' Assets held in custody pursuant to
the terms of the Custodian Agreement.
3. SELECTION OF ELIGIBLE FOREIGN CUSTODIAN AND CONTRACT ADMINISTRATION. The
Delegate shall perform the following duties with respect to the selection of
Eligible Foreign Custodians and administration of the contracts governing the
Funds' foreign custodial arrangements:
Page 2
<PAGE>
(a) SELECTION OF ELIGIBLE FOREIGN CUSTODIAN. The Delegate shall
place and maintain the Funds' Assets only with Eligible Foreign Custodians. With
respect to each such Eligible Foreign Custodian, the Delegate shall have
determined that the Funds' Assets will be subject to reasonable care based on
the standards applicable to custodians in the relevant market after considering
all factors relevant to the safekeeping of such assets including without
limitation:
(i) The Eligible Foreign Custodian's practices, procedures,
and internal controls, including, but not limited to, the physical protections
available for certificated securities (if applicable), the controls and
procedures for dealing with any Securities Depository, the method of keeping
custodial records, and the security and data protection practices;
(ii) Whether the Eligible Foreign Custodian has the requisite
financial strength to provide reasonable care for the Funds' Assets;
(iii) The Eligible Foreign Custodian's general reputation and
standing and, in the case of a Securities Depository, the depository's operating
history and number of participants; and
(iv) Whether the Company will have jurisdiction over and be
able to enforce judgments against the Eligible Foreign Custodian, such as by
virtue of the existence of any offices of such Eligible Foreign Custodian in the
United States or such Eligible Foreign Custodian's appointment of an agent for
service of process in the United States or consent to jurisdiction in the United
States.
(b) CONTRACT ADMINISTRATION. The Delegate shall cause the Funds'
foreign custody arrangements to be governed by a written contract (or, in the
case of a Securities Depository, by such contract, by the rules or established
practices or procedures of the depository, or by any combination of the
foregoing) that the Delegate has determined will provide reasonable care for the
Funds' Assets based on the standards applicable to custodians in the relevant
market. Each such contract shall, except as set forth in the last paragraph of
this subsection (b), include provisions that provide:
(i) For indemnification or insurance arrangements (or any
combination of the foregoing) such that the Funds will be adequately protected
against the risk of loss of assets held in accordance with such contract;
Page 3
<PAGE>
(ii) That the Funds' Assets will not be subject to any right,
charge, security interest, lien or claim of any kind in favor of the Eligible
Foreign Custodian or its creditors except a claim of payment for their safe
custody or administration or, in the case of cash deposits, liens or rights in
favor of creditors of the Eligible Foreign Custodian arising under bankruptcy,
insolvency or similar laws;
(iii) That beneficial ownership of the Funds' Assets will be
freely transferable without the payment of money or value other than for safe
custody or administration;
(iv) That adequate records will be maintained identifying the
Funds' Assets as belonging to the Funds or as being held by a third party for
the benefit of the Funds;
(v) That the Company's independent public accountants will be
given access to those records described in. (iv) above or confirmation of the
contents of such records; and
(vi) That the Company (which may receive such information
through the Delegate) will receive sufficient and timely periodic reports with
respect to the safekeeping of the Funds' Assets, including, but not limited to,
notification of any transfer to or from the Funds' account or a third party
account containing the Funds' Assets.
Such contract may contain, in lieu of any or all of the provisions specified in
this subsection 3(b), such other provisions that the Delegate determines will
provide, in their entirety, the same or a greater level of care and protection
for the Funds' Assets as the specified provisions, in their entirety.
(c) LIMITATION TO DELEGATED SELECTION. Notwithstanding anything in
this Agreement to the contrary, the duties under this Section 3 shall apply only
to Eligible Foreign Custodians selected by the Delegate and shall not apply to
Compulsory Securities Depositories or to any Eligible Foreign Custodian that the
Delegate is directed to use pursuant to Section 7.
4. Monitoring. The Delegate shall establish a system to monitor at
reasonable intervals (and at least annually) the appropriateness of maintaining
the Funds' Assets with each Eligible Foreign Custodian that has been selected by
Page 4
<PAGE>
the Delegate pursuant to Section 3 of this Agreement. The Delegate shall monitor
the continuing appropriateness of placement of the Funds' Assets with each
particular Eligible Foreign Custodian in accordance with the criteria
established under Section 3(a) of this Agreement. The Delegate shall monitor the
continuing appropriateness of the contract governing the Funds' arrangements in
accordance with the criteria established under Section 3(b) of this Agreement.
