November 30, 1998
Dear Shareholder:
We are pleased to present your Bailard, Biehl & Kaiser Diversa Fund annual
shareholders' report for the year ended September 30, 1998. In this report, we
will explain how diversification has helped the Diversa Fund successfully
weather a very volatile year for the world's financial markets. We will also
discuss our market outlook and current investment strategy.
Market Review and Performance Update
What a turbulent year this has been for the global equity markets! During the
twelve months covered by this report, market sentiment has alternated between
extreme optimism and extreme pessimism about the impact of the Asian crisis upon
the world's economies. As a result, global equity investors have experienced
unusually high volatility in their returns. It is almost as if they have been on
a wild roller coaster ride that began with a small dip during the fourth quarter
of 1997, rose sharply to high levels during the first quarter of 1998, slowed
dramatically during the second quarter of 1998 and then plummeted to new lows
during the third quarter of 1998.
The first "dip" in the roller coaster ride coincided with concerns that the
outbreak of a currency crisis in Southeast Asia would adversely affect the rest
of the world. However, these fears soon subsided as bailout packages seemed to
stabilize some of the most troubled Asian markets. Optimism about European
Monetary Union and good economic news in the U.S. also fueled an upswing in the
global equity markets. Both the S&P 500 U.S. stock index and the MSCI-EAFE
(Europe, Australia and Far East) international stock index posted double-digit
gains during the first quarter of 1998.(1) Then, the roller coaster ride
literally plateaued during the second quarter of 1998, when it became apparent
that Asia's problems were more severe than originally believed. Economic growth
slowed worldwide as the Asian crisis spread to other parts of the globe. The
stage was now set for a sharp plunge in the U.S. and international equity
markets.
During the third quarter of 1998, mounting concerns about the Asian crisis, the
emergence of a Russian financial crisis, President Clinton's political troubles
and the near collapse of a huge, high profile American hedge fund all helped
trigger a major correction in the world's stock markets. The S&P 500 declined
almost 10% and the MSCI-EAFE index lost 14.2% for the quarter. Other U.S. and
international stock market indices fell even more. The Russell 2000 Small Stock
U.S. stock index, for example, dropped 20.2% during this three month period.
Offsetting these losses were gains in both the U.S. and international bond
markets.(1)
When the roller coaster ride was finally over, the best returns for the twelve
months ended September 30, 1998 came from U.S. and international bonds. These
investments benefited from declining interest rates and a flight to safety. Cash
equivalents, of course, also posted positive returns. Although the S&P 500 had a
total return of 9.1% for the year, its performance was largely driven by a
relatively limited number of
<PAGE>
the larger companies in the index. Many of the broader U.S. stock market
measures were actually flat to down. (The NASDAQ Composite Index returned 0.7%,
for example, while the Russell 2000 Small Stock Index declined 19.0% for the
year). Overseas, the 8.3% drop in the MSCI-EAFE international stock index masked
larger double-digit losses in some of the Asian and emerging market stock market
indices. All in all, this was not a good year for global equity investors.(1)
How did the Diversa Fund fare in these difficult market conditions? It is during
volatile times such as these that our globally diversified strategy should
shine, and it did. The Diversa Fund's cash equivalent, U.S. bond, international
bond and S&P 500 put option holdings helped offset the impact of the declines in
the U.S. and international stock markets, resulting in a total return of
+3.0%(2) for the year ended September 30, 1998. More importantly, this
performance was achieved with obviously less volatility than a portfolio
invested in stocks alone. The Diversa Fund's total return was 0.1% for the
fourth quarter of 1997, 9.2% for the first quarter of 1998, 0.6% for the second
quarter of 1998, and -6.3% for the third quarter of 1998.(2) Investors in the
Diversa Fund had a much gentler ride than their roller coaster equity
counterparts.
We are pleased with the role the Diversa Fund's asset allocation played in
achieving these performance results. For some time now, we have maintained a
defensive asset mix in the expectation that the U.S. stock market was overvalued
and vulnerable to a correction. Our underweight position in U.S. equities was
particularly helpful during the third quarter of 1998. Yet our use of S&P 500
put options to implement this asset allocation also allowed the Fund to benefit
from the upswing in the domestic stock market earlier this year. Finally, our
decision to increase the Fund's weighting in U.S. bonds by 5% at the end of July
was well timed, as U.S. bonds were one of the best performing asset classes
during the market correction that followed.
Of course, in some areas the Diversa Fund's performance could have been even
better. The performance of the Fund's U.S. stock portfolio lagged a little
behind that of the S&P 500. We maintained a disciplined value oriented approach
to picking stocks and did not choose the overvalued large cap stocks that
dominated the S&P 500 index. The Fund's diversified international stock holdings
had a large weighting in Europe, but could have performed better by being even
more concentrated there.
