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[PACIFIC ADVISORS FUND LOGO]
Balanced
Fund
Semiannual Report
August 29,1996
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Dear Fellow Shareholders
August 29, 1996
The first six months of 1996 provided mixed results for the equity and bond
markets. While the equity market continued its advance, the bond market
retreated as the economy proved to be stronger than expected. The S&P 500 Index
increased 9.73% in the first six months of 1996, while long-term interest rates
increased from 5.95% to 6.90% (i.e. 30 year U.S. Treasury Bond).
The Pacific Advisors Balanced Fund ("Fund") had a total investment return
of 5.05% for the same period. Fund results were based on shares purchased at its
offering price on January 1, 1996 and held through June 30, 1996. The return
reflects the deduction of the Fund's current maximum sales charge and expense
reimbursements. For this same period, the average total return for balanced
funds was 4.93%, according to Lipper Analytical Services, Inc. This total
return for the Fund compares favorably with the S&P 500 Index after adjusting
its total return to recognize the fact that 32% of the Fund's assets are in
fixed-income securities.
The Fund has continued to invest on a selective basis utilizing our value
oriented approach. The equity position in the Fund was 55% on June 30, 1996. At
the same time, 36% of the Fund's assets were invested in preferred stock and
corporate bonds.
During the year, we looked for undervalued stocks in the natural
resources, manufacturing, financial services, health services and consumer brand
franchises. Pinkertons (Services), UCAR International (Industrial Services) and
Maxicare Health Plans (Insurance) were some of the new stocks acquired by the
Fund in the first half of the year. Several of the stocks sold during this
period included Bankers Trust, Stokely USA and El Paso Natural Gas.
The high yields and lower risk of corporate bonds have continued to make
them more attractive than many stocks. Most of the fixed-income securities in
the Fund are utility and financial services corporate bonds. They include
Occidental Petroleum, Continental Telephone of California, Tennessee Gas
Pipeline, Barnett Banks and Ford Motor Credit Corporation. We anticipate that
our bond position will continue to represent more than 30.0% of the Fund's
assets.
As interest rates increased, we expected the stock market to correct and to
move from an emphasis on growth to value investing. In July, the equity markets
began a correction when companies such as Hewlett Packard and Motorola reported
disappointing earnings for the second quarter. The S&P 500 Index year to date
return declined to 3.90%, through July 31, 1996.
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During the same period the Fund's total return declined to 2.15%. During this
correction, the Fund has benefited from its investment strategy of buying the
stocks of quality companies at a reasonable price. This has enabled the Fund to
be less volatile than the overall stock market.
We expect that the market will continue to be volatile over the next two to
four months. The Fund has maintained a cash position in excess of 8.0%, which
will allow it to take advantage of buying opportunities as they occur.
Please contact your financial adviser or Pacific Advisors Fund, if you have
questions or would like more information.
Sincerely,
/s/ George A. Henning /s/ Stephen K. Bache
George A. Henning Stephen K. Bache, CFA
Chairman Adviser
Hamilton & Bache
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Schedule of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Shares/Par Value Value
---------------- -----
<S> <C> <C>
COMMON STOCK (55.20%)
Aerospace and Defense (3.57%)
Boeing Company 1,000 $ 87,125
--------
Agricultural Processing (2.35%)
Archer-Daniels-Midland 3,000 57,375
--------
Automobiles and Trucks (2.15%)
General Motors 1,000 52,375
--------
Consumer Products (2.23%)
General Mills 1,000 54,500
--------
Diversified Companies (2.03%)
ACX Technologies* 2,500 49,687
--------
Electronic Equipment and Components (2.46%)
AMP, Inc. 1,500 60,187
--------
Engineering & Construction (2.14%)
Fluor Corp. 800 52,300
--------
Entertainment (2.41%)
Time Warner Inc. 1,500 58,875
--------
Health Services (1.54%)
Comprehensive Care Corp.* 5,000 37,500
--------
Industrial Services (8.02%)
Reliance Steel 4,000 146,000
UCAR International, Inc.* 1,200 49,950
--------
195,950
--------
Insurance (1.55%)
Maxicare Health Plans* 2,000 37,750
--------
</TABLE>
