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BULK RATE
U. S. POSTAGE
PAID
GLENDALE, CA
PERMIT NO. 1090
Pacific Advisors Fund Inc. [LOGO]
ANNUAL REPORT | December 31, 1996
SMALL CAP
FUND
[LOGO]
Pacific Global Fund Distributors, Inc.
206 North Jackson Street, Suite 201
Glendale, California 91206
<PAGE> 2
DEAR FELLOW SHAREHOLDERS
The equity markets set new records in 1996, as the bull market continued its
reign on Wall Street. While 1996 did not match the record-setting pace of 1995,
it was still a great year. While lagging the rest of the market, small cap
stocks performed quite well in selected areas. The Pacific Advisors Small Cap
Fund had an exceptional year. It was ranked 21 in performance among all mutual
funds covered by Lipper Analytical Services, Inc. and sixth among the 455 funds
that invest in small companies.
PERFORMANCE
For the twelve months ending December 31, 1996, the Pacific Advisors Small Cap
Fund had a total return of 43.70%. The return is based on shares purchased at
the offering price on January 1, 1996 and held through December 31, 1996. The
return reflects the deduction of the Fund's current maximum sales charge,
reinvestment of capital gains and expense reimbursements. By comparison, the
NASDAQ and Russell 2000 Indices, which are unmanaged indices of small company
common stocks, increased 22.71% and 14.76% respectively, for the same period.
PORTFOLIO MANAGEMENT
The Fund has continued to focus on a specific segment of the small cap market --
strong companies with market capitalizations under $120 million. Over 67% of the
portfolio was invested in companies with a market cap under $100 million, and,
at year end, the median market cap for the Fund was $45 million. We believe the
smaller number of issues in the Fund -- 30 different stocks at the end of
December -- allows it to benefit from the outstanding performance of good
companies rather than representing a more indexed approach to investing.
Several companies whose stock has been in the Fund since 1993,
experienced outstanding price appreciation in 1996. These stocks include such
companies as America Service Group, Worthington Foods, Western Beef and
Herbalife. Each of these companies had record earnings for the year and received
good market recognition.
During 1996, the Fund began acquiring stock in three warranty
companies: Automobile Protection Corporation, Interstate National Dealer
Services and Warrantech. These companies are experiencing strong growth in the
sale of warranty products for new and used automobiles, as well as for consumer
products. The profit margins are quite good and the commissions earned by
dealers and stores represent a significant portion of their profits. Each of
these companies also experienced strong market appreciation in 1996.
The Fund has also invested in companies within the technology sector.
These companies became attractive when the technology sector began its pull back
in mid-1996. We were able to buy the stocks at relatively low P/E ratios, which
was consistent with our value approach to investing. Representative of the type
of company we have added to the Fund, Cerprobe produces custom-made probe cards
used by chip makers to quality test their chips in the manufacturing process.
The market potential is quite good because many of the major chip makers such as
Intel have decided to purchase probe cards from outside vendors rather than
develop them internally, as they have done in the past. Cerprobe is attractive
because it is participating in the dynamic growth of the chip industry by
producing quality control products needed by all chip manufacturers. Biosource
is a similar type of company in the biotechnology industry. It provides
1
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test kits used by biotech firms such as Amgen in their research and development
of new products.
OUTLOOK
At the present time there appears to be no clear market leadership, which is
creating more volatility in the equity markets. We continue to believe that the
economy will experience moderate economic growth with low inflation and, as a
result, long-term interest rates should resume a downward trend during 1997.
This relatively stable environment could change if job inflation, deficit
reduction or other foreign or national events become a major concern during the
year.
Under the above scenario, we would expect the bull market to continue,
but at a slower pace from the last two years. A slower growing economy should
benefit small cap value stocks as investors look for stocks which are
undervalued and have more growth potential. While we attempt to keep abreast of
market trends, our primary focus continues to be on individual companies and
their potential for growth in value.
Please contact your financial adviser, or Pacific Advisors Fund, if you
have questions or would like more information on the Small Cap Fund.
Respectfully submitted,
/s/ George A. Henning
---------------------
George A. Henning
Chairman
/s/ Thomas H. Hanson
---------------------
Thomas H. Hanson
Executive Vice President
CHANGE IN VALUE OF $10,000 INVESTMENT*
This chart shows the growth of a $10,000 investment made in Pacific Advisors
Small Cap Fund on February 8, 1993 compared to the growth of the NASDAQ and
Russell 2000 Indices.
PACIFIC ADVISORS
SMALL CAP FUND
<TABLE>
<CAPTION>
Small
Year Cap NASDAQ Russell 2000
------ ------ ------ ------------
<C> <S> <C> <C> <C>
Average Annual Dec-92 10,000 10,000 10,000
Total Return Dec-93 12,994 11,475 11,700
for period ending Dec-94 12,478 11,107 11,328
December 31, 1996 Dec-95 14,633 15,542 14,297
Dec-96 21,028 19,072 16,407
One Year
(43.70%)
Inception
(2/8/93)
20.33%
</TABLE>
* Reflects the deduction of the 5.75% maximum sales charge and assumes all
distributions were reinvested at net asset value and after expense
limitations. The results show annualized returns for 1993, since February
8, 1993 was the inception date of the Fund.