Since the end of September, the pendulum of market sentiment has once again
swung from pessimism to optimism. Much of the shift can be attributed to the
Fed's decision to lower interest rates in late September and again in
mid-October. Other nations' central banks have lowered their rates as well.
Finally, the President's strengthening political situation has removed some
uncertainty from the marketplace. As a result, global equity markets have
rebounded significantly. U.S. and international bonds, on the other hand, have
retreated a little as long-term interest rates have risen. In keeping with these
trends, the Diversa Fund advanced 4.1% for the month of October.(2)
Market Outlook
Despite the recent rally in the global equity markets, there are considerable
risks ahead. The fundamental problems of excess global capacity, over-investment
and bad debt will take time to resolve. In such an environment, U.S. stocks,
which are now much more overvalued than they were at the end of September,
remain vulnerable to earnings disappointments and other negative news.
International stocks, although generally less overvalued, are also susceptible
to further correction, though they will benefit if the dollar continues to
weaken. Both U.S. and international bonds, however, should benefit from
generally lower interest rates.
<PAGE>
Investment Strategy
Given our market outlook, we have made no changes to our recommended asset mix
since we added 5% to U.S. bonds toward the end of July. This is a time for
managing risks rather than focusing on the potential for higher returns. We
continue to overweight U.S. bonds and underweight U.S. stocks relative to our
long-term strategic allocation. Similarly, we are maintaining a neutral
weighting in international stocks. Despite more attractive valuations, the risks
of further upheaval are just too great to add to international stocks at this
time. We are also not yet ready to increase our target for international bonds,
because we think the dollar has weakened too far, too quickly and is likely to
be stronger in the short term. Finally, we are continuing to use S&P 500 put
options, so that the Diversa Fund can have the opportunity to benefit from
further gains in the U.S. stock market should the economy perform better than
expected. The current asset allocation targets of the Diversa Fund are 13% cash
equivalents, 30% U.S. bonds, 35% U.S. stocks, 7% international bonds and 15%
international stocks.
THESE ARE THE INVESTMENT TARGETS FOR THE BAILARD, BIEHL & KAISER DIVERSA FUND AS
OF NOVEMBER 9, 1998. THE FUND'S ACTUAL ASSET ALLOCATIONS MAY FLUCTUATE FROM TIME
TO TIME ABOVE OR BELOW THESE TARGETS. PLEASE NOTE THAT OUR USE OF S&P 500 PUT
OPTIONS REDUCES OUR EFFECTIVE U.S. EQUITY EXPOSURE FROM THE 42.6% LEVEL SHOWN IN
THE SCHEDULE OF INVESTMENTS TO ABOUT 35% OF THE TOTAL PORTFOLIO. AS A RESULT,
ACTUAL CASH WAS 5.6% AS OF SEPTEMBER 30, 1998.
Closing Comments
The past year underscores the important role diversification can play in helping
investors to successfully weather volatile periods in the investment markets. We
are very pleased with the Diversa Fund's performance in these adverse
circumstances. Although the probabilities have increased that we are entering a
period when investment returns will not be as strong, investors can take comfort
from knowing that diversification can reduce downside risk and help smooth out
some of the fluctuations in the financial markets. Further down the road, the
volatility in the investment markets should create interesting buying
opportunities for patient, longer-term investors.
<PAGE>
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,
/s/ Thomas E. Bailard /s/ Burnie E. Sparks, Jr.
Thomas E. Bailard Burnie E. Sparks, Jr., CFA
Chairman President
(1) The performance data quoted represents past performance and is no indication
of future results.
(2) Total returns for investment periods ended September 30, 1998: 3 months:
- -6.41%; 6 months: -5.80%; 12 months: 2.98%; 5 years: 8.18% annualized; 10 years:
8.09% 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.
<PAGE>
(Unaudited)
Cumulative Total Return of a $10,000 Investment
October 1, 1998 - September 30, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE
BB&K Diversa Morgan Stanley World Morgan Stanley World
Fund (Local Currency) (US$)
------------ -------------------- --------------------
Sep-88 $10,000 $10,000 $10,000
Sep-89 $11,346 $12,734 $12,517
Sep-90 $10,198 $9,560 $9,819
Sep-91 $11,623 $12,008 $12,227
Sep-92 $12,339 $11,295 $12,103
Sep-93 $14,690 $13,813 $14,554
Sep-94 $14,222 $14,307 $15,653
Sep-95 $16,047 $16,061 $17,909
Sep-96 $17,666 $18,947 $20,356
Sep-97 $21,048 $24,553 $25,266
Sep-98 $21,676 $24,665 $25,300
Average Annual Total Return *
1 Year 5 Year 10 Year
------ ------ -------
2.98% 8.18% 8.09%
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, 1988. 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 $21,659 by September
30, 1998.
