November 26, 1997
Dear Shareholder:
We are pleased to present your Bailard, Biehl & Kaiser Diversa Fund annual
shareholders' report for the year ended September 30, 1997. With this report, we
have reproduced our October 31, 1997 letter updating you on the Diversa Fund's
performance and investment strategy. We also have included the Fund's annual
financial statement and portfolio holdings as of September 30, 1996.
In our October 31st letter, we discussed the South East Asian currency crisis
that unfolded during the last week of October. Although the U.S. stock market
has recovered much lost ground, the South East Asian and Japanese stock markets
remain volatile. We expect this volatility to continue until economic and
financial conditions in the Pacific Rim stabilize. Moreover, our analysis still
indicates that U.S. stocks are overvalued and remain vulnerable to a correction.
Therefore, we have not made any changes to the Diversa Fund's asset allocation.
As always, please feel free to call us at 800-882-8383 if you have any questions
or comments. We look forward to hearing from you.
Sincerely,
Thomas E. Bailard Burnie E. Sparks, Jr., CFA
Chairman President
<PAGE>
October 31, 1997
Dear Shareholder:
We are pleased to present your Bailard, Biehl & Kaiser Diversa Fund
shareholders' letter for the year ended September 30, 1997. This letter is being
written at the end of a very volatile week for the investment markets - a week
that highlights the benefits of investing in a diversified asset allocation
fund. Today, we will review the performance of the Diversa Fund over the past
year, discuss what happened in the financial markets this week and present our
outlook for the future. We will also review the current investment strategy of
the Fund.
Market Review and Performance Update
The year ended September 30, 1997 was a very good one for both the Diversa Fund
and the investment markets. The Bailard, Biehl & Kaiser Diversa Fund advanced a
handsome 19.1%1 over this twelve-month period. The best performance came from
U.S. stocks, which benefited from strong corporate earnings, low interest rates
and an ideal economic environment. The prospect of continued steady growth and
low inflation helped the U.S. stock market have one of its best years ever.
However, international stocks also posted strong double-digit returns as gains
in the European markets more than offset weakness in Japan. The world's bond
markets were more subdued, with returns in the high single- digit range.
The strength of the returns over the past twelve months masks some of the
volatility in the financial markets. After a robust performance during the
fourth quarter of 1996, the markets pulled back a little during the first
quarter of 1997 on fears that stronger economic growth would rekindle inflation
in the U.S. The domestic stock market experienced a mini-correction that
bottomed out in mid-April when it became apparent that inflation was still under
control. This set the stage for an impressive rally during the second quarter of
1997, which continued into July. By August, however, the picture had become a
little bit more mixed. Currency speculation in some of the smaller South East
Asian countries and economic weakness in Japan sent some quivers through both
the U.S. and international stock markets. But the world's investment markets
regained their momentum in September, allowing the Diversa Fund to post a return
of 3.7%1 for the third quarter of 1997.
We are very pleased with the performance of the Diversa Fund over the past year.
With more than 60% of its assets invested in U.S. and international stocks, the
Fund was able to participate in the robust returns of the global equity markets,
while still maintaining the diversification necessary to reduce downside risks.
The international stock and bond areas performed particularly well relative to
their benchmarks. Domestic stocks returns did lag those of the S&P 500 stock
market index, which tended to be driven by the performance of a small number of
very large-cap issues.
The benefits of a globally diversified stock and bond portfolio were highlighted
during the last week of October, when investors experienced some wild swings in
the investment markets. Although the superstitious might claim that a correction
was inevitable on the tenth anniversary of the 1987 crash, the
<PAGE>
immediate cause of the volatility was currency speculation in South East Asia,
most notably Hong Kong. This triggered a correction in the South East Asian
stock markets that then spread to other foreign countries and to the U.S. The
U.S. stock market fell 7%2 on Monday, October 27th, before bouncing back over
4%2 the following day. The fact that the U.S. stock market corrected was not in
itself surprising. As you know, we have felt that U.S. equities have been
overvalued for most of 1997. However, we expected the main catalyst for a
correction to be negative economic news or earnings disappointments rather than
a meltdown in South East Asia. The events of October reminded investors that
overvalued markets are vulnerable to bad news from any source.
In times such as these, the Fund's broadly diversified approach truly shines. On
October 27th, when the U.S. stock market was off over 7%2 , we estimate the
Diversa Fund declined only about 3%1 . Cash equivalents, global bonds and some
S&P 500 put options all helped stabilize the Fund's portfolio through the
turbulent day. The Fund's international stock holdings also benefited from their
broad country diversification and relative underweight position in South East
Asia.
Market Outlook
We expect the volatility in the investment markets to continue in the short
term, at least until the situation in South East Asia stabilizes. All of the
South East Asian countries are likely to experience significantly slower growth,
and that in turn will tend to have an adverse impact on Japan and other
countries with close economic ties to the region. At this point, we do not view
the correction as posing a direct threat to the U.S. It has brought U.S. stocks
closer to fair valuation levels and made the Federal Reserve Board less likely
to raise interest rates in November. However, if the situation deteriorates much
further and the contagion spreads, investor confidence is likely to be
undermined. This could have an adverse effect on both U.S. economic prospects
and the financial markets.
Investment Strategy
During the quarter, we reduced our allocation to U.S. bonds by 4% in the belief
that cyclical inflationary pressures had increased the risks in the fixed-income
market. We also lowered our U.S. stock exposure to 40% as domestic equities
became more overvalued. This week, we took advantage of the market weakness and
reversed part of these moves, increasing our U.S. stock weighting to 43% by
selling some of the S&P 500 put options that had provided downside "insurance"
for the portfolio.
