<PAGE> 1
DEAR FELLOW SHAREHOLDERS
June 30, 1997
Both the equity and bond markets continued to rally in the first half of 1997.
The S&P 500 Index was up 19.49% and intermediate-term bonds advanced about 3.0%
during this same period. These gains were realized despite a 14% market
correction that began in mid-February and continued through late April. The
correction was overdue as investors believed many stocks had become overvalued
and that the growing economy would be inflationary. In the late spring, when it
became clear that inflation was not an immediate concern, the markets began
their recovery.
During the past two years, the large cap stocks -- in particular the "nifty
fifty" -- have dominated the bull market. Stocks such as Coca Cola and Gillette
were trading at P/E ratios above 40. Investors were assuming that their strong
growth would continue and rewarded them for their uninterrupted growth in
earnings. However, in the second quarter, there were signs that growth in these
stocks was slowing and investors began to shift to mid and smaller cap stocks
which were undervalued. We believe this trend will continue to develop through
the next twelve to eighteen months.
PERFORMANCE
The Pacific Advisors Balanced Fund ("Fund") had a total investment return of
9.94% for the six months ending June 30, 1997. Fund results were based on shares
purchased at its offering price on January 1, 1997 and held through June 30,
1997. 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 11.15%, according to Lipper Analytical Services,
Inc.
PORTFOLIO MANAGEMENT
The investment strategy of the Fund seeks to provide long-term stable growth by
investing in equities and bonds. The Fund continues to invest on a selective
basis utilizing a value oriented approach. The equity position in the Fund was
57% on June 30, 1997. At the same time, 33% of the Fund's assets were invested
in preferred stock and corporate bonds with the remaining assets invested in
short term investments.
During the first six months, we began to reduce the Fund's exposure in large
cap stocks by investing more of the Fund's assets in mid cap stocks. New
companies added to the Fund included Jostens, Scholastic Corp. and Price
Enterprises Inc. Jostens is a publisher of yearbooks and class rings. The
demographic expansion of high school and college age students over the next
several years should increase the demand for these products. They have also shed
unrelated businesses that were unprofitable which should improve earnings.
Scholastic Corp. is well known as a publisher of educational newspapers such as
The Weekly Reader. Recently, they have begun a successful expansion into
publishing children's books and textbooks. Price Enterprises Inc., is a real
estate investment trust. It is the landlord for Costco and Price Club stores and
will benefit from their continued expansion.
The high yields and lower risk of corporate
1
<PAGE> 2
bonds have continued to make them more attractive than many stocks. We continue
to believe that long-term interest rates will decline as a result of low
inflation and moderate economic growth. The bond position in the Fund will
probably continue to represent more than 30.0% of the Fund's assets. Most of the
fixed-income securities in the Fund are utility and financial services corporate
bonds. They include Niagara Mohawk Power, Nynex, Barnett Banks and Transamerica
Corporation.
OUTLOOK
During the first half of the year many companies were building inventories which
accelerated growth in the economy. We expect that the economy will return to a
moderate growth rate for the remainder of the year. This scenario should produce
low inflation and mild growth in corporate profits. As with any forecast, this
benign outlook could change as a result of foreign or domestic developments that
might occur in 1997.
If the economy continues to grow at a mild rate mid cap and smaller cap
companies may outperform larger cap stocks. It will be difficult for larger cap
stocks to retain their premium valuations if their earnings growth slows to a
more modest rate. The momentum investment strategy that has carried these stocks
as a group to record highs should give way to an emphasis on value investing.
This investment style focuses on the performance of individual stocks which
favors mid to small cap companies in more dynamic markets.
Please contact your financial adviser or Pacific Advisors Fund, if you have
questions or would like more information.