* As required by the Securities and Exchange Commission, these figures 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
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
PAR
VALUE VALUE
Domestic Securities (72.9%)
DOMESTIC FIXED INCOME (30.3%)
CORPORATE BONDS
Federal National Mortgage Association
6.000% 05-15-08 500,000 $ 531,405
GTE North Incorporated
6.375% 02-15-10 675,000 708,851
Key Bank USA
7.550% 09-15-06 250,000 279,190
UNITED STATES TREASURY OBLIGATIONS
United States Treasury Bonds
7.625% 02-15-25 1,600,000 2,161,500
United States Treasury Notes
7.125% 02-29-00 1,075,000 1,113,633
United States Treasury Notes
5.875% 02-15-04 800,000 858,750
United States Treasury Notes
5.625% 02-15-06 2,325,000 2,509,910
United States Treasury Notes
6.625% 05-15-07 2,200,000 2,537,563
-----------
TOTAL DOMESTIC FIXED INCOME
(IDENTIFIED COST $9,920,335) 10,700,802
-----------
DOMESTIC STOCKS (42.6%) SHARES VALUE
BASIC INDUSTRY (2.7%)
Bemis Company 6,800 238,425
Du Pont (E.I.) De Nemours 4,600 258,175
Newell Co. 6,500 299,406
Nucor Corp. 3,600 146,250
-----------
Total Basic Industry 942,256
-----------
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
DOMESTIC STOCK MARKET- CONTINUED
CAPITAL GOODS (4.3%)
Boeing Co. 6,760 $ 231,953
General Electric Company 7,900 628,544
Tyco Intl. Ltd. 6,900 381,225
United Technologies Corp. 3,700 282,819
---------
Total Capital Goods 1,524,541
---------
COMMUNICATIONS (2.9%)
AT & T Corp. 8,000 467,500
Bell Atlantic Corp. 6,000 290,625
* Qwest Communications 8,629 270,196
---------
Total Communications 1,028,321
---------
CONSUMER CYCLICALS (3.0%)
* General Nutrition Cos. Inc. 6,900 74,606
* Lear Corp. 5,100 223,125
Lowes Co. Inc. 6,900 219,506
Sears Roebuck & Co. 6,900 304,894
* Sound Advice Inc. Warrants (Ex. 6/14/99) 93 0
Wal Mart Stores Inc. 4,500 245,813
---------
Total Consumer Cyclicals 1,067,944
---------
CONSUMER STAPLES (5.7%)
Food Lion Inc. Class B 27,800 271,050
Kimberly Clark Corp. 4,100 166,050
PepsiCo, Inc. 15,000 441,563
Philip Morris Co. Inc. 10,300 474,444
Sysco Corp. 28,000 659,750
---------
Total Consumer Staples 2,012,857
---------
ENERGY/RESOURCES (2.6%)
Kerr McGee Corp. 5,200 236,600
Mobil Corp. 6,900 523,969
Valero Refining & Marketing Co. 7,500 149,063
---------
Total Energy/Resources 909,632
---------
FINANCE (5.3%)
Banc One Corp. 8,250 351,656
BankAmerica Corp. 4,950 297,619
Chase Manhattan Corp. 7,200 311,400
Federal National Mortgage Assoc 5,000 321,250
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
DOMESTIC STOCK MARKET- CONTINUED
FINANCE- CONTINUED
* National Mercantile Bancorp
Warrants (Ex. 06/02/99) 1,434 $ 0
* Ocwen Financial Corporation 11,000 96,250
Reliastar Financial Corp. 6,900 269,100
Washington Mutual Inc. 6,700 226,125
---------
Total Finance 1,873,400
---------
HEALTH CARE (5.8%)
* Alza Corp. 4,300 186,513
American Home Products Corp. 13,200 691,350
* Boston Scientific Corp. 2,300 118,162
* Healthsouth Rehabilitation Corp. 3,300 34,856
Johnson & Johnson 9,100 712,075
Merck & Co. 2,400 310,950
---------
Total Health Care 2,053,906
---------
HIGH TECHNOLOGY (7.0%)
* Cisco Systems, Inc. 8,550 528,497
Computer Associates International Inc. 6,600 244,200
Intel Corp. 5,400 463,050
International Business Machines 2,400 307,200
* Microsoft Corp. 4,000 440,250
Xerox Corp. 5,700 483,075
---------
Total High Technology 2,466,272
---------
TRANSPORTATION (0.6%)
* AMR Corp. 4,000 221,750
---------
UTILITIES (2.0%)
Enron Corp. 7,000 369,688
Southern Co. 10,800 317,925
---------
Total Utilities 687,613