The current asset allocation targets of the Diversa Fund are 12% cash
equivalents, 20% U.S. bonds, 43% U.S. stocks, 7% international bonds and 18%
international stocks.
<PAGE>
These are the investment targets for the Bailard, Biehl & Kaiser Diversa Fund as
of October 31, 1997. The Fund's actual asset allocations may fluctuate from time
to time above or below these targets.
Looking forward, we are likely to use any further corrections in the U.S. stock
market as an opportunity to add to our positions here. We are less likely to add
to our international stock holdings in the near term due to the ongoing concern
over the South East Asian currency crisis.
Closing Comments
The year ended September 30, 1997 was a very successful one for investors and
for the Diversa Fund. However, as the events of this week have proven, it is
unrealistic to expect the U.S. stock market to experience extraordinarily robust
returns indefinitely. It is in such periods of volatility that the true value of
globally diversified asset allocation funds can be seen, for they help minimize
downside risk while still allowing investors the opportunity to achieve
attractive returns.
Please feel free to contact one of our client service counselors at 800-882-8383
if you have any questions or would like to discuss the Fund in greater detail.
We continue to appreciate your confidence and support.
Sincerely,
Thomas E. Bailard Burnie E. Sparks, Jr., CFA
Chairman President
- ---------------
(1) Average annual total returns for investment periods ended September 30,
1997: 3 months: 3.73%; 6 months: 13.57%; 12 months: 19.14%; 5 years: 11.27%
annualized; 10 years: 7.29% annualized. As required by the Securities and
Exchange Commission, these figures reflect the average compounded return over
the period indicated that would equate an initial amount invested in shares of
the Fund to the ending redeemable value of such shares, assuming that all
dividends and distributions by the Fund were reinvested at net asset value. The
performance data quoted represents past performance, and the investment return
and principal value of an investment in the Bailard, Biehl & Kaiser Diversa Fund
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
(2) The performance data quoted represents past performance and is no
indication of future results.
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Par
Value Value Shares Value
<S> <C> <C> <C> <C> <C>
Domestic Securities (65.9%) Finance-Continued
PMI Group Inc. 5,700 $326,681
Domestic Fixed Income (19.8%) * Travelers Property Casualty Corp. 6,700 271,350
Washington Mutual Inc. 8,600 599,850
----------
Government Bonds Total Finance 2,348,075
United States Treasury Bonds ----------
7.625% 02-15-25 $250,000 $286,602 Health Care (3.8%)
United States Treasury Notes American Home Products Corp. 4,800 350,400
7.125% 02-29-00 1,675,000 1,722,109 * ATL Ultrasound Inc. 6,600 308,550
United States Treasury Notes Johnson & Johnson 9,100 524,388
5.875% 02-15-04 3,050,000 3,018,547 Teva Pharmaceutical Inds, Ltd. ADR 4,400 245,300
United States Treasury Notes ----------
5.625% 02-15-06 2,500,000 2,411,719 Total Health Care 1,428,638
---------- ----------
High Technology (7.5%)
Boeing Co. 6,760 367,997
Total Domestic Fixed Income * Cisco Systems, Inc. 3,800 277,638
(Identified Cost $7,366,155) 7,438,977 Computer Associates International Inc. 4,400 315,974
---------- Intel Corp. 5,400 498,488
International Business Machines 2,400 254,250
Domestic Stock Market (46.1%) Shares Value Microsoft Corp. 2,900 383,706
Xerox Corp. 8,200 690,336
----------
Basic Industry (3.2%) Total High Technology 2,788,389
Empressa La Moderna ADR 700 15,312 ----------
IMC Global, Inc. 7,000 246,750 Transportation (.9%)
Monsanto Corp. 14,400 561,600 * AMR Corp. 3,000 332,063
Nucor Corp. 6,200 326,662 ----------
* Solutia Inc. 2,880 57,600 Utilities (2.8%)
---------- Enron Corp. 7,000 269,500
Total Basic Industry 1,207,924 * Northeast Utilities 28,300 272,388
---------- Ohio Edison 20,800 487,500
Capital Goods (5.0%)
Corning Incorporated 5,500 259,875 ----------
Deere (John) & Company 8,100 435,375 Total Utilities 1,029,388
General Electric Company 12,300 837,169 ----------
* Litton Inds. Inc. 6,200 337,125 Index Options (.2%)
* Stevens International Inc. Cl. A S & P 500 Stock Index
Warrants Exp. 10/30/97 159 0 Put @ 925 Exp 12/20/97 30 79,501
---------- ----------
Total Capital Goods 1,869,544
---------- Total Domestic Stocks
(Identified Cost $12,997,795) 17,261,429
Communications (.9%) ----------
AT & T Corp. 8,000 354,500
---------- Total Domestic Securities
(Identified Cost $20,363,950) 24,700,406