The NASDAQ Stock Index is an unmanaged index of common stocks that is
widely recognized as an indicator of overall market performance for small
companies. The NASDAQ Index does not take capital gains into consideration
and unlike the Fund, does not reflect management fees or expenses.
The Russell 2000 Stock Index is an unmanaged, market weighted measure of
stock market performance. It contains stocks of the 2000 smallest publicly
traded companies. The Russell 2000 Index does not take capital gains into
consideration and unlike the Fund, does not reflect management fees or
expenses.
Past performance does not guarantee future results. Share price and
return fluctuate, so that your shares when redeemed, may be worth more or
less than their original cost.
2
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SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Number of Shares Value
<S> <C> <C>
COMMON STOCK (97.14%)
Air Transportation (2.50%)
Mercury Air Group Inc. 30,000 $ 213,750
- --------------------------------------------------------------------------------------------------------------
Building Products (1.32%)
Elcor Corporation* 5,300 113,287
- --------------------------------------------------------------------------------------------------------------
Chemicals (8.05%)
CPAC Inc.* 30,000 450,000
Ocean Bio-Chem Inc. 56,500 113,000
Polymer Research Corp. Of America* 50,000 125,000
- --------------------------------------------------------------------------------------------------------------
688,000
- --------------------------------------------------------------------------------------------------------------
Commercial Bank (1.22%)
California State Bank 6,000 104,250
- --------------------------------------------------------------------------------------------------------------
Computer Software (2.97%)
Quality Systems* 35,000 253,750
- --------------------------------------------------------------------------------------------------------------
Consumer Services (6.05%)
Warrantech Corp.* 45,000 517,500
- --------------------------------------------------------------------------------------------------------------
Electronic Components (6.22%)
Cerprobe Corp.* 20,000 287,500
Tridex Corp.* 19,000 244,625
- --------------------------------------------------------------------------------------------------------------
532,125
- --------------------------------------------------------------------------------------------------------------
Food Processing (7.77%)
Armanino Foods Of Distinction* 70,000 94,059
Worthington Foods Inc. 30,000 570,000
- --------------------------------------------------------------------------------------------------------------
664,059
- --------------------------------------------------------------------------------------------------------------
Food Wholesaling (6.04%)
Green Mountain Coffee, Inc.* 25,000 153,125
Western Beef Inc.* 35,000 363,125
- --------------------------------------------------------------------------------------------------------------
516,250
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 5
<TABLE>
<CAPTION>
Number of Shares Value
<S> <C> <C>
COMMON STOCK continued
Hospital Supplies (4.01%)
Biosource International Inc.* 33,000 $ 226,875
Hosposable Products* 25,000 115,625
- -------------------------------------------------------------------------------------------------------------
342,500
- -------------------------------------------------------------------------------------------------------------
Health And Personal Care Products (17.39%)
American Safety Razor Corp.* 18,000 252,000
Herbalife International 25,000 815,625
Natural Alternatives International* 50,000 418,750
- -------------------------------------------------------------------------------------------------------------
1,486,375
- -------------------------------------------------------------------------------------------------------------
Health Services (8.89%)
Healthcare Services Group* 35,000 350,000
American Service Group* 40,000 410,000
- -------------------------------------------------------------------------------------------------------------
760,000
- -------------------------------------------------------------------------------------------------------------
Industrial Goods And Equipment (3.62%)
Global Industrial Technologies* 14,000 309,750
- -------------------------------------------------------------------------------------------------------------
Insurance (7.91%)
Automobile Protection Corp.* 68,000 291,122
Interstate National Dealer Services* 70,000 385,000
- -------------------------------------------------------------------------------------------------------------
676,122
- -------------------------------------------------------------------------------------------------------------
Oil Services (0.80%)
Mitcham Industries* 7,000 68,250
- -------------------------------------------------------------------------------------------------------------
Printing And Publishing (1.52%)
Courier Corp. 8,500 129,625
- -------------------------------------------------------------------------------------------------------------
Railroad (3.42%)
Railamerica Inc.* 60,000 292,500
- -------------------------------------------------------------------------------------------------------------
Restaurants (1.46%)
Panchos Mexican Restaurants* 50,000 125,000
- -------------------------------------------------------------------------------------------------------------
Retail-Specialty (2.95%)
Boyds Wheels Inc.* 18,000 252,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
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<TABLE>
<CAPTION>
Number of Shares Value
<S> <C> <C>
COMMON STOCK continued
Textiles (3.03%)
Decorator Industries 22,500 $ 258,750
- ---------------------------------------------------------------------------------------------------------
Total Common Stock 8,303,843
TOTAL INVESTMENT SECURITIES (97.14%) $ 8,303,843