---------
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
PUT OPTIONS ON STOCK INDICIES (0.7%)
PURCHASED
S & P 500 Stock Index Oct
Put @ 1005 Exp 10/17/98 40 $ 98,000
S & P 500 Stock Index Oct
Put @ 900 Exp 10/17/98 10 6,500
S & P 500 Stock Index Oct
Put @ 1025 Exp 10/17/98 20 65,625
S & P 500 Stock Index Oct
Put @ 950 Exp 10/17/98 30 36,000
S & P 500 Stock Index Oct
Put @ 1050 Exp 10/17/98 10 45,250
----------
TOTAL DOMESTIC STOCKS
(IDENTIFIED COST $13,563,301) 14,788,492
----------
TOTAL PUT OPTIONS ON STOCK INDICES
(IDENTIFIED COST $330,979) 251,375
----------
TOTAL DOMESTIC SECURITIES
(IDENTIFIED COST $23,814,615) 25,740,669
----------
PAR VALUE
INTERNATIONAL SECURITIES (21.5%) (LOCAL CURRENCY) VALUE
INTERNATIONAL FIXED INCOME (6.7%)
Asian Development Bank
3.125% 06-29-05 (Y) 15,000,000 125,977
German Federal Republic
8.375% 05-21-01 DM 210,000 140,713
German/Deutschland Bundsrepublk
5.250% 01-04-08 DM 250,000 164,433
Government of Canada
8.500% 04-01-02 C$ 75,000 54,810
Government of Canada
6.000% 06/01/08 C$ 120,000 84,909
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
PAR VALUE
(LOCAL CURRENCY) VALUE
INTERNATIONAL FIXED INCOME- CONTINUED
Government of France
9.500% 01-25-01 FF $1,550,000 $312,417
Government of the Netherlands
8.500% 03-15-01 NLG 300,000 177,221
International Bank for
Reconstruction & Development
7.250% 04-09-01 NZD 200,000 102,386
Kingdom of Denmark
8.000% 05-15-03 DKr 1,125,000 203,031
Kingdom of Sweden
6.500% 10-25-06 SEK 1,600,000 229,121
Quebec Province
8.625% 11-04-11 (pound) 60,000 127,977
Republic of Germany
6.875% 05-12-05 DM 200,000 140,209
Societe Nat'l. des Chemins de Fer
6.750% 03-01-00 (Y) 8,000,000 63,885
Tesco Plc
7.500% 07-30-07 (pound) 30,000 58,206
Treuhandanstalt
7.750% 10-01-02 DM 175,000 120,818
U.K. Treasury
9.750% 08/27/02 (pound) 130,000 254,889
-----------
TOTAL INTERNATIONAL FIXED INCOME
(IDENTIFIED COST $2,318,644) 2,361,002
-----------
SHARES VALUE
International Stocks (14.8%)
ARGENTINA (0.1%)
Telecom Argentina Stet France ADR 600 17,813
Transp. Gas Del Sur (TGS) Spns'd ADR 1,600 15,600
-----------
Total Argentina 33,413
-----------
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
INTERNATIONAL STOCKS- CONTINUED
AUSTRALIA (0.3%)
Australia & NZ Bank Group 11,400 $60,879
CSR Ltd. 4,000 8,412
Lend Lease Corp. Ltd. 850 18,123
The News Corporation Ltd. 1,600 10,310
-------
Total Australia 97,724
-------
AUSTRIA (0.2%)
Bank Austria AG 733 31,426
Evn Energy-Versorg AG 150 22,398
Mayr-Melnhof Karton AG 250 11,257
OMV AG 150 13,433
-------
Total Austria 78,514
-------
BELGIUM (0.4%)
Fortis 162 39,925
Fortis Strip VVPR 12 0
Electrabel NPV 110 43,375
KBC Bancassurance Holding SA 600 38,794
Tractebel Cap NPV 80 12,988
-------
Total Belgium 135,082
-------
BRAZIL (0.1%)
Electrobras Pfd. ADR 1,200 12,000
* Geradoras Sul Spns'd ADR 120 540
Telebras Spns'd ADR 450 31,050
-------
Total Brazil 43,590
-------
CANADA (0.2%)
Canadian Imperial Bank of Commerce 500 9,353
Cott Corp. Quebec 700 3,784
Hudsons Bay Company 1,000 13,858
Quebecor, Inc. Class B 500 9,583
Telus Corp. 500 9,894
Transcanada Pipelines Ltd. 700 10,194
-------
Total Canada 56,666
-------
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
INTERNATIONAL STOCKS- CONTINUED
DENMARK (0.3%)
Den Danske Bank 200 $ 22,659
Novo Nordisk A/S B 300 36,113
Teledanmark A/S B 300 29,787
--------
Total Denmark 88,559
--------
FINLAND (0.8%)
Nokia Corp. ADR 3,600 282,375
--------
FRANCE (1.0%)
Accor 100 20,964
L'Air Liquide 6 951
AXA- UAP SA 150 13,729