Consumer Cyclicals (4.7%) ----------
* Cooper Tire & Rubber Co. 11,000 292,188
Danka Business System Plc ADR 6,000 267,000
* General Nutrition Cos. Inc. 12,100 352,413 International Securities (25.7%) Par Value
* Lear Corp. 6,700 329,974 (Local Currency) Value
Sound Advice Inc. Warrants, Exp. 6/14/99 93 0
Sysco Corp. 14,000 517,125 International Fixed Income (5.9%)
----------
Total Consumer Cyclicals 1,758,700
---------- Asian Development Bank
Consumer Staples (6.3%) 5.625% 02-18-02 (Y) 15,000,000 147,571
Eastman Kodak Co. 3,700 240,269 British Telecom PLC
First Brands Corp. 11,200 299,600 7.125% 09-15-03 (pound) 30,000 49,661
Food Lion Inc. Class B 46,000 368,000 German Federal Republic
PepsiCo, Inc. 19,800 803,138 8.375% 05-21-01 DM 210,000 133,617
Philip Morris Co. Inc. 10,300 428,094 Republic of Germany
Unilever NV NY Shrs. 1,100 233,887 6.875% 05-12-05 DM 200,000 123,976
---------- Government of France
Total Consumer Staples 2,372,988 9.500% 01-25-01 FF 1,550,000 300,949
---------- Government of Netherlands
Energy/Resources (4.5%) 8.500% 03-15-01 NLG 300,000 168,972
Kerr McGee Corp. 5,200 357,825 Government of Sweden
Mobil Corp. 6,900 510,600 13.00% 06-15-01 SEK 1,400,000 230,732
Royal Dutch Petroleum Co. NY Reg 10,400 577,200 Government of Australia
Valero Energy Corp. 7,500 246,094 9.750% 03-15-02 A$ 150,000 126,156
---------- Government of Canada
Total Energy/Resources 1,691,719 8.500% 04-01-02 C$ 150,000 122,669
---------- Kingdom of Denmark
8.000% 05-15-03 DKr 1,125,000 188,487
Finance (6.3%) Ontario Hydro Global Bond
Banc One Corp. 7,500 418,594 10.000% 03-19-01 C$ 25,000 20,825
Chase Manhattan Corp. 6,200 731,600 Societe Nat'l. Des Chemins De Fer
* National Mercantile Bancorp 6.750% 03-01-00 (Y) 8,000,000 75,656
Warrants Exp. 06/02/99 1,434 0
</TABLE>
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 - CONTINUED
<TABLE>
<CAPTION>
Par Value Value Shares Value
<S> <C> <C> <C> <C>
International Fixed Income-Continued Finland (.9%)
Treuhandanstalt Nokia Corp. ADR 3,600 $337,725
7.750% 10-01-02 DM $450,000 $286,253 --------
U.K. Treasury France (1.1%)
9.750% 08/27/02 (pound) 130,000 237,466 Air Liquide L 121 19,908
--------- Alcatel Alsthom CGE 200 26,601
Axa SA 150 10,064
Total International Fixed Income CIE De St Gobain 300 46,273
(Identified Cost $2,349,805) 2,212,990 CIE Financiere De Paribas A Shares 200 14,834
--------- CLF Dexia France 200 18,947
Carrefour Super Marche 88 54,842
International Stocks (19.8%) Shares Value Eaux (CIE Generale Des) 100 11,766
Eaux (CIE Generale Des) FF Wts
Argentina (.6%) Exp. 5/2/01 100 54
Banco Frances Del Rio Plata ADR 650 21,245 Eridania Beghin Say SA 100 15,509
Perez Companc SA ADR 2,000 31,750 Michelin Class B 300 17,043
Telecom Argent Stet France ADR 600 18,263 Peugeot SA 150 19,773
Telefon De Argentina ADR 1,300 47,613 Sanofi 370 34,366
Transp. Gas Del Sur (TGS) ADR 1,600 18,560 Seita 300 9,356
YPF SA ADR 2,300 84,813 Soc. Natl. Elf Aquitaine Bearer 500 66,754
--------- Societe Generale Paris 200 28,961
Total Argentina 222,244 Technip SA 200 25,421
--------- --------
Total France 420,472
Australia (.1%) --------
Australia & NZ Bank GRP 2,200 17,971 Germany (1.2%)
Broken Hill Proprietary Ltd. 1,000 11,644 BASF AG 1,000 36,124
North Limited 3,000 10,591 Bayer AG 1,000 39,832
--------- Commerzbank AG 650 23,444
40,206 Degussa 300 16,443
--------- Deutsche Bank AG Bearer 950 66,914
Deutsche Telekom 2,100 40,665
Belgium (.5%) Douglas Holdings AG 500 19,618
Fortis 162 32,450 Ind. - Werke Karl - Aug (IWKA) AG 110 27,373
Fortis Strip 12 1 SAP AG Pfd 110 29,397
Delhaize Le Lion NPV 200 9,878 SGL Carbon 100 14,693
D'Ieteren Trading 130 27,824 Veba AG 850 49,691
Electrabel NPV 110 23,060 Viag AG 50 22,388
Kredietbank NPV 80 32,982 Volkswagen AG 120 83,368
PetroFina SA NPV 50 19,585 --------
Powerfin NPV 50 6,771 Total Germany 469,950
Tessenderlo Chemie 360 19,015 --------
---------
Total Belgium 171,566 Greece (.6%)
--------- Alpha Credit Bank 1,000 73,493
Attica Enterprises S.A. 2,000 25,095
Brazil (.7%) Ergo Bank 553 37,063
Companhia Cervejaria Brahma ADR 1,000 15,375 Hellenic Bottling Co. 500 25,991
Electrobras Pfd. ADR 1,900 53,010 Hellenic Telecom Org 900 22,553
Itaubanco SA Pfd ADR 40,000 25,850 Titan Cement Co. 600 36,244
Light Participacoe Com. 40,000 14,239 --------
Petrobras ADR 1,400 38,850 Total Greece 220,439
Telebras ADR 900 115,875 --------
---------
Total Brazil 263,199 Hong Kong/ China (.7%)
--------- Cheung Kong Holdings 2,000 22,550
First Pacific Co. 12,000 12,018
Canada (.5%) Gold Peak Industrial 13,000 8,484
Bombardier, Inc. Class B 700 14,175 Gold Peak Industrial Hldg. Wts.