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<TABLE>
<CAPTION>
Number of Shares Value
---------------- -----
COMMON STOCK continued
<S> <C> <C>
Leisure and Home Entertainment (1.53%)
GC Companies Inc.* 1,000 37,250
---------
Machine Tools (1.38%)
DeVleig-Bullard* 15,000 33,750
---------
Oil and Gas (5.33%)
Burlington Resources 1,500 64,500
Cooper Cameron* 1,500 65,625
---------
130,125
---------
Pharmaceuticals (4.09%)
Pfizer Inc. 1,400 99,925
---------
Printing & Publishing (1.84%)
Courier Corp. 2,500 45,000
---------
Real Estate (2.63%)
Federal Home Loan Mortgage
Corporation 750 64,125
---------
Services (1.42%)
Pinkertons* 1,500 34,687
---------
Specialty Retail (3.50%)
Toys "R" Us 3,000 85,500
---------
Telecommunication Equipment (3.03%)
Nokia Corp. - ADR A 2,000 74,000
---------
TOTAL COMMON STOCK 1,347,986
---------
PREFERRED STOCK (3.73%)
Real Estate (3.73%)
Catellus Dev. Corp. Class A 1,650 91,163
---------
TOTAL PREFERRED STOCK 91,163
---------
</TABLE>
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<TABLE>
<CAPTION>
Number of Shares Value
---------------- -----
<S> <C> <C>
CORPORATE BONDS (32.18%)
Banks (4.60%)
Barnett Banks Inc. 10.875% 3/15/03 95,000 112,420
----------
Basic Industries (4.38%)
Coastal Corp 9.75% 8/01/03 95,000 107,075
----------
Electric Utility (6.69%)
Public Service of OK 7.25% 1/01/99 50,000 50,199
Toledo Edison 7.875% 8/01/04 125,000 113,233
----------
163,432
----------
Energy (3.47%)
Tennessee Gas Pipeline
6.00% 12/15/11 100,000 84,617
----------
Financial Services (4.18%)
Ford Motor Credit Corp 7.75%
3/15/05 100,000 102,156
----------
Health Services (3.25%)
Hospital Corp. of America 77,000 79,256
9.00% 3/15/16 ----------
Oil & Gas (4.58%)
Occidental Petroleum 9.25% 8/1/19 100,000 111,800
----------
Telephone (1.03%)
Continental Telephone of
California 7.625% 12/31/97 25,000 25,096
----------
TOTAL CORPORATE BONDS 785,852
----------
TOTAL INVESTMENT SECURITIES (91.11%) 2,225,001
----------
SHORT-TERM INVESTMENTS (6.59%)
United Missouri Bank Money Market Fund 160,820
----------
OTHER ASSETS LESS LIABILITIES (2.30%) 56,275
----------
TOTAL NET ASSETS $2,442,096
==========
</TABLE>
* Non income producing.
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Statement of Assets and Liabilities
June 30, 1996
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investment securities at market value (cost: $2,009,066) $ 2,225,001
Short-term investments, at cost, which is equivalent to market 160,820
Other assets 32,982
Accrued income receivable 23,313
Organizational expenses, net of amortization (Note 1) 18,459
-----------
Total assets 2,460,575
LIABILITIES:
Payable for capital shares redeemed 20
Payable to Investment Adviser (Note 1) 18,459
-----------
Total liabilities 18,479
-----------
NET ASSETS:
(Equivalent to $9.78 per share on 249,612 shares of
Capital Stock outstanding - 100 million shares authorized) $ 2,442,096
===========
SUMMARY OF SHAREHOLDER'S EQUITY
Paid-in capital $ 2,231,568
Undistributed net investment income 14,981
Accumulated capital loss (20,388)
Unrealized appreciation of assets 215,935
-----------
Net assets at June 30, 1996 $ 2,442,096
===========
</TABLE>
See Accompanying Notes to Financial Statements.
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Statement of Operations
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For the Six Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Dividends $ 11,389
Interest 29,541
--------
Total Income 40,930
--------
EXPENSES:
Investment Advisory Fees 9,056
Fund Accounting Fees 9,810
Transfer Agent Expense 8,511
Legal Expense 2,834
Registration Fees 3,841
Printing 3,992
Audit Fees 1,919
Amortization Expense 5,533
Custody Fees 2,184
Director Fees/Meetings 799
Distribution Fees (Note 3) 622
Other Expense 1,409
--------
Total Expenses, before reimbursements 50,510
Less Fees Waived and Expenses Reimbursed (Note 3) (24,738)
--------
Net Expenses 25,772
--------
NET INVESTMENT INCOME: $ 15,158
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments
Proceeds from sales of investment securities (excluding
short-term investments with maturities 60 days or less) $861,303
Cost of investment securities sold 882,507
--------
Net realized loss on investments (21,204)
Net unrealized appreciation of investments:
Beginning of period $ 97,457
End of period 215,935
--------
Net unrealized appreciation of investments 118,478
--------
Net realized and unrealized gain on investments 97,274
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS: $112,432
========
</TABLE>
See Accompanying Notes to Financial Statements.