Banque Paribas A Shares 600 32,330
Cap Gemini SA 100 15,308
Casino Guichard Perrachon et Cie 500 50,403
Elf Aquitaine SA Spns'd ADR 300 18,656
Eridania Beghin Say SA 100 18,681
Essilor Int'l 100 36,754
FranceTelecom SA 700 41,402
Peugeot SA 150 25,585
Sanofi 200 29,403
Scor 300 17,824
Vivendi 150 29,867
Vivendi Wts. (Ex. 5/2/01) 100 154
--------
Total France 352,011
--------
GERMANY (1.3%)
Aachener und Munchener 42 5,302
Alliance AG 100 30,993
BASF AG 500 18,937
BHF Bank 600 19,386
Deutsche Pfandrief & Hypo Bank 200 14,360
Deutsche Telekom AG 1,500 46,579
Douglas Holdings New 50 2,878
Douglas Holdings AG 500 28,779
Phoenix AG 700 14,701
SAP AG Pf'd 110 52,191
Viag AG 50 34,344
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
INTERNATIONAL STOCKS- CONTINUED
GERMANY- CONTINUED
Volkswagenwerk AG 600 $ 43,258
Vossloh AG 600 15,903
Webs Index Fund, Inc., Germany Webs 7,000 137,374
--------
Total Germany 464,985
--------
GREECE (0.5%)
Alpha Credit Bank 777 57,734
Attica Enterprises S.A 2,400 17,208
Ergo Bank 353 28,436
Hellenic Bottling Co. 500 12,335
Hellenic Telecom Org 1,000 23,958
Titan Cement Co. 300 17,921
--------
Total Greece 157,592
--------
HONG KONG/ CHINA (0.2%)
Dao Heng Bank 13,000 16,777
Gold Peak Industrial 13,000 2,215
Gold Peak Industrial Hldg. Wts. (Ex. 12/21/25) 2,600 33
Hong Kong & China Gas Wts. (Ex. 9/30/99) 42 1
Hong Kong Electric 5,000 17,165
Hong Kong Telecommunications 12,000 23,540
Hutchison Whampoa 4,000 21,114
--------
Total Hong Kong/ China 80,845
--------
HUNGARY (0.0%)
Magyar Olaj-Es Gazpari 800 15,517
--------
IRELAND (0.5%)
Allied Irish Banks 5,000 73,231
CRH 4,500 56,828
* Elan Corp. ADR 500 36,031
Greencore Group Plc 2,500 9,154
Irish Life Plc 1,000 7,398
Smurfit (Jefferson) Plc 6,500 9,714
--------
Total Ireland 192,356
--------
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
INTERNATIONAL STOCKS- CONTINUED
ISRAEL (0.2%)
DSP Group Inc. ADR 700 $ 10,325
* ECI Telecom ADR 600 14,700
Gilat Satellite Networks Ltd. ADR 400 18,000
Koor Industries Ltd. ADR 1,200 19,650
Teva Pharmaceutical Ind. Spns'd ADR 600 22,725
--------
Total Israel 85,400
--------
ITALY (0.6%)
BCA Communication Italiana 2,000 12,011
Eni SpA 3,000 18,373
Fiat SpA 5,000 12,769
Webs Index Fund, Inc., Italy Webs 6,800 147,475
--------
Total Italy 190,628
--------
JAPAN (1.3%)
Alpine Electronics 2,000 20,511
Bank of Tokyo-Mitsubishi 2,000 12,856
* Hokkaido Takushoku 12,000 88
Honda Motor Co. 1,000 30,488
Kirin Brewery Co. Ltd. 2,000 16,045
Kuraya Corporation 3,500 31,627
Mitsui Chemicals 5,000 14,362
Nintendo Co. 200 18,866
Nippon Tel & Tel 3 21,929
Promise Co. 50 2,259
Sankyo Co. Ltd. 1,000 22,187
Sony Corp. 400 27,887
Tohoku Electric Power 1,000 19,174
Uniden Corp. 2,000 16,559
Webs Index Fund, Inc., Japan Webs 27,500 218,281
--------
Total Japan 473,119
--------
MEXICO (0.2%)
Alfa SA de CV Class A 2,200 5,398
Empresas Ica Soc Controladora 13,000 12,247
Soriana SA Series B 7,000 16,830
Telefonos de Mexico Series L ADR 400 17,700
--------
Total Mexico 52,175
--------
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
INTERNATIONAL STOCKS- CONTINUED
NETHERLANDS (2.7%)
ABN Amro Holdings NV 1,000 $ 17,029
Fortis Amev NV 500 28,063
ING Groep NV 750 33,779
OCE - Van Der Grinten NV 400 13,474
Royal Dutch Petroleum Co. 1,000 49,601
Royal Dutch Petroleum New York Shares 7,400 352,425
VNU NV 1,000 41,272
Unilever NV New York Shares 4,700 287,875
Webs Index Fund, Inc., Netherlands Webs 6,200 138,338
--------
Total Netherlands 961,856
--------
NORWAY (0.1%)
* Bona Shipholding Ltd. 33 174