Canadian Imperial Bank of Commerce 1,000 28,783 Exp. 12/21/25 2,600 279
*Canadian Natural Resources 600 17,682 HSBC Holdings 800 26,775
Cott Corp. 1,500 15,241 Hong Kong & China Gas 15,840 32,546
Hudsons Bay Company Ord. 1,000 26,650 Hong Kong Electric 14,000 52,103
Imperial Oil Ltd. 300 17,250 Hutchison Whampoa 8,000 78,566
Quebecor, Inc. Class B 700 12,504 New World Development Co. Ltd. 3,000 18,182
Telus Corp. 500 10,468 Peregrine Investment
Thomson Corp. 600 14,558 Warrants Exp. 5/15/98 800 238
Transcanada Pipelines Ltd. 700 13,563 Shanghai Industrial Holdings 2,000 12,406
--------- Swire Pacific Class A 2,000 15,313
Total Canada 170,874 --------
--------- Total Hong Kong/ China 279,460
--------
Czech Republic (.1%)
*SPT Telecom 250 31,643 Hungary (.6%)
--------- Egis Rt. 500 25,794
Graboplast Textil 850 50,275
Denmark (.5%) Magyar Olaj-Es Gaz 2,400 52,649
Carlsberg B 200 11,004 OTP Bank (Reg'd.) 850 28,122
D/S Svendborg B 1 71,378 **Richter (Gedeon) GDR 144A 500 53,075
Den Danske Bank 300 32,700 --------
Novo Nordisk A/S B 300 33,547 Total Hungary 209,915
Sophus Berendsen B 150 24,042 --------
Teledanmark A/S B 500 26,320
---------
Total Denmark 198,991
---------
</TABLE>
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997- CONTINUED
<TABLE>
<CAPTION>
Shares Value Shares Value
<S> <C> <C> <C> <C> <C>
Indonesia (.1%) Norway (.5%)
Bank International Indonesia Wts. Awilco AS B Non Voting 1,200 $16,754
Exp.1/17/00 1,812 $155 *Bona Shipholding Ltd. 50 670
Citra Marga Nusaphala Persad 24,000 7,339 Elkem A/S A 1,000 17,769
Gudang Garam (Fgn. Reg'd.) 2,000 5,810 Kvaerner Industrier 400 23,636
Kalbe Farma 17,000 12,867 Leif Hoegh & Co. 600 14,300
--------- Norsk Hydro AS 1,300 77,640
Total Indonesia 26,171 Orkla A/S A 400 35,425
--------- --------
Total Norway 186,194
Ireland (.2%) --------
Allied Irish Banks 2,000 17,670 Philippines (.1%)
Bank Of Ireland 1,500 18,732 Davao Union Cement 60,000 3,319
CRH Ord. 2,500 28,491 *Empire East Land 84,598 1,822
Greencore Group Plc 2,500 11,826 Filinvest Land Inc. 30,900 3,373
Irish Life Plc 1,000 5,241 *Mondragon International 35,000 3,057
Smurfit (Jefferson) Plc 2,500 8,369 Philippine Long Distance 600 16,245
Waterford Wedgewood Units 1,000 1,266 *Philippine National Bank 225 485
--------- --------
Total Ireland 91,595 Total Philippines 28,301
--------- --------
Italy (.4%) Poland (.5%)
Eni Spa 7,500 47,243 Agros Holdings Series C 600 17,549
Fiat Spa Ord. 5,000 17,849 Big Bank Gdanski SA 25,000 32,173
Instituto Nazionale Delle Assicu 12,000 19,158 Bank Przemyslowo Handlowy (BPH) 400 24,335
Istituto Mobilaire Italiano 2,500 26,830 *Computerland Poland SA 600 13,337
Telecom Italia Spa 6,500 43,317 Debica Series A 600 17,461
--------- Elektrim SA Bearer 2,700 30,246
154,397 Mostostal Export Bearer 5,000 16,379
--------- Polifarb Cieszyn Rights 12/15/97 3,000 4,328
*Okocimskie Zaklady Piwowarskie 1,800 11,056
Japan (2.4%) *Polifarb Cieszyn Bearer 3,000 16,408
Bank of Tokyo-Mitsubishi 1,000 19,051 *Rolimpex 1,300 4,335
Chugoku Bank 1,000 15,075 Zaklady Piwowarski Bearer 200 16,087
Dai Ichi Kangyo Bank 3,000 34,043 --------
Fuji Heavy Industries 5,000 20,500 Total Poland 203,694
Fuji Photo Film Co. 1,000 41,249 --------
Fujitsu 2,000 25,017
Hitachi Ltd. 3,000 26,091 Portugal (1.1%)
Hokkaido Takushoku 12,000 9,045 Banco Espirito Santo Reg. 2,400 66,644
Honda Motor Co. 4,000 139,485 *Colep Cia Portuguesa Emba 2,300 40,891
Kyocera Corp. 1,000 65,352 EST Jeronimo Martins Filho Admin. 300 23,099
Long-Term Credit Bank 4,000 17,460 *Electric De Portugal Spon ADR 1,100 37,812
Mitsubishi Chemical 30,000 69,328 Inparsa-Industr Part 450 10,595
Mitsubishi Material 5,000 14,992 Mundial Confianca 3,500 71,506
Mitsui & Co. 1,000 7,860 Portugal Telecom SA 1,300 56,407
Nec Corp. 1,000 12,176 Portugal Telecom Spon. ADR 1,450 62,984
Nippon Tel & Tel 4 36,776 Somague - SGPS 2,340 27,058
Promise Co. 1,650 86,101 --------
Ricoh Co. 3,000 44,976 Total Portugal 396,996
Sankyo Co. Ltd. 3,000 103,868 --------
Sony Corp. 500 47,213
Sumitomo Electric Industries 2,000 28,659 Singapore (.3%)
Sumitomo Metal Industries 13,000 27,027 *Creative Technology Ltd. 700 18,438
--------- DBS Land 4,000 9,725
Total Japan 891,344 Development BK of Singapore 1,000 10,196
