<PAGE> 1
DEAR FELLOW SHAREHOLDERS
June 30, 1997
Financial markets remained volatile during the first half of 1997. In
mid-February, the Federal Reserve Chairman expressed concern that the equity
markets were becoming overvalued which began a sell off that lasted until late
April. During this same period, bond prices for the most part, remained trapped
in a narrow yield range. Long-term interest rates were about 6.8% at the end of
June.
The economy remains strong and shows signs that its expansion will
continue. Current levels of interest rates have not changed the growth plans of
small businesses. Capital spending plans have expanded and unemployment remains
at historically low levels. A tight labor market has kept consumer confidence
very high. A rising rate of savings coupled with workers' escalating incomes
make for resilient consumers who are unlikely to curtail spending plans for too
long.
In short, the financial and monetary conditions that produced above-trend
economic growth are still in place. However, because wages have grown since
1996, a more severe turndown in the economy could be required to douse fears of
wage inflation. Additionally, as foreign markets increase interest rates to
attract capital for their economies, US interest rates may be forced higher.
For the six months ending June 30, 1997, the Pacific Advisors Government
Securities Fund experienced a total return of 1.32%. The investment results are
based on shares purchased at its offering price, after deducting the Fund's
current maximum sales charge on January 1, 1997, and held through June 30, 1997,
with all dividends and capital gains reinvested and after expense
reimbursements. The Lehman Intermediate and Long-term Treasury-Bond indexes
which are unmanaged indices of total returns for government bonds, were 2.66%
and 2.08% respectively, for this same period.
Since the first quarter of 1996, the bond market has remained volatile due
to uncertainty in the financial markets regarding the strength of the economy
and its impact on inflation. This uncertainty has caused the Fund to be
defensive in its investment strategy in order to preserve capital.
We continue to remain somewhat defensive as interest rates may temporarily
increase due to inflation concerns and competition from other global markets for
capital. The Fund has continued to implement a defensive "barbell" strategy
remaining largely invested in short-term U.S. Treasury Bills and stable money
funds. At June 30, 1997, the Fund was 66% invested in short-term assets and 34%
invested in a small number of domestic and foreign utilities and long-term U.S.
Treasury bonds.
If the economy continues to grow, inflation will become more evident,
forcing the Federal Reserve to increase interest rates. At that time, we would
expect the U.S. economy to show some signs of weakening and prospects for a
economic recession increasing. We would then begin shifting more of the Fund's
assets into long-term bonds to lock in higher yields and to realize market
appreciation as interest rates decline.
1
<PAGE> 2
We believe this active management of the Fund, will enable investors to maximize
their total rate of return while minimizing their risk.
Please contact your financial advisor or Pacific Advisors Fund, if you have
questions or would like more information on the Fund.
Sincerely,
/s/ George A. Henning
George A. Henning
Chairman
/s/ R. Kelly Kelly
R. Kelly Kelly
Adviser
Spectrum Asset Management, Inc.
2
<PAGE> 3
SCHEDULE OF INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares/Par Value Value
<S> <C> <C>
COMMON STOCK (12.78%)
Communications (5.45%)
Hong Kong Telecom Ltd 2,500 $ 58,437
MCI Communications 3,000 114,844
Vodafone Group Plc 2,800 135,625
- ----------------------------------------------------------------------------------------
308,906
- ----------------------------------------------------------------------------------------
Electric (2.26%)
Nipsco Industries, Inc. 3,100 128,069
- ----------------------------------------------------------------------------------------
Gas - Integrated (2.38%)
Enron 3,300 134,681
- ----------------------------------------------------------------------------------------
Telephone Systems (2.69%)
Telephonos de Mexico 3,200 152,800
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (COST: $660,174) 724,456
==========
US GOVERNMENT SECURITIES (81.58%)
US Treasury Bill (61.67%)
US T-Bill 7/10/97 3,500,000 3,495,744
- ----------------------------------------------------------------------------------------
US Treasury Bond (19.91%)
US T-Bond 8.125% 8/15/21 350,000 400,641
US T-Bond 9.375% 2/15/06 350,000 414,859
US T-Bond 7.25% 8/15/22 300,000 313,031
- ----------------------------------------------------------------------------------------
1,128,531
- ----------------------------------------------------------------------------------------