Elkem A/S A 1,000 11,078
Kvaerner Industrier 200 2,540
Norsk Hydro AS 650 23,666
--------
Total Norway 37,458
--------
PHILIPPINES (0.1%)
Davao Union Cement 60,000 672
* Empire East Land 84,600 396
* Filinvest Land 30,900 763
* Mondragon International 42,000 226
Philippine Long Distance 600 12,617
* Philippine National Bank 225 157
--------
Total Philippines 14,831
--------
POLAND (0.3%)
Big Bank Gdanski SA 65,000 56,395
Debica Series A 600 10,411
Elektrim SA 1,500 15,197
Mostostal Export 5,000 4,618
* Okocimskie Zaklady Piwowarskie 1,800 12,594
Polifarb Cieszyn 4,000 5,598
* Stalex Port A 2,000 10,244
--------
Total Poland 115,057
--------
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
INTERNATIONAL STOCKS- CONTINUED
PORTUGAL (0.3%)
Banco Pinto & Sotto Mayor 2,145 $ 34,811
Jeronimo Martins Filho SGPS SA 600 20,304
Electric de Portugal Spns'd ADR 500 22,625
* Mundial Confianca 750 15,412
Portugal Telecom Spns'd. ADR 550 19,800
Somague - SGPS 458 2,803
--------
Total Portugal 115,755
--------
SINGAPORE (0.2%)
* Creative Technology Ltd. 700 6,440
Elec & Eltek International Co. 4,000 19,840
* Jardine Strategic 3,000 3,300
Overseas Chinese Bank (Fgn. Reg'd.) 5,200 13,087
Singapore Telecom 13,000 21,761
United Overseas Land Wts. (Ex. 5/28/01) 450 21
Want Want Holdings 10,080 7,812
--------
Total Singapore 72,261
--------
SOUTH KOREA (0.2%)
Korea Electric Power Corp. 1,000 13,877
Pohang Iron & Steel 1,310 41,540
Samsung Electronics 500 13,662
--------
Total South Korea 69,079
--------
SPAIN (0.8%)
Aceralia S.A 2,500 21,029
Argentaria Corporation 1,000 19,885
Autopistas C.E.S.A 551 8,416
Banco Santander S.A 1,800 27,241
Banco Santander S.A. Rts. (Ex. 9/30/98) 1,800 13
Sevillana de Electricidad 4,000 46,739
Telefonica de Espana S.A 590 21,513
Webs Index Fund, Inc., Spain Webs 6,000 142,875
--------
Total Spain 287,711
--------
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
INTERNATIONAL STOCKS- CONTINUED
SWITZERLAND (0.5%)
Julius Baer Holdings 10 $ 23,478
Roche Holdings Genusscheine 2 21,527
Swiss Reinsurance (Reg'd.) 1 1,983
UBS AG (Reg'd.) 22 4,291
Webs Index Fund, Inc., Switzerland Webs 9,400 129,250
---------
Total Switzerland 180,529
---------
THAILAND (0.2%)
Electricity Generating (Fgn. Reg'd.) 8,000 19,125
PTT Exploration (Fgn. Reg'd.) 2,200 19,367
Siam Cement (Fgn. Reg'd.) 2,000 19,226
---------
Total Thailand 57,718
---------
UNITED KINGDOM (1.2%)
British Airways 2,400 14,683
British Energy Plc 2,500 24,493
British Petroleum 2,000 30,521
British Telecom Plc 5,600 74,173
CGU 1,566 24,257
Diageo Plc 2,000 18,405
Glaxo Wellcome Plc 1,500 44,303
Great Universal Stores Plc 2,000 22,772
HSBC Holdings 1,000 18,727
Lloyds TSB Group 2,000 22,228
National Westminster Bank 2,700 36,229
Norwich Union Plc 4,000 30,963
Rolls-Royce 5,000 17,249
Smith kline Beecham Plc 2,364 26,283
Unilever 4,000 34,226
---------
Total United Kingdom 439,512
---------
TOTAL INTERNATIONAL STOCKS
(IDENTIFIED COST $3,002,013) 5,232,318
---------
TOTAL INTERNATIONAL SECURITIES
(IDENTIFIED COST $5,320,657) 7,593,320
---------
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS: 94.4%
(IDENTIFIED COST $29,135,272) $33,333,989
OTHER ASSETS LESS LIABILITIES: 5.6% 1,995,437
-----------
NET ASSETS: 100.0% $35,329,426
===========
CURRENCY LEGEND:
(pound) - British Pound (Y) - Japanese Yen
C$ - Canadian Dollar NLG - Netherlands Guilders
DKR - Danish Kronar NZD - New Zealand
FF - French Franc SEK - Swedish Krona
DM - German Mark
- --------------------------------
* Non-income producing security.