--------- Jardine Strategic 3,000 11,760
Keppel Corp. 2,500 9,967
Mexico (.5%) Overseas Chinese Bank (Fgn. Reg'd.) 1,200 8,314
Alfa SA de CV Class A 2,200 20,655 Singapore Airlines Ltd. 1,000 7,386
Cemex SA ADR 3,100 36,522 Singapore Telecom 7,000 11,850
Fomento Economico Mexicano (Femsa) B 3,500 30,157 United Overseas Land
Grupo Carso A1 4,700 37,598 Wts. Exp. 5/28/01 450 176
**Grupo Indl. Maseca SA ADR 144A 500 9,063 *Want Want Holdings 7,000 17,780
*Grupo Televisa GDR 300 10,744 *Want Want Holdings Wts. Exp. 6/97 1,400 3,332
Kimberly Clark de Mexico SA ADR Class A 1,100 28,050 --------
Telefonos de Mexico ADR 600 31,050 Total Singapore 108,924
--------- --------
Total Mexico 203,839
--------- South Africa (.4%)
Anglo-American Corp. of South Africa 500 25,577
Netherlands (1.1%) *Billiton Plc. 4,700 18,094
ABN Amro Hldgs NV 1,000 20,257 De Beers Centenary Link Units 700 20,418
*Baan Co NV 650 46,886 Gencor Ltd. 940 2,218
Fortis Amev NV 500 20,886 Liberty Life Association of Africa Ltd. 1,000 29,169
Getronics NV 600 18,790 Sasol Ltd. 1,800 24,804
ING Groep 1,750 80,401 South Africa Brews 700 20,306
Nutricia Ver Bedrijven CVA 1,500 45,089 --------
OCE - Van Der Grinten NV 100 12,662 Total South Africa 140,586
Royal Dutch Petroleum Co. 1,800 100,794 --------
Samas-Groep NV 300 14,296
Van Ommeren (Koninklijke) 300 12,637
Verenigd Bezit VNU 1,000 23,223
---------
Total Netherlands 395,921
---------
</TABLE>
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 - CONTINUED
<TABLE>
<S> <C> <C> <C> <C>
Shares Value Total International Stocks
(Identified Cost $5,130,292) $7,413,564
South Korea (0.0%)
Korea Long Term Credit Bank 462 $5,052 Total International Securities
Samsung Electronics 101 9,622 (Identified Cost $7,480,097) 9,626,554
--------
Total South Korea 14,674
-------- Total Bonds and Equity Securities (91.6%)
Spain (.6%) (Identified Cost $27,844,077) 34,326,960
Acerinox SA 100 18,905
Autopistas Cesa 551 7,369 Short-Term Investments (6.8%)
Banco Bilbao Vizcaya (Fgn. Reg'd.) 1,200 36,965
Banco De Santander (Fgn. Reg'd.) 900 29,503 Brown Brothers Harriman & Co.
Endesa 2,000 42,703 (Grand Cayman Branch)
Iberdrola SA 1,600 19,682 5.000% Call Account
Repsol SA 500 21,620 (Identified Cost $2,546,000) 2,546,000
Tabacalera SA Series A 100 7,018 ------------
Telefonica de Espana SA 1,000 31,441
--------
Total Spain 215,206 Total Investments (98.4%)
-------- (Identified Cost $30,390,047) 36,872,960
Other Assets less Liabilities (1.6%) 598,171
Switzerland (1.0%) ------------
*Ciba Specialty Chem 76 7,353
Clariant AG (Reg'd.) 50 40,282 Net Assets (100.0%) $37,471,131
Credit Suisse Group (Reg'd.) 320 43,298 ============
Nestle AG (Reg'd.) 30 41,853
Novartis AG (Reg'd.) 86 132,057
Roche Holdings AG (Div. Right Cert.) 3 26,648
Swiss Reinsurance Registered 30 45,054
Swiss Bank Corp. (Reg'd) 100 27,062
--------
Total Switzerland 363,607
--------
United Kingdom (2.5%)
Anglian Water Plc 2,000 26,444
BAA Group 2,100 20,388
Bass Plc 3,300 44,566
BG Plc 5,000 21,727
Bank of Scotland 7,000 58,009
British Aerospace 1,000 26,864
British Petroleum Plc 4,000 60,416
British Steel Plc 9,300 26,779
British Telecom Plc 8,600 56,820
Centrica 5,000 7,471
Carlton Communications PK 4,000 33,161
General Accident Plc 2,000 35,216
General Electric Company Plc 3,500 22,163
Great Universal Stores Plc 3,600 39,836
Ladbroke Group 6,500 28,571
Lloyds TSB Group Plc 10,000 134,482
Mirror Group Plc 13,600 44,049
Prudential Corp. 1,800 20,092
Shell Transport & Trading 3,900 28,571
Smithkline Beecham 14,114 137,938
Tesco Plc 6,000 45,360
Unigate Plc 4,000 36,508
--------
Total United Kingdom 955,431
--------
Currency Legend:
A$ - Australian Dollar DM - German Mark
BEF - Belgium Franc ITL - Italian Lira
(pound) - British Pound (Y) - Japanese Yen
C$ - Canadian Dollar NLG - Netherlands Guilder
DKr - Danish Kroner ESP - Spanish Peseta
FIM - Finnish Markka SEK - Swedish Krona
FF - French Franc CHF - Swiss Franc
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
** Exempt from registration under Rule 144A of the Securities Act of 1933.
These securities may resold in transactions exempt from registration,
normally to qualified institutional buyers. On September 30, 1997, these
securities were valued at $62,138 or 0.17% of net assets.