5. REPORTING. At least annually and more frequently as mutually agreed
between the parties, the Delegate shall provide to the Board written reports
specifying placement of the Funds' Assets with each Eligible Foreign Custodian
selected by the Delegate pursuant to Section 3 of this Agreement and shall
promptly report any material changes to the Funds' foreign custody arrangements.
Delegate will prepare such a report with respect to any Eligible Foreign
Custodian that the Delegate has been instructed to use pursuant to Section 7
only to the extent specifically agreed with respect to the particular situation.
6. WITHDRAWAL OF FUNDS' ASSETS. If the Delegate determines that an
arrangement with a specific Eligible Foreign Custodian selected by the Delegate
under Section 3 of this Agreement no longer meets the requirements of said
Section, Delegate shall withdraw the Funds' Assets from such Eligible Foreign
Custodian as soon as reasonably practicable; PROVIDED, however, that if in the
reasonable judgment of the Delegate, such withdrawal would require liquidation
of any of the Funds' Assets or would materially impair the liquidity, value or
other investment characteristics of the Funds' Assets, it shall be the duty of
the Delegate to provide information regarding the particular circumstances and
to act only in accordance with Proper Instructions of the Company or its
investment advisor with respect to such liquidation or other withdrawal.
7. DIRECTION AS TO ELIGIBLE FOREIGN CUSTODIAN. Notwithstanding this
Delegation Agreement, the Company, acting through its Board, its investment
adviser or its other authorized representative, may direct the Delegate to place
and maintain the Funds' Assets with a particular Eligible Foreign Custodian. In
such event, the Delegate shall be entitled to rely on any such instruction and
shall have no duties under this Delegation Agreement with respect to such
arrangement save those in Section 9 and those that it may undertake specifically
in writing with respect to each particular instance.
Page 5
<PAGE>
8. STANDARD OF CARE. In carrying out its duties under this Agreement, the
Delegate agrees to exercise reasonable care, prudence and diligence such as a
person having responsibility for safekeeping the Funds' Assets would exercise.
9. INFORMATION SERVICES. In addition to the delegated duties set forth
herein, and with respect to the jurisdictions listed in Schedule 1, or added
thereto pursuant to Section 1, the Delegate agrees to provide to the Board
and/or the Company's investment adviser, such information as may be reasonably
available to the Custodian relating to:
(a) Information relevant to the compulsory nature of any Compulsory
Securities Depository;
(b) Information as to the existence and merits of an alternative to
the Compulsory Securities Depository, including matters relevant to practices
with regard to safekeeping, administration and settlement of assets; and,
(c) Information relevant to the criteria with respect to Compulsory
Securities Depositories established by Rule 17f-5 as it existed prior to the
1997 amendments.
The Custodian may provide information under this Section by means of its
regularly established mechanisms for the communication of client market
information. In the provision of information under this Section, the Delegate
shall be responsible to use reasonable care in the gathering of such information
and may rely without limitation on reports and information distributed by the
Compulsory Securities Depository, governmental or regulatory reports, reports of
any auditor of a Compulsory Securities Depository, reports and analysis of
industry groups or similar sources and commercial information services.
Provision of information in accordance with this Section is not offered as
financial, investment or other professional advice. The Custodian makes no
warranty as to the accuracy or completeness of the information provided.
Page 6
<PAGE>
With respect to the jurisdictions listed in Schedule 1, or added thereto
pursuant to Section 1, the Delegate agrees to provide at least annually to the
Board and/or the Company's investment adviser, such information as may be
available relating to: (a) the systemic risks of maintaining the Funds' Assets
in such countries, including but not limited to Sovereign Risk, financial
infrastructure, prevailing custody and settlement systems and practices
(including the practices of any Compulsory Securities Depository), and (b) the
laws relating to the safekeeping and recovery of the Funds' Assets held in such
countries; provided that the Delegate shall only be responsible to use
reasonable care in the gathering of such information and shall not be deemed to
warranty the completeness or specific accuracy of such information. The Delegate
agrees to promptly notify the Board or the Company's investment adviser at any
time that the Delegate becomes aware of a material change in such information in
such information.
The Delegate also agrees to provide such information as may be reasonably
necessary for the Board to determine that it is reasonable to rely on the
Delegate to perform the delegated responsibilities provided for herein.
10. FAVORED CLIENT. In the event that Delegate in the future shall
generally as a matter of its conduct of business offer additional or different
services with respect to performing delegated duties under Rule 17f-5 with
respect to Compulsory Securities Depositories or otherwise, it shall promptly
offer such services to the Company on its usual business terms.