Sincerely,
/s/ George A. Henning
George A. Henning
Chairman
/s/ Stephen K. Bache
Stephen K. Bache, CFA
Adviser
Hamilton & Bache
2
<PAGE> 3
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
June 30, 1997
(Unaudited)
Number of Shares Value
<S> <C> <C>
COMMON STOCK (56.70%)
Aerospace and Defense (2.27%)
Boeing Company 2,000 $106,125
----- --------
Basic Industries (1.50%)
IMC Global, Inc. 2,000 70,000
----- --------
Communications (3.16%)
Nokia Corporation - ADR A 2,000 147,500
----- --------
Containers / Packaging (1.20%)
ACX Technologies 2,500 56,250
----- --------
Electrical Components and Equipment (3.21%)
Electroglas, Inc.* 4,000 100,750
Penn Engineering 2,500 49,063
----- --------
149,813
----- --------
Entertainment (5.47%)
GC Companies, Inc.* 1,000 45,750
Tele-Com Liberty Media GR-A* 2,000 47,500
Time Warner, Inc. 1,500 72,375
Viacom, Inc.* 3,000 90,000
----- --------
255,625
----- --------
Factory Equipment (1.84%)
Devlieg - Bullard* 25,000 85,938
----- --------
Financial Services - Specialty (2.21%)
Federal Home Loan Mortgage Corporation 3,000 103,125
----- --------
Food (2.51%)
Archer-Daniels Midland 5,000 117,500
----- --------
Health Care Provider (2.99%)
Comprehensive Care Corp.* 6,000 72,750
Maxicare Health Plans* 3,000 67,125
----- --------
139,875
----- --------
Heavy Construction (1.77%)
Fluor Corporation 1,500 82,781
----- --------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 4
<TABLE>
<CAPTION>
Number of Shares Value
COMMON STOCK CONTINUED
<S> <C> <C>
Industrial and Commercial Services (4.33%)
Pinkertons, Inc. 1,500 $ 46,125
Reliance Steel 6,000 156,000
------ ----------
202,125
------ ----------
Insurance - Specialty (1.79%)
Farm Family Holdings, Inc.* 3,000 83,625
------ ----------
Medical Equipment, Devices & Supplies (1.13%)
Imation Corp.* 2,000 52,750
------ ----------
Oil Field Equipment & Services (3.00%)
Cooper Cameron 3,000 140,250
------ ----------
Oil - Secondary (2.48%)
Burlington Resources 1,500 66,187
Union Pacific Resources 2,000 49,750
------ ----------
115,937
------ ----------
Pharmaceuticals (3.58%)
Pfizer, Inc. 1,400 167,300
------ ----------
Publishing (2.90%)
Dun & Bradstreet Corp. 2,500 65,625
Scholastic Corp.* 2,000 70,000
------ ----------
135,625
------ ----------
Real Estate (2.06%)
Catellus Development Corporation 12,000 217,500
------ ----------
Real Estate Investment Trusts (4.65%)
Price Enterprises, Inc. 5,000 96,250
------ ----------
Recreational Products (1.15%)
Jostens, Inc. 2,000 53,500
------ ----------
Retailers - Specialty (1.50%)
Toys "R" Us* 2,000 70,000
------ ----------
TOTAL COMMON STOCK (COST: $1,857,495) 2,649,394
==========
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
<TABLE>
<CAPTION>
Par Value Value
CORPORATE BONDS (32.44%)
<S> <C> <C>
Banks - Regional (4.88%)
Barnett Banks FL 10.875% 3/15/03 194,000 $ 227,837
------- ----------
Electric (9.43%)
Alabama Power 9% 12/01/24 115,000 124,641
Niagara Mohawk Power 9.75% 11/01/05 155,000 169,221
Public Service Electric and Gas 8 7/8% 6/01/03 20,000 20,060
Toledo Edison 7.875% 8/01/04 125,000 126,594
------- ----------
440,516
------- ----------
Financial Services, Diversified (3.11%)
Transamerica Corporation 6.75% 11/15/06 150,000 145,495
------- ----------
Food Retailers (4.81%)
Safeway, Inc. 9.875% 3/15/07 190,000 224,873
------- ----------
Industrial - Diversified (0.76%)
Owens Illinois 9.75% 8/15/04 34,000 35,658
------- ----------
Oil - Secondary (4.72%)
Occidental Petroleum 9.25% 8/01/19 185,000 220,558
------- ----------
Telephone Systems (4.73%)
Nynex Corporation 9.55% 5/01/10 196,393 221,034
------- ----------
TOTAL CORPORATE BONDS (COST: $1,491,261) 1,515,971
==========
TOTAL INVESTMENT SECURITIES (89.14%) $4,165,365
SHORT-TERM INVESTMENTS (10.54%)
United Missouri Bank Money Market Fund 492,470
OTHER ASSETS LESS LIABILITIES (0.32%) 14,798
----------