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at value
(Identified cost $30,390,047) $ 36,872,960
Cash 11,358
Receivables:
Dividends, interest and recoverable foreign taxes $ 186,962
Portfolio securities sold 562,439
Fund shares sold 2,153 751,554
---------
Prepaid expenses 11,951
------------
Total assets 37,647,823
------------
Liabilities
Payables:
Portfolio securities purchased 217
Net for forward currency contracts open (Note 5) 11,320
Shares of the Fund redeemed 20,000 31,537
---------
Accrued management fees (Note 3) 28,538
Other accrued expenses 116,617
------------
Total liabilities 176,692
------------
Net assets (equivalent to $13.91 per share, representing
the offering and redemption price for 2,694,116
shares outstanding, unlimited number of shares authorized) $ 37,471,131
============
Net assets consist of:
Capital paid in $ 28,676,131
Accumulated undistributed net investment income 263,048
Accumulated net realized gain on investments
and foreign currency transactions 2,061,674
Unrealized appreciation (depreciation) on:
Investments $6,482,913
Foreign currency (12,635) 6,470,278
---------- ------------
$ 37,471,131
============
</TABLE>
See "Notes to Financial Statements"
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
STATEMENT OF OPERATIONS
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
Dividends (net of foreign taxes withheld of $18,428) $ 444,362
Interest (net of foreign taxes withheld of $1,201) 922,775
-------------
1,367,137
Expenses
Advisory fees $ 350,110
Custodian fees 151,411
Audit and legal fees 85,554
Transfer agent fees 36,898
Administrative fees 32,908
Trustees' fees and expenses 10,999
Insurance 5,743
Registration fees 3,904
Miscellaneous expenses 578
----------
Total expenses 678,105
-------------
Net investment income 689,032
-------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Net realized gain on investments 2,096,865
Net unrealized gain on investments 3,428,514
-------------
Net gain on investments 5,525,379
-------------
Net realized gain on foreign currency 255,932
Net unrealized loss on foreign currency
and foreign currency denominated assets and
liabilities (46,020)
-------------
Net gain on foreign currency 209,912
-------------
Net gain on investments and foreign currency 5,735,291
-------------
FOREIGN CURRENCY
Net increase in net assets resulting from operations $ 6,424,323
=============
</TABLE>
See "Notes to Financial Statements"
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended September 30,
1997 1996
-------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 689,032 $ 812,328
Net realized gain on investments 2,096,865 3,636,128
Net unrealized gain (loss) on investments 3,428,514 (708,875)
Net realized gain on foreign currency 255,932 42,779
Net unrealized gain (loss) on foreign currency and
foreign currency denominated assets and liabilities (46,020) 72,952
------------- ------------
Net increase resulting from operations 6,424,323 3,855,312
------------- ------------
Distributions to shareholders:
From net investment income (1,145,896) (950,677)
From net realized gains (3,707,053) (2,284,254)
------------- ------------
Total distributions (4,852,949) (3,234,931)
------------- ------------
Fund share transactions:
Proceeds from shares sold 815,065 2,017,739
Net asset value of shares issued on
reinvestment of distributions 4,298,913 2,932,877
Cost of shares redeemed (5,780,476) (9,693,163)
------------- ------------
Net decrease resulting from
Fund share transactions (666,498) (4,742,547)
------------- ------------
Net increase (decrease) 904,876 (4,122,166)
Net Assets
Beginning of year 36,566,255 40,688,421
------------- ------------
End of year (including undistributed net
investment income of $263,048 and
$575,755, respectively) $ 37,471,131 $ 36,566,255
============= ============
Number of Fund Shares
Sold 62,408 153,963
Issued on reinvestment of distributions 345,801 228,096
Redeemed (444,142) (734,896)
------------- ------------
Net decrease (35,933) (352,837)
============= ============
</TABLE>
See "Notes to Financial Statements"
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a share outstanding throughout the year:
Year Ended September 30,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.39 $ 13.20 $ 12.01 $ 12.68 $ 10.93
----------- ---------- ---------- ---------- ----------
Income from Investment Operations:
(1) (1) (1)
Net Investment Income 0.40 0.31 0.38 0.26 0.39
Net Realized/Unrealized Gain (Loss) on
Securities and Foreign Currency 1.92 0.96 1.13 (0.66) 1.66
----------- ---------- ---------- ---------- ----------
Total from Investment Operations 2.32 1.27 1.51 (0.40) 2.05
----------- ---------- ---------- ---------- ----------
Less Distributions:
From Net Investment Income (0.42) (0.32) (0.26) (0.05) (0.30)
From Net Realized Gains (1.38) (0.76) (0.06) (0.22) --
----------- ---------- ---------- ---------- ----------
Total Distributions (1.80) (1.08) (0.32) (0.27) (0.30)
----------- ---------- ---------- ---------- ----------
Net Asset Value, End of Year $ 13.91 $ 13.39 $ 13.20 $ 12.01 $ 12.68
=========== ========== ========== ========== ==========
Total Return 19.14% 10.09% 12.83% (3.18%) 19.05%
Ratios/Supplemental Data:
Net Assets, End of Year (000's) $ 37,471 $ 36,566 $ 40,688 $ 46,047 $ 49,584
Ratio of Expenses to Average Net Assets 1.84% 1.99% 1.85% 1.82% 1.70%
Ratio of Net Investment Income to
Average Net Assets 1.87% 2.09% 2.97% 2.03% 2.88%
Portfolio Turnover Rate 66% 68% 166% 137% 96%
(2)
Average Commission Rate Paid $ 0.0347 $ 0.0344 -- -- --
</TABLE>
- -----------------------------------------------
(1.) Net investment income per share has been computed before adjustments for
book/tax differences.