11. REPRESENTATIONS AND WARRANTIES. The Delegate hereby represents and
warrants that it is a U.S. Bank and that this Agreement has been duly
authorized, executed and delivered by the Delegate and is a legal, valid and
binding agreement of the Delegate.
The Company hereby represents and warrants that, based on information
provided by the Delegate and the Company's investment advisor, the Board has
determined that it is reasonable to rely on the Delegate to perform the
delegated responsibilities provided for herein and that this Agreement has been
duly authorized, executed and delivered by the Company and is a legal, valid and
binding agreement of the Company.
Page 7
<PAGE>
12. EFFECTIVENESS, TERMINATION. This Agreement shall be effective as of the
date first above written. This Agreement may be terminated at any time, without
penalty, by written notice from the terminating party to the non-terminating
party. Such termination shall be effective on the 75th day following the date on
which the non-terminating party shall receive the foregoing notice. The
foregoing to the contrary notwithstanding, this Agreement shall be deemed to
have been terminated concurrently with the termination of the Custodian
Agreement.
13. NOTICES. Notices and other communications under this Agreement are to
be made in accordance with the arrangements designated for such purpose under
the Custodian Agreement unless otherwise indicated in a writing referencing this
Agreement and executed by both parties.
14. DEFINITIONS. Capitalized terms in this Agreement have the following
meanings:
a. COMPULSORY SECURITIES DEPOSITORY - shall mean a Securities
Depository the use of which is mandatory (i) under applicable law or regulation;
(ii) because securities cannot be withdrawn from the depository; or (iii)
because maintaining securities outside the Securities Depository is not
consistent with prevailing custodial practices.
b. ELIGIBLE FOREIGN CUSTODIAN - shall have the meaning set forth in
Rule 17f 5(a)(1) and shall also include a U.S. Bank.
c. FUNDS' ASSETS - shall mean any of the Funds' investments
(including foreign currencies) held outside the United States pursuant to Rule
17f-5 under the Act, as well as such cash and cash equivalents as are reasonably
necessary to effect the Funds transactions in such investments.
d. PROPER INSTRUCTIONS - shall have the meaning set forth in the
Custodian Agreement.
e. SECURITIES DEPOSITORY - shall have the meaning set forth in Rule
17f-5(a)(6).
Page 8
<PAGE>
f. SOVEREIGN RISK - shall have the meaning set forth in Section 6C
of the Custodian Agreement.
g. U.S. BANK - shall mean a bank that qualifies to serve as a
custodian of assets of investment companies under Section 17(f) of the Act.
15. GOVERNING LAW AND JURISDICTION. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts. The parties
hereby submit to the exclusive jurisdiction of the Federal courts sitting in the
Commonwealth of Massachusetts or of the state courts of such Commonwealth.
16. FEES. Delegate shall perform its functions under this Agreement
compensation determined under the Custodian Agreement.
17. INTEGRATION. This Agreement sets forth all of the Delegate's duties
with respect to the selection and monitoring of Eligible Foreign Custodians, the
administration of contracts with Eligible Foreign Custodians, the withdrawal of
assets from Eligible Foreign Custodians and the issuance of reports in
connection with such duties. The terms of the Custodian Agreement shall apply
generally as to matters not expressly covered in this Agreement, including
dealings with the Eligible Foreign Custodians in the course of discharge of the
Delegate's obligations under the Custodian Agreement.
Page 9
<PAGE>
NOW THEREFORE, the parties have caused this Agreement to be executed by its
duly authorized representatives, effective as of the date first above written.
BROWN BROTHERS HARRIMAN & CO.
Name: Kristen Fitzwilliam Giarrusso
-------------------------------
Title: Partner
------------------------------
Date: June 30, 1998
-------------------------------
BAILARD, BIEHL & KAISER
INTERNATIONAL FUND GROUP,
INC, on behalf of the BAILARD,
BIEHL & KAISER
INTERNATIONAL EQUITY FUND
and the BAILARD, BIEHL & KAISER
INTERNATIONAL ND FUND
Name: Burnice
-------------------------------
Title: President
------------------------------
Date: 6/26/98
-------------------------------
Page 10
Exhibit 10.1
ORRICK, HERRINGTON
& SUTCLIFFE
July 25, 1990
Bailard, Biehl & Kaiser
International Fund Group, Inc.