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Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the Period
January 1, 1996 For the year ended
to June 30, 1996 December 31, 1995
---------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
From Operations:
Net investment income $ 15,158 $ 42,087
Net realized gain (loss) on investments (21,204) 9,197
Net unrealized appreciation of investments 118,478 92,703
---------- -----------
Increase in net assets resulting from operations 112,432 143,987
---------- -----------
From Distributions to Shareholders:
Net investment income - (42,319)
Net capital gains - (1,632)
---------- -----------
Decrease in net assets resulting from distributions - (43,951)
---------- ----------
From Capital Share Transactions:
Proceeds from shares sold (44,913 and 83,720 shares) 428,761 762,440
Proceeds from shares purchased by reinvestment
of dividends (0 and 4,436 shares) - 41,298
Cost of shares repurchased (24,105 and 12,572 shares) (228,583) (115,227)
---------- ----------
Increase in net assets derived from capital
share transactions 200,178 688,511
---------- ----------
Increase in net assets 312,610 788,547
NET ASSETS:
Beginning of Period
(includes undistributed net investment
income of $55 and $55) 2,129,486 1,340,939
---------- ----------
End of Period
(includes no undistributed net investment income) $2,442,096 $2,129,486
========== ==========
</TABLE>
See Accompanying Notes to Financial Statements.
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Notes to Financial Statements
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Note 1. Organization
Pacific Advisors Fund Inc. (the "Company") is an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended. The Company was organized on May 18, 1992 as a
Maryland corporation and had no operations prior to February 8, 1993, other than
those relating to organizational matters including the sale of 2,778 shares of
stock of each of its four series ("Funds") at $9.00 per share to the Company's
investment manager, Pacific Global Investment Management Company. The Company
currently offers four Funds: Small Cap Fund, Balanced Fund, Income Fund, and
Government Securities Fund. Each Fund is a separate investment portfolio of the
Company with a distinct investment objective, investment program, policies, and
restrictions. The Balanced Fund seeks to achieve long-term capital appreciation
and income consistent with reduced market risk.
The Investment Manager paid the organizational and other initial
expenses of the Fund incurred prior to the initial offering of the Fund's
shares. However, the Fund has agreed to reimburse the Investment Manager for
such expenses. The organizational costs will be deferred and amortized by each
Fund over a period during which it is expected that a benefit will be realized,
but no longer than five years from the date of the Funds' commencement of
operations.
Note 2. Significant Accounting Policies
A. SECURITY VALUATION - Securities listed on a national securities
exchange and certain over-the-counter ("OTC") issues traded on the NASDAQ
national market system are valued at the last quoted sale price at the close of
the NYSE. OTC issues not quoted on NASDAQ system and other equity securities for
which no sale price is available, are valued at the last bid price as obtained
from published sources (including Quotron), where available, and otherwise from
brokers who are market makers for such securities. Debt securities with a
maturity of less than 60 days are valued on an amortized cost basis.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security
transactions are accounted for on the trade date. The cost of investments sold
is determined by use of the specific identification method for both financial
reporting and Federal income tax purposes. Dividends are recorded on the
ex-dividend date. Interest income is recorded on an accrual basis.
C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - The Balanced Fund
declares and distributes dividends of its net investment income, if any,
annually. The Board of Directors will determine the amount and timing of such
payments.
D. FEDERAL INCOME TAXES - No provision is made for Federal taxes
since the Company intends to qualify as a regulated investment company and to
make the requisite distributions to its shareholders, which will be sufficient
to relieve it from Federal income and excise taxes.
E. ORGANIZATIONAL COSTS - Costs incurred by the Balanced Fund in
connection with its organization, registration and initial public offering of
shares have been deferred and are being amortized using the straight-line method
over a five-year period in accordance with the Expense Limitation Agreement for
each of the Funds. During
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1996, the Investment Manager assumed the amortization
expense of $5,525 for organizational expenses.