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
ASSETS
Investments, at value
(Identified cost $29,135,272) $33,333,989
Currency, at value
(Identified cost $103,895) 45,171
Cash 1,977,728
Receivables:
Portfolio securities sold $ 373,419
Dividend, interest and recoverable
foreign taxes receivable 241,833
Fund shares sold 2,854 618,106
----------
Prepaid expenses 16,908
-----------
Total assets 35,991,902
-----------
LIABILITIES
Payables:
Portfolio securities purchased 459,058
Unrealized loss on forward currency
contracts open (Note 5) 61,414
Shares redeemed 8,000 528,472
Accrued management fees (Note 3) 27,296
Other accrued expenses 106,708
-----------
Total liabilities 662,476
-----------
Net assets (equivalent to $12.99 per share,
representing the offering and redemption
price for 2,718,907 shares outstanding,
unlimited number of shares authorized) $35,329,426
===========
Net assets consist of:
Capital paid in $28,763,322
Accumulated net investment income 12,197
Accumulated net realized gain on investments
and foreign currency transactions 2,413,914
Unrealized appreciation on:
Investments $4,198,717
Foreign currency (58,724) 4,139,993
---------- -----------
$35,329,426
===========
(See "Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
STATEMENT OF OPERATIONS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $16,251) $ 386,826
Interest (net of foreign taxes withheld of $818) 791,266
-----------
1,178,092
EXPENSES
Advisory fees (See Note 3) $356,891
Custodian fees 144,197
Audit and legal fees 88,136
Transfer agent fees (See Note 3) 37,420
Administrative fees 32,554
Trustees' fees and expenses 19,894
Registration fees 7,810
Insurance 4,794
Miscellaneous expenses 7,182
-------
Total expenses 698,878
Less: Fees paid indirectly (See Note 1) (23,479)
----------
Net expenses 675,399
----------
Net investment income 502,693
----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on investments 3,196,058
Net change in unrealized loss on investments (2,284,196)
----------
Net gain on investments 911,862
----------
Net realized loss on foreign currency (147,495)
Net change in unrealized loss on foreign currency
and foreign currency denominated assets and
liabilities (46,089)
----------
Net loss on foreign currency (193,584)
----------
Net gain on investments and foreign currency 718,278
----------
Net increase in net assets resulting from operations $ 1,220,971
==========
See ("Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended For the year ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 502,693 $ 689,032
Net realized gain on investments 3,196,058 2,096,865
Net unrealized gain (loss) on investments (2,284,196) 3,428,514
Net realized gain (loss) on foreign currency (147,495) 255,932
Net unrealized (loss) on foreign currency and
foreign currency denominated assets and liabilities (46,089) (46,020)
------------ ------------
Net increase resulting from operations 1,220,971 6,424,323
------------ ------------
Distributions to shareholders:
From net investment income (620,306) (1,145,896)
From net realized gains (2,829,561) (3,707,053)
------------ ------------
Total distributions (3,449,867) (4,852,949)
------------ ------------
Fund share transactions:
Proceeds from shares sold 1,693,538 815,065
Net asset value of shares issued on
reinvestment of distributions 3,114,218 4,298,913
Cost of shares redeemed (4,720,565) (5,780,476)
------------ ------------
Net increase (decrease) resulting from
Fund share transactions 87,191 (666,498)
------------ ------------
Net increase (decrease) (2,141,705) 904,876
NET ASSETS
Beginning of period 37,471,131 36,566,255
------------ ------------
End of period (including undistributed
net investment income of $12,197 and
$263,048, respectively) $ 35,329,426 $ 37,471,131
============ ============
NUMBER OF FUND SHARES
Sold 124,255 62,408
Issued on reinvestment of distributions 245,803 345,801
Redeemed (345,267) (444,142)
------------ ------------
Net increase (decrease) 24,791 (35,933)
============ ============
</TABLE>
See ("Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.91 $ 13.39 $ 13.20 $ 12.01 $ 12.68
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
1 1 1
Net Investment Income 0.13 0.40 0.31 0.38 0.26
Net Realized/Unrealized Gain (Loss) on
Securities and Foreign Currency 0.23 1.92 0.96 1.13 (0.66)
-------- -------- -------- -------- --------