TOTAL NET ASSETS (100%) $4,672,633
==========
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment securities at market value (cost: $3,348,756) $4,165,365
Short-term investments, at cost, which is equivalent to market 492,470
Receivable from Investment Manager (Note 3) 25,713
Other Assets 12,069
Accrued income receivable 34,775
Receivable for investments sold 35,714
Organizational expenses, net of amortization (Note 1) 7,377
----------
Total assets 4,773,483
----------
LIABILITIES
Payable for investments purchased 93,473
Payable to Investment Manager (Note 1) 7,377
----------
100,850
----------
NET ASSETS
(Equivalent to $11.72 per share on 398,695 shares of
Capital Stock outstanding - 100 million shares authorized) $4,672,633
==========
SUMMARY OF SHAREHOLDERS' EQUITY
Paid-in-capital $3,830,880
Undistributed net capital gains 8,990
Undistributed net investment income 16,154
Unrealized appreciation of assets 816,609
----------
Net assets at June 30, 1997 $ 4,672,633
===========
Maximum offering price per share ($11.72/94.25%): $12.44
----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
STATEMENT OF OPERATIONS
For the Period January 1, 1997 to June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 12,115
Interest 51,998
-----------
Total Income 64,113
-----------
EXPENSES
Investment Advisory Fees 15,346
Fund Accounting Fees 10,337
Transfer Agent Expense 12,308
Legal Expense 1,870
Amortization Expense 5,533
Registration Fees 4,681
Printing 6,494
Audit Fees 2,015
Custody Fees 2,304
Director Fees/Meetings 991
Distribution Fees (Note 3) 2,073
Other Expense 2,122
-----------
Total Expenses, before reimbursements 66,074
Less Fees Waived and Expenses Reimbursed (Note 3) 18,120
-----------
Net Expenses 47,954
-----------
NET INVESTMENT INCOME $ 16,159
==========
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments
Proceeds from sales of investment securities (excluding
short-term investments with maturities of 60 days or less) $ 1,251,006
Cost of investment securities sold 1,242,358
-----------
Net realized gain on investments 8,648
Net unrealized appreciation of investments
Beginning of period $ 449,724
End of period 816,609
-----------
Net unrealized appreciation of investments 366,885
----------
375,533
==========
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 391,692
==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
For the period
January 1, 1997 For the year ended
to June 30, 1997 December 31, 1996
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net investment income $16,159 $28,259
Net realized gain on investments 8,648 10,316
Net unrealized appreciation of investments 366,885 352,267
---------- ----------
Increase in net assets resulting from operations 391,692 390,842
---------- ----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income -- (28,087)
Net capital gains -- (10,790)
---------- ----------
Decrease in net assets resulting from distributions -- (38,877)
---------- ----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold (117,799 and 110,863 shares) 1,291,396 1,095,984
Proceeds from shares purchased by reinvestment
of dividends (0 and 3,408 shares) -- 36,221
Cost of shares repurchased (18,056 and 44,123 shares) (197,894) (426,217)
---------- ----------
Increase in net assets derived from capital share transactions
(99,743 and 70,148 shares) 1,093,502 705,988
---------- ----------
Increase in net assets 1,485,194 1,057,953
NET ASSETS
BEGINNING OF PERIOD
(includes no undistributed net investment income) 3,187,439 2,129,486
---------- ----------
END OF PERIOD
(includes undistributed net investment income of $16,154 and $0) $4,672,633 $3,187,439
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 ("Investment
Manager"). 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. Prepaid expenses will be amortized over a period not to exceed
twelve months.