2755 Campus Drive
San Mateo, California 94403
Re: Bailard, Biehl & Kaiser International Fund
Group, Inc.: Post-Effective Amendment No. 14
to Registration Statement on Form N-1A
--------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Bailard, Biehl & Kaiser
International Fund Group, Inc. (the "Fund Group"), in connection with the
preparation and filing of Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A (No. 2-63270) under the Securities Act of 1933, as
amended (the "Registration Statement"), covering an unlimited number of shares
of common stock, par value $0.0001 per share (the "Shares"), of the Bailard,
Biehl & Kaiser International Equity Fund series, the Bailard, Biehl & Kaiser
International Fixed-Income Fund series and such other series of Shares as have
been authorized by the Fund Group's Articles of Incorporation dated June 12,
1990.
We have examined records, documents, instruments and
certificates that we have deemed relevant and necessary for the basis of our
opinion hereinafter expressed. In such examination, we have assumed the
following: (a) the authenticity of original documents and the genuineness of all
signatures; (b) the conformity to the originals of all documents submitted to us
as copies; and (c) the truth, accuracy and completeness of the information,
representations, and warranties contained in the records, documents,
instruments, and certificates we have reviewed.
________________________________________________________
Old Federal Reserve Bank Building . 400 Sansome Street .
San Francisco, California 94111
Telephone 415 392 1122 . Facsimile 415 773 5759
Los Angeles 213 680 7000 . New York 212 326 8800 . Sacramento 916 447 9200
<PAGE>
ORRICK, HERRINGTON
& SUTCLIFFE
Bailard, Biehl & Kaiser
International Fund Group, Inc.
July 25, 1990
Page 2
Based on the foregoing, it is our opinion that (i) the
presently outstanding Shares of the Fund Group are legally issued, fully paid
and nonassessable by the Fund Group; and (ii) when the Shares to be offered for
sale pursuant to the Registration Statement have been duly sold, issued and paid
for as contemplated by the Registration Statement, such Shares will be, legally
issued, fully paid and nonassessable by the Fund Group.
In rendering the foregoing opinion, we have relied on the
opinion of Piper & Marbury, annexed hereto as Exhibit A, with respect to the
matters addressed therein.
We hereby consent to the use of our name in the Registration
Statement, including the Prospectus constituting a part thereof, and to the
filing of our opinion with the Securities and Exchange Commission as an exhibit
to such Registration Statement, as originally filed or as
subsequently amended or supplemented.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe
Orrick, Herrington & Sutcliffe
EXHIBIT 10.2
PIPER & MARBURY
1100 Charles Center South
36 South Charles Street
Baltimore, Maryland 21201-3010
301-539-2530
Facsimile 301-539-0489
Cable PIPERMAR BAL
Telex 908054
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
202-861-3900
July 24, 1990
Bailard, Biehl & Kaiser
International Fund Group, Inc.
2755 Campus Drive
San Mateo, California 94403
Dear Sirs:
We have acted as Maryland counsel for Bailard, Biehl & Kaiser
International Fund Group, Inc., a Maryland corporation (the "Fund Group") in
connection with the registration under the Securities Act of 1933, as amended,
of up to 1,000,000,000 shares of the Fund's Common Stock, par value $.0001 per
share (the "Shares") to be issued by the Fund Group pursuant to the Fund Group's
Registration Statement on Form N-1A, filed with the Securities and Exchange
Commission (File Number 2-63270) as amended (the "Registration Statement"). In
that capacity, we have examined Amendment No. 14 to the Registration Statement,
the charter and by-laws of the Fund Group and such statutes, regulations and
corporate records and documents that we have deemed necessary or advisable for
purposes of the following opinion.
Based upon the foregoing and upon such other legal considerations that
we deemed relevant and limited in all respects to applicable Maryland law, we
are of the opinion that the presently outstanding Shares (the "Outstanding
Shares") are, and when the Shares to be offered for sale pursuant to the
Registration Statement (the "New Shares") have been issued and sold as described
therein, such New Shares will be, legally issued, fully paid and nonassessable.
Messrs. Orrick, Herrington and Sutcliffe may rely upon the foregoing
opinion in rendering their opinion on the foregoing matters to the same extent
as if a counterpart of this letter had been addressed to them. We hereby consent
to the incorporation of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Piper & Marbury
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 30 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated November 18, 1998, relating to the financial
statements and financial highlights appearing in the September 30, 1998 Annual
Reports to Stockholders of Bailard, Biehl & Kaiser International Equity Fund and
Bailard, Biehl & Kaiser International Bond Fund, portions of which are
incorporated by reference in the Registration Statement. We also consent to the
references to us under the headings "Financial Highlights" and "Experts" in the
Prospectuses.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
November 25, 1998
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