(2.) Represents average commission rate paid per share on purchases and sales
of equity securities by the Fund, as computed under SEC rule effective
with the Fund's 1996 fiscal year. Prior period rates have not been
presented as permitted by the rule.
See "Notes to Financial Statements"
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies
Bailard, Biehl & Kaiser Diversa Fund (the "Fund") is the sole series of the
Bailard, Biehl & Kaiser Fund Group, which was organized as a Massachusetts
business trust in August 1986 and is registered under the Investment Company Act
of 1940 as a diversified, open-end management investment company. The following
significant accounting policies are followed by the Fund in the preparation of
its financial statements and are in conformity with generally accepted
accounting principles.
Security Valuation
Each listed investment security is valued at the closing price reported by the
principal securities exchange on which the issue is traded or, if no sale is
reported, the mean of the closing bid and asked prices. Securities which are
traded over-the-counter are normally valued at the mean of the closing bid and
asked prices quoted by major dealers of such securities, or, in the absence of
such prices, as determined in good faith by, or under procedures determined by,
the Trustees of the Fund. Short-term obligations with a maturity of 60 days or
less are valued at amortized cost which approximates market.
The Fund's investment in foreign securities may entail risks due to the
potential of political and economic instability in the countries in which the
securities are offered or the issuers conduct their operations. It is the Fund's
policy to continuously monitor exposure to these risks.
Foreign Currency
Foreign currency amounts, other than the cost of investments, are translated
into U.S. dollar values at the mean of the bid and offer price of such currency
against U.S. dollars last quoted on the valuation date. The cost of investments
is translated at the rates of exchange prevailing on the dates the portfolio
securities were acquired.
The Fund includes foreign exchange gains and losses from dividends and interest
receivable and other foreign-currency denominated payables and receivables in
realized and unrealized gain (loss) on foreign currency. The Fund does not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from fluctuations arising from changes in
the market price of securities for financial reporting purposes. Fluctuations in
foreign exchange rates on investments are included with net realized and
unrealized gain (loss) on investments.
Forward Foreign Currency Exchange Contracts
In connection with purchases and sales of securities denominated in foreign
currencies, the Fund may enter into forward foreign currency exchange contracts
("contracts"). Additionally, from time to time the Fund may enter into contracts
to sell foreign currencies to hedge certain foreign currency assets. All
commitments are "marked-to-market" daily at the applicable translation rates
supplied by a quotation service and any resulting unrealized gains or losses are
included as unrealized appreciation (depreciation) on foreign currency
denominated assets and liabilities. The Fund records realized gains or losses at
the time the forward contract is settled. Risks may arise upon entering into
these contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
Options
The Fund may purchase and write call and put options on foreign currencies and
stock indices. When the Fund writes a call or put option, an amount equal to the
premium received is recorded as a liability and subsequently marked to market to
reflect the current value of the option written. Premiums received from writing
options which are exercised or closed are offset against the proceeds or amounts
paid on the transaction to determine the realized gain or loss. The Fund as a
writer of an option has no control over whether the underlying currencies or
indices may be sold (called) or purchased (put) and as a result bears the market
risk of an unfavorable change in the price of the currency or indices underlying
the written option. At September 30, 1997, the Fund had no outstanding written
options.
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
The Fund may also purchase put and call options. The Fund pays a premium which
is included in the Fund's Statement of Assets and Liabilities as an investment
and subsequently marked to market to reflect the current value of the option.
The risk associated with purchasing a put and call option is limited to the
premium paid.
The Fund follows the following procedures when valuing options. For all options
other than index options, the value is the last sale price on the exchange on
which they are listed, unless no sales of such options have taken place on 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.
Federal Income Taxes
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no provision is made for Federal
income taxes.
Paid in capital, undistributed net investment income and undistributed realized
net gain have been adjusted for permanent book-tax differences.
Reclassifications between undistributed net investment income and undistributed
realized net gain arose principally from differing book and tax treatments for
foreign currency transactions.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Other
Investment security transactions are accounted for on the trade date (the date
the order to buy or sell is executed). Dividend income is recorded on the
ex-dividend date or when the Fund first becomes aware of such dividends.
Interest income is recorded on the accrual basis. Distributions to shareholders
are recorded on the ex-dividend date.
The Fund uses the identified cost method for determining realized gain or loss
on investments.
Note 2 - Purchases and Sales of Securities
For the year ended September 30, 1997, purchases and sales of investment
securities other than U.S. Government obligations and short-term investments
aggregated $14,986,997 and $17,411,640, respectively. Purchases and sales of
U.S. Government obligations aggregated $8,202,271 and $13,101,512, respectively.