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.
F. USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management
9
<PAGE> 10
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.
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 the Investment Manager. The Management
Agreement provides for investment management fees, payable monthly, and
calculated at the maximum annual rate of 0.75% of average net assets for the
Balanced Fund. The Investment Manager has entered into a sub-advisory agreement
("Sub-Advisory Agreement") with Hamilton & Bache, Inc. ("Advisor"). The
Investment Manager is solely responsible for the payment of these fees to the
Adviser.
From time to time, the Investment Manager and Adviser may voluntarily
waive its management and sub-advisory fees, and/or absorb certain expenses for
the Balanced Fund. Pursuant to the voluntary waiver of fees and the assumption
of expenses by the Investment Manager, the following amounts were waived or
reimbursed for the period from January 1, 1997 to June 30, 1997 for the Balanced
Fund, $11,837 of management and sub-advisory fees were waived and $6,283 was
reimbursed by the Investment Manager.
Fund operating expenses may not fall below the current expense level in
subsequent years until the Investment Manager has fully recouped fees forgone
and expenses paid or assumed, as the Fund will reimburse the Investment Manager
in subsequent years during which the Fund's total assets are greater than
$20,000,000. As of June 30, 1997, the cumulative amounts unrecouped by the
Investment Manager since the commencement of operations is $232,551.
For the period from January 1, 1997 to June 30, 1997, Pacific Global Fund
Distributors, Inc. ("PGFD"), the principal underwriter for the Company, received
$5,386 of commissions on sales of capital stock of the Balanced Fund, after
deducting $26,397 allowed to authorized distributors as commissions. PGFD is a
wholly-owned subsidiary of the Investment Manager.
The Company and the Balanced Fund have entered into an agreement with
Pacific Global Investor Services, Inc. ("PGIS") to provide fund accounting
services at the monthly fee of three basis points for the first million in net
assets or a minimum of $1,250. In addition, an agreement to provide transfer
agent services has also been entered into at a monthly fee based on the number
of accounts or a minimum of $1,250. PGIS is a wholly-owned subsidiary of the
Investment Manager.
Certain officers of the Company are also officers of the Investment
Manager, PGFD and PGIS.
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 from January 1, 1997 to June
30, 1997, $2,073 was accrued or paid.
NOTE 4. PURCHASE AND SALES OF SECURITIES
For the period from January 1, 1997 to June 30, 1997, the Balanced Fund
had purchases of securities, other than short-term investments of $2,250,469.
The cost of securities held is the same for Federal income tax and financial
reporting purposes.
Aggregate gross unrealized appreciation and aggregate gross unrealized
depreciation on securities were $835,033 and $18,424 respectively. Net
unrealized appreciation for tax purposes is $816,609.