Total from Investment Operations 0.36 2.32 1.27 1.51 (0.40)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From Net Investment Income (0.23) (0.42) (0.32) (0.26) (0.05)
From Net Realized Gains (1.05) (1.38) (0.76) (0.06) (0.22)
-------- -------- -------- -------- --------
Total Distributions (1.28) (1.80) (1.08) (0.32) (0.27)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 12.99 $ 13.91 $ 13.39 $ 13.20 $ 12.01
======== ======== ======== ======== ========
TOTAL RETURN 2.98% 19.14% 10.09% 12.83% (3.18%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000's) $ 35,329 $ 37,471 $ 36,566 $ 40,688 $ 46,047
Ratio of Expenses to Average Net Assets
Before Expenses Paid Indirectly 1.86% 1.84% 1.99% 1.85% 1.82%
After Expenses Paid Indirectly 1.80% 1.84% 1.99% 1.85% 1.82%
Ratio of Net Investment Income to
Average Net Assets 1.34% 1.87% 2.09% 2.97% 2.03%
Portfolio Turnover Rate 59% 66% 68% 166% 137%
</TABLE>
- -----------------------------------------------
1. Net investment income per share has been computed before adjustments for
book/tax differences.
See ("Notes to Financial Statements")
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
- --------------------------------------------------------------------------------
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.
<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. Also, it is the Fund's intention to make
distributions in amounts sufficient to avoid imposition of excise tax under the
Internal Revenue Code. Therefore, no provision is made for Federal income or
excise 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 had entered into an agreement with Brown Brothers Harriman & Co. (the
"Custodian") where the daily interest earned from the Fund's cash balance would
be applied as a credit to the custody fees for the Fund on a quarterly basis.
For the year ended September 30, 1998, the Fund earned $23,479 in such credits.
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, 1998, purchases and sales of investment
securities other than U.S. Government obligations and short-term investments
aggregated $15,165,282 and $18,122,274, respectively. Purchases and sales of
U.S. Government obligations aggregated $5,788,292 and $4,821,891, 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:
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 3 - CONTINUED
.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.
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, 1998, there were no such credits. In addition, the Fund did receive other
credits as more fully disclosed in Note 1 above.
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, 1998 based on cost of
securities of $29,232,012 for federal income tax purposes, consists of the
following:
Gross unrealized appreciation $ 5,684,222
Gross unrealized depreciation (1,582,245)
------------
Net unrealized appreciation $ 4,101,977
============
NOTE 5 - FORWARD FOREIGN CURRENCY CONTRACTS
At September 30, 1998, 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,
1998 were as follows:
Unrealized
Currency Currency Delivery Appreciation
Receivable Deliverable Date (Depreciation)
---------- ----------- ---- --------------
$ 243,563 DM 420,000 10/01/98 $ (7,064)
78,573 (Y) 11,314,500 11/12/98 (5,048)
100,000 NZD 199,005 11/13/98 251
160,178 DM 286,280 11/17/98 (11,557)
39,822 DM 71,172 11/17/98 (178)
28,843 ITL 51,022,500 11/27/98 (2,063)
250,000 SEK 2,076,300 11/30/98 (15,589)
74,575 DKr 495,150 12/03/98 (3,493)
133,833 FF 770,879 12/10/98 (4,206)
31,389 DM 52,689 12/17/98 (265)
294,530 (pound) 176,415 12/17/98 (4,387)
43,697 SEK 337,825 12/17/98 460
285,759 DM 483,505 12/18/98 (4,724)
65,577 C$ 100,425 12/23/98 (232)
<PAGE>
BAILARD, BIEHL & KAISER DIVERSA FUND
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 5 - CONTINUED
172,139 DKr 1,106,940 12/23/98 (2,526)
251,738 DM 420,000 01/04/99 (793)
------------
$ (61,414)
============
CURRENCY LEGEND:
C$ - Canadian Dollar NZD - New Zealand Dollar
DKr - Danish Kroner SEK - Swedish Krona
DM - German Mark (pound) - British Sterling
FF - French Franc (Y) - Japanese Yen
ITL - Italian Lira
<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, 1998, 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, 1998 by correspondence with the custodian and brokers and
application of alternative procedures where broker confirmations were not
received, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
November 18, 1998