TOTAL US GOVERNMENT SECURITIES (COST: $4,631,335) 4,624,275
==========
TOTAL INVESTMENT SECURITIES (94.36%) $5,348,731
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 4
<TABLE>
<CAPTION>
Value
<S> <C>
SHORT-TERM INVESTMENTS (3.28%)
United Missouri Bank Money Market Fund $ 186,142
OTHER ASSETS LESS LIABILITIES (2.36%) 134,032
----------
TOTAL NET ASSETS (100%) $5,668,905
========================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Investment securities at market value (cost: $5,291,509) $ 5,348,731
Short-term investments, at cost, which is equivalent to market 186,142
Receivable from Investment Manager (Note 3) 81,376
Other Assets 18,095
Accrued income receivable 34,368
Receivable for fund shares sold 193
Organizational expenses, net of amortization (Note 1) 7,377
-----------
Total assets 5,676,282
-----------
LIABILITIES
Payable to Investment Manager (Note 1) 7,377
-----------
NET ASSETS
(Equivalent to $9.26 per share on 612,249 shares of
Capital Stock outstanding - 100 million shares authorized) $ 5,668,905
===========
SUMMARY OF SHAREHOLDERS' EQUITY
Paid-in-capital $ 5,614,348
Undistributed net investment income 313
Accumulated net capital losses (2,978)
Unrealized appreciation of assets 57,222
-----------
Net assets at June 30, 1997 $ 5,668,905
===========
Maximum offering price per share ($9.26/95.25%): $ 9.72
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
STATEMENT OF OPERATIONS
For the Period January 1, 1997 to June 30, 1997
(Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 13,779
Interest 144,958
------------
Total Income 158,737
------------
EXPENSES
Investment Advisory Fees 22,863
Fund Accounting Fees 16,393
Transfer Agent Expense 14,294
Legal Expense 4,224
Amortization Expense 5,591
Registration Fees 6,585
Printing 10,454
Audit Fees 4,725
Custody Fees 2,340
Director Fees/Meetings 1,767
Distribution Fees (Note 3) 3,990
Other Expense 3,005
------------
Total Expenses, before reimbursements 96,231
Less Fees Waived and Expenses Reimbursed (Note 3) 42,341
------------
Net Expenses 53,890
------------
NET INVESTMENT INCOME $ 104,847
=========
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments
Proceeds from sales of investment securities (excluding
short-term investments with maturities of 60 days or less) $ 11,137,407
Cost of investment securities sold 11,141,661
------------
Net realized loss on investments (4,254)
Proceeds from sales of short-term investment securities
with maturities of 60 days or less $ 849,118
Cost of investment securities sold 849,067
------------
Net realized gain on investments 51
---------
(4,203)
Net unrealized depreciation of investments
Beginning of period $ 80,639
End of period 57,222
------------
Net unrealized depreciation of investments (23,417)
---------
(27,620)
=========
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 77,227
=========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
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 $ 104,847 $ 222,531
Net realized gain (loss) on investments (4,203) 162,292
Net unrealized depreciation of investments (23,417) (546,913)
----------- -----------
Increase (decrease) in net assets resulting from operations 77,227 (162,090)
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (106,348) (221,637)
Net capital gains 0 (161,531)
----------- -----------
Decrease in net assets resulting from distributions (106,348) (383,168)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold (56,718 and 346,901 shares) 526,073 3,319,414
Proceeds from shares purchased by reinvestment
of dividends (10,421 and 37,037 shares) 96,100 349,877
Cost of shares repurchased (217,849 and 195,381 shares) (2,020,474) (1,864,681)
----------- -----------
Increase (decrease) in net assets derived from capital share transactions
((150,710) and 188,557 shares) (1,398,301) 1,804,610
----------- -----------
Increase (decrease) in net assets (1,427,422) 1,259,352
NET ASSETS
BEGINNING OF PERIOD
(includes undistributed net investment income of $1,814 and $920) 7,096,327 5,836,975
----------- -----------
END OF PERIOD
(includes undistributed net investment income of $313 and $1,814) $ 5,668,905 $ 7,096,327
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
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 Government Securities Fund
seeks to provide high current income, preservation of capital, and rising future
income, consistent with prudent investment 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 Government
Securities Fund declares and distributes dividends of its net investment income,
if any, quarterly. 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 Government Securities
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. During 1997 the Investment Manager
assumed the amortization expense of $5,495 for organizational expenses.