Note 3. Investment Management, Distributor and Other Related Party
Transactions
The Company and Balanced Fund have entered into an investment
management agreement ("Management Agreement") with Pacific Global Investment
Management Company (the "Manager") and sub-advisory agreement ("Sub-Advisory
Agreement") with Hamilton & Bache, Inc. (the "Adviser"). The Management
Agreement provides for investment management fees, payable monthly, and
calculated at the maximum annual rate of 0.75% for the Balanced Fund. The
Sub-Advisory Agreement provides for a sub-advisory fee, payable monthly, and
calculated at the maximum annual rate of 0.45% for Balanced Fund. The Manager is
solely responsible for the payment of these fees to the Adviser.
In accordance with its expense limitation agreements ("Expense
Limitation Agreements") with the Company, on behalf of each Fund, the Manager is
required to reduce its investment management fee in any fiscal year in which all
Fund Operating Expenses exceed the lowest applicable limit actually enforced by
any state, and to reimburse the Balanced Fund for any additional expenses that
exceed such limit. In addition, from time to time, the Manager and Adviser may
voluntarily waive its management and sub-advisory fees, and/or absorb certain
expenses for the Balanced Fund.
Pursuant to the Expense Limitation Agreements, the voluntary
waiver of fees and the assumption of expenses by the Manager, the following
amounts were waived or reimbursed for the period from January 1, 1996 to June
30, 1996 for the Balanced Fund, $8,501 of management and sub-advisory fees were
waived and $16,237 was reimbursed by the Manager.
For the period January 1, 1996 to June 30, 1996, Pacific Global
Fund Distributors, Inc., the principal underwriter for the Company, received
$612 of commissions on sales of capital stock of the Balanced Fund, after
deducting $1,932 allowed to authorized distributors as commissions.
The Fund has adopted a plan of distribution, whereby the Balanced
Fund may pay a service fee in an amount up to 0.25% per annum of the Fund's
average daily net assets to qualified recipients. For the period January 1, 1996
to June 30, 1996, $622 was accrued or paid.
Note 4. Purchase and Sales of Securities
For the period ended June 30, 1996, the Balanced Fund had
purchases of securities, other than short-term investments of $977,945. The cost
of securities held is the same for Federal income tax and financial reporting
purposes.
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Financial Highlights
- --------------------------------------------------------------------------------
(For a Share Outstanding Throughout the Period)
(Unaudited)
<TABLE>
<CAPTION>
For the Period For the Year Ended For the Period
January 1, 1996 December 31 February 8, 1993(3)
to June 30, 1996 1995 1994 to December 31, 1993
---------------- ---- ---- --------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 9.31 $ 8.75 $ 8.99 $ 9.00
--------------------------------------------------------------
Income from Investment Operations:
Investment Income 0.17 0.35 0.07 0.07
Expenses (0.11) (0.17) (0.05) (0.06)
--------------------------------------------------------------
Net Investment Income (0.06) 0.18 0.02 0.01
Net realized and unrealized gain (loss)
on securities 0.41 0.57 (0.24) (0.01)
--------------------------------------------------------------
Total from Investment Operations 0.47 0.75 (0.22) 0.00
Less Distributions:
Distributions from net investment income 0.00 (0.18) (0.02) (0.01)
Distributions from net capital gains 0.00 (0.01) 0.00 0.00
Net Asset Value, End of Period $ 9.78 $ 9.31 $ 8.75 $ 8.99
==============================================================
Total Investment Return 5.05% 8.70% (2.41%) 0.00%
Ratios/Supplemental Data
Net Assets, End of Period (000) $ 2,442 $ 2,129 $1,341 $ 121
Ratio of Expenses to Average Net Assets 1 1.13% 2.24% 1.83% 1.60%(3)
Ratio of Net Income to Average Net Assets 0.67% 2.46% 0.93% .25%(2)
Portfolio Turnover Ratio 36.45% 41.23% 60.68% 61.71%(2)
</TABLE>
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1. Without the voluntary fee waivers and reimbursement of expenses, the ratio of
expenses to average daily net assets for the Balanced Fund would have been
2.22%, 5.31%, 17.85% and 108.91%, for the years 1996 through 1993
respectively.
2. Annualized.
3. Commencement of Operations.
See Accompanying Notes to Financial Statements.
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Pacific Global Fund Distributors, Inc. BULK RATE
206 North Jackson Street, Suite 201 U. S. POSTAGE
Glendale, California 91206 PAID
GLENDALE, CA
PERMIT NO. 1090
PG44.896