10
<PAGE> 11
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
(Unaudited)
<TABLE>
<CAPTION>
For the period For the Year Ended For the period
January 1, 1997 December 31, February 8, 1993 (3)
to June 30, 1997 1996 1995 1994 to December 31, 1993
---------------- ------------------------------ --------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.66 $9.31 $8.75 $8.99 $9.00
------ ------ ----- ----- -----
Income from Investment Operations
Investment income 0.16 0.30 0.35 0.07 0.07
Expenses (0.12) (0.21) (0.17) (0.05) (0.06)
------ ------ ----- ----- -----
Net investment income 0.04 0.09 0.18 0.02 0.01
Net realized and unrealized gain (loss) on securities 1.02 1.39 0.57 (0.24) (0.01)
------ ------ ----- ----- -----
Total from investment operations 1.06 1.48 0.75 (0.22) 0.00
Less Distributions
From net investment income 0.00 (0.09) (0.18) (0.02) (0.01)
From net capital gains 0.00 (0.04) (0.01) 0.00 0.00
------ ------ ----- ----- -----
Net Asset Value, End of Year $11.72 $10.66 $9.31 $8.75 $8.99
====== ====== ===== ===== =====
Total Investment Return (4) 9.94% 15.92% 8.70% (2.41%) 0.00%
Ratios/Supplemental Data
Net Assets, End of Year $4,673 $3,187 $2,129 $1,341 $121
Ratio of Expenses to Average Net Assets (1) 1.24% 2.48% 2.24% 1.83% 1.60%(2)
Ratio of Net Investment Income to
Average Net Assets (1) 0.42% 1.12% 2.46% 0.93% 0.25%(2)
Portfolio Turnover Rate 32.86% 65.94% 41.23% 60.68% 61.71%(2)
Average Commission Per Share
Paid on Equity Transactions $0.0931 $0.0812 $0.1005 -- --
</TABLE>
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 1.71%, 4.36%, 5.31%, 17.85% and 108.91%, for the years 1997 through
1993 respectively, and the ratio of net investment income (loss) to
average net assets would have been (0.05%), (0.76%), (0.62%), (15.11%),
and (106.91%), for the years 1997 through 1993 respectively.
2. Annualized.
3. Commencement of Operations.
4. The Fund's maximum sales charge is not included in the total return
computation.
See Accompanying Notes to Financial Statements
11
<PAGE> 12
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12
<PAGE> 13
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13
<PAGE> 14
Pacific Advisors Fund Inc.
DIRECTORS
GEORGE A. HENNING, CHAIRMAN
VICTORIA L. BREEN
THOMAS M. BRINKER
KATHLEEN M. FISHKIN
L. MICHAEL HALLER III
SIEGFRED S. KAGAWA
TAKASHI MAKINODAN, PH.D.
GERALD E. MILLER
LOUISE K. TAYLOR, PH.D.
OFFICERS
GEORGE A. HENNING, PRESIDENT
THOMAS H. HANSON, VICE PRESIDENT AND SECRETARY
VICTORIA L. BREEN, ASSISTANT SECRETARY
PAUL W. HENNING, TREASURER
INVESTMENT MANAGER
PACIFIC GLOBAL INVESTMENT MANAGEMENT COMPANY
206 NORTH JACKSON STREET, SUITE 201
GLENDALE, CALIFORNIA 91206
ADVISER
HAMILTON & BACHE, INC.
206 NORTH JACKSON STREET, SUITE 201
GLENDALE, CALIFORNIA 91206
TRANSFER AGENT AND ADMINISTRATOR
PACIFIC GLOBAL INVESTOR SERVICES, INC.
206 NORTH JACKSON STREET, SUITE 201
GLENDALE, CALIFORNIA 91206
DISTRIBUTOR
PACIFIC GLOBAL FUND DISTRIBUTORS, INC.
206 NORTH JACKSON STREET, SUITE 201
GLENDALE, CALIFORNIA 91206
(800) 989-6693
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless
accompanied or preceded by a current effective prospectus of the Fund, which
contains information concerning the investment policies of the Fund as well as
other pertinent information.
<PAGE> 15
BULK RATE
U. S. POSTAGE
PAID
GLENDALE, CA
PERMIT NO. 1090
[PACIFIC ADVISORS LOGO]
Pacific Global Fund Distributors, Inc.
206 North Jackson Street, Suite 201
Glendale, California 91206
SEMIANNUAL REPORT | june 30, 1997
[LOGO]
Pacific
Advisors
Fund Inc.
BALANCED
FUND