F. USE OF ESTIMATES. The preparation of financial statements in
conformity with generally
8
<PAGE> 9
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.
NOTE 3. INVESTMENT MANAGEMENT, DISTRIBUTOR AND OTHER RELATED PARTY TRANSACTIONS
The Company and Government Securities 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 0.65% of average
net assets for the Government Securities Fund. The Investment Manager has
entered into a sub-advisory agreement ("Sub-Advisory Agreement") with Spectrum
Asset Management, 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 Government Securities 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 Government Securities Fund, $21,230 of management and sub-advisory fees were
waived and $21,111 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 $305,243.
For the period from January 1, 1997 to June 30, 1997, Pacific Global
Fund Distributors, Inc. ("PGFD"), the principal underwriter for the Company,
received $551 of commissions on sales of capital stock of the Government
Securities Fund, after deducting $2,352 allowed to authorized distributors as
commissions. PGFD is a wholly-owned subsidiary of the Investment Manager.
The Company and the Government Securities 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 Government
Securities 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, $3,990 was accrued or paid.
NOTE 4. PURCHASE AND SALES OF SECURITIES
For the period from January 1, 1997 to June 30, 1997, the Government
Securities Fund had purchases of securities, other than short-term investments
of $10,291,584. 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 $90,632 and $33,410 respectively. Net unrealized
appreciation for tax purposes is $57,222.
9
<PAGE> 10
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 $9.30 $10.16 $8.82 $9.00 $9.00
------ ------ ------ ------ ------
Income from Investment Operations
Investment income 0.24 0.43 0.45 0.22 0.11
Expenses (0.08) (0.10) (0.14) (0.09) (0.04)
------ ------ ------ ------ ------
Net investment income 0.16 0.33 0.31 0.13 0.07
Net realized and unrealized gain (loss) on securities (0.04) (0.65) 1.53 (0.14) (0.04)
------ ------ ------ ------ ------
Total from investment operations 0.12 (0.32) 1.84 (0.01) 0.03
Less Distributions
From net investment income (0.16) (0.32) (0.31) (0.17) (0.03)
From net capital gains 0.00 (0.22) (0.19) 0.00 0.00
Net Asset Value, End of Year $9.26 $9.30 $10.16 $8.82 $9.00
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN (4) 1.32% (3.15%) 20.32% (0.15%) 0.36%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year $5,669 $7,096 $5,837 $3,185 $1,179
Ratio of Expenses to Average Net Assets (1) 0.83% 1.66% 1.65% 1.60% 1.38% (2)
Ratio of Net Investment Income to
Average Net Assets (1) 1.61% 3.46% 3.75% 2.09% 1.12% (2)
Portfolio Turnover Rate 4.93% 50.49% 57.85% 81.59% 129.16% (2)
Average Commission Per Share
Paid on Equity Transactions $0.0768 $0.0770 $0.0884 -- --
</TABLE>
1. Without the voluntary fee waivers and reimbursement of expenses, the
ratio of expenses to average daily net assets for the Government
Securities Fund would have been 1.48%, 2.95%, 2.80%, 4.86%, and 15.46%,
for the years 1997 through 1993 respectively, and the ratio of net
investment income (loss) to average net assets would have been 0.96%,
(2.17%), (2.60%), (1.17%), and (12.95%), 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
10
<PAGE> 11
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11
<PAGE> 12
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<PAGE> 13
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<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
SPECTRUM ASSET MANAGEMENT, INC.
450 NEWPORT CENTER DRIVE, SUITE 420
NEWPORT BEACH, CALIFORNIA 92660
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
[PACIFIC GLOBAL LOGO] U. S. POSTAGE
PAID
PACIFIC GLOBAL FUND DISTRIBUTORS, INC. GLENDALE, CA
206 NORTH JACKSON STREET, SUITE 201 PERMIT NO. 1090
GLENDALE, CALIFORNIA 91206
SEMIANNUAL REPORT | june 30, 1997
[PACIFIC GLOBAL LOGO]
PACIFIC
ADVISORS
Fund Inc.
GOVERNMENT
SECURITIES
FUND