Note 3 - Management Fee and Other Transactions with Affiliates
The Fund has an Investment Advisory and Management Agreement with Bailard, Biehl
& Kaiser, Inc. (the Advisor). The Agreement requires the payment of a monthly
fee computed on an annual basis as follows:
.95% of the first $75,000,000 of the average daily net assets of the Fund;
.80% on the next $75,000,000;
.65% on amounts in excess of $150,000,000.
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
Note 3 - Continued
As approved by the Trustees, the Fund has entered into an agreement with its
custodian, Brown Brothers Harriman & Co. ("BBH & Co."), whereby brokerage
commissions charged on U.S. equity trades executed through BBH & Co. are
available to offset custody transaction charges. For the year ended September
30, 1997, there were no such credits. In addition, the Fund did not receive any
other credits which reduced its expenses for the year ended September 30, 1997.
Each outside Trustee is compensated by the Fund at the rate of $4,000 per year
plus an attendance fee of $666 for each Trustees' meeting attended and related
travel expenses.
Note 4 - Unrealized Appreciation (Depreciation) on a Tax Basis Unrealized
appreciation (depreciation) at September 30, 1997 based on cost of securities of
$30,511,834 for federal income tax purposes, consists of the following:
Gross unrealized appreciation $ 7,066,963
Gross unrealized depreciation (705,837)
--------------
Net unrealized appreciation $ 6,361,126
==============
Note 5 - Forward Foreign Currency Contracts
At September 30, 1997, the Fund had entered into forward foreign currency
contracts which obligated the Fund to exchange currencies at specified future
dates. At the maturity of a forward contract, the Fund may either make delivery
of the foreign currency from currency held, if any, or from the proceeds of
portfolio securities sold, or it may terminate its obligation to deliver the
foreign currency at any time by purchasing an offsetting contract. The forward
value of amounts due to the Fund under the contracts, including contracts which
have been offset but remained unsettled, has been netted against the forward
value of the currency to be delivered by the Fund and the remaining amount is
shown as payable for forward currency contracts in the financial statements.
Open forward foreign currency exchange contracts outstanding at September 30,
1997 were as follows:
Unrealized
Currency Currency Delivery Appreciation
Receivable Deliverable Date (Depreciation)
---------- ----------- ---- --------------
$ 75,000 A$ 99,377 10/02/97 $ 2,952
75,000 DKr 495,150 10/02/97 1,228
475,927 DM 858,573 10/10/97 (10,575)
176,012 FF 1,068,114 10/10/97 (4,182)
89,428 (pound) 55,788 10/17/97 (659)
30,159 NLG 59,715 10/17/97 102
44,451 SEK 337,825 10/17/97 (146)
159,089 DKr 1,106,940 10/29/97 (5,817)
100,000 (Y) 11,314,500 11/12/97 5,680
29,280 ITL 51,022,500 11/24/97 (261)
56,659 A$ 76,416 11/28/97 1,223
72,138 A$ 99,377 12/03/97 35
74,013 DKr 495,150 12/03/97 106
275,000 DM 483,505 12/18/97 (224)
149,501 C$ 206,760 12/22/97 (782)
-------------
$ (11,320)
=============
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
Note 5 - Continued
Currency Legend:
A$ - Australian Dollar ITL - Italian Lira
C$ - Canadian Dollar NLG - Netherlands Guilder
DKr - Danish Kroner SEK - Swedish Krona
DM - German Mark (pound) - British Sterling
FF - French Franc (Y) - Japanese Yen
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
(Unaudited)
Cumulative Total Return of a $10,000 Investment
October 1, 1987 - September 30, 1997
Average Annual Total Return*
1 Year 5 Year 10 Year
19.14% 11.27% 7.29%
Morgan Stanley World Morgan Stanley World
BBK Diversa local currency US$
----------- -------------------- --------------------
9/87 10,000 10,000 10,000
9/88 9,604 9,035 9,356
9/89 10,897 11,505 11,710
9/90 9,795 8,638 9,186
9/91 11,163 10,849 11,439
9/92 11,851 10,206 11,324
9/93 14,108 12,480 13,616
9/94 13,659 12,927 14,644
9/95 15,412 14,511 16,755
9/96 16,966 17,119 19,045
9/97 20,215 22,184 23,638
As mandated by the Securities and Exchange Commission, the above graph shows the
historic growth of a $10,000 investment in the Bailard, Biehl & Kaiser Diversa
Fund since October 1, 1987. We compare this investment to the growth of
the Morgan Stanley World stock index over the same time period.This index, which
measures the performance of the domestic and international equity markets, is
given in both U.S. dollar and local currency terms. The index does not measure
the performance of the Fund's other asset classes, including domestic and
international bonds. As the graph indicates, a $10,000 investment in the
Bailard, Biehl & Kaiser Diversa Fund would have grown to $20,215 by September
30, 1997.
* As required by the Securities and Exchange Commission, these figure
reflect the average annual compounded return over the period indicated that
would equate an initial amount invested in shares of the Fund to the
ending redeemable value of such shares, assuming that all dividends and
distributions by the Fund were reinvested at net asset value. The
performance data quoted represents past performance, and the investment
return and principal value of an investment in the Bailard, Biehl & Kaiser
Diversa Fund will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and the Board of Trustees of
Bailard, Biehl & Kaiser Diversa Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Bailard, Biehl & Kaiser Diversa
Fund (the "Fund") at September 30, 1997, and the results of its operations, the
changes in its net assets and the financial highlights for the periods indicated
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
November 18, 1997