Short-Term Investments (2.06%)
United Missouri Bank Money Market Fund 176,060
Other Assets Less Liabilities (0.80%) 68,855
-----------
TOTAL NET ASSETS (100%) $ 8,548,758
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
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STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Investment securities at market value (cost: $5,898,554) $ 8,303,843
Short-term investments, at cost, which is equivalent to market 176,060
Receivable from investment manager (Note 3) 25,726
Other assets 27,294
Accrued income receivable 2,323
Receivable for capital shares sold 15,058
Organizational expenses, net of amortization (Note 1) 12,873
-----------
Total assets 8,563,177
-----------
LIABILITIES
Payable to Investment Manager (Note 1) 12,873
Accrued expenses 1,421
Payable for capital gain distribution 125
-----------
Total liabilities 14,419
-----------
NET ASSETS
(Equivalent to $16.47 per share on 519,057 shares of
Capital Stock outstanding - 100 million shares authorized) $ 8,548,758
===========
SUMMARY OF SHAREHOLDERS' EQUITY
Paid-in capital $ 6,314,972
Accumulated net investment loss (171,132)
Distributions of net capital gains in excess of capital gains reported
for financial statement purposes (371)
Unrealized appreciation of investments 2,405,289
-----------
Net assets at December 31, 1996 $ 8,548,758
===========
Maximum offering price per share ($16.47/94.25%): $ 17.47
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 8
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 42,444
Interest 9,966
-------------
Total Income 52,410
-------------
Expenses
Investment Advisory Fees 49,510
Fund Accounting Fees 30,047
Transfer Agent Expense 28,421
Legal Expense 18,070
Amortization Expense 11,234
Registration Fees 9,910
Printing 11,584
Audit Fees 9,201
Custody Fees 7,810
Director Fees/Meetings 4,856
Distribution Fees (Note 3) 14,339
Other Expense 5,660
-------------
Total Expenses, before reimbursements 200,642
Less Fees Waived and Expenses Reimbursed (Note 3) (20,623)
-------------
Net Expenses 180,019
-------------
NET INVESTMENT LOSS $ (127,609)
============
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments
Proceeds from sales of investment securities (excluding
short-term investments with maturities 60 days or less) $ 3,066,546
Cost of investment securities sold 2,825,859
-------------
Net realized gain on investments 240,687
Net unrealized appreciation of investments
Beginning of year $ 400,934
End of year 2,405,289
-------------
Net unrealized appreciation of investments 2,004,355
-------------
Net realized and unrealized gain on investments 2,245,042
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,117,433
=============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 9
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1996 December 31, 1995
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net investment loss $ (127,609) $ (28,321)
Net realized gain on investments 240,687 56,056
Net unrealized appreciation of investments 2,004,355 522,452
-------------------------------
Increase in net assets resulting from operations 2,117,433 550,187
-------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net capital gains (242,210) (123,374)
-------------------------------
Decrease in net assets resulting from distributions (242,210) (123,374)
-------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold (188,810 and 91,918 shares) 2,836,753 1,103,741
Proceeds from shares purchased by reinvestment
of dividends (13,164 and 8,539 shares) 207,993 104,961
Cost of shares repurchased (44,925 and 44,778 shares) (650,370) (525,779)
-------------------------------
Increase in net assets derived from capital share transactions 2,394,376 682,923
-------------------------------
Increase in net assets 4,269,599 1,109,736
Net Assets
Beginning of Year
(includes no undistributed net investment income) 4,279,159 3,169,423
-------------------------------
End of Year
(includes no undistributed net investment income) $ 8,548,758 $ 4,279,159
===============================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
8
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NOTES TO FINANCIAL STATEMENTS
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
"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 Small Cap Fund
seeks to provide capital appreciation through investment in small capitalization
companies.
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 Small Cap 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 Small Cap 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.
F. 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
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<PAGE> 11
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 Small Cap 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
Small Cap Fund.
Pursuant to the Expense Limitation Agreements, with the Company, on
behalf of each Fund, the Investment 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
Small Cap Fund for any additional expenses that exceed such limit. In addition,
from time to time, the Investment Manager may voluntarily waive its fee and/or
absorb certain expenses for the Small Cap Fund. In October 1996, the National
Securities Market Improvement Act eliminated state expense limitations for
mutual funds. Accordingly, the Investment Manager will determine in the future
the level and extent of expense limitations, fee waivers, and reimbursements at
its discretion.
Pursuant to the Expense Limitation Agreements, the voluntary waiver of
fees and the assumption of expenses by the Investment Manager, was $20,623 for
the year ended December 31, 1996 for the Small Cap Fund.
Fund Operating Expenses may not fall below the expense limitation level
established for subsequent years until the Investment Manager has fully recouped
fees forgone and expenses paid or assumed under the Expense Limitation
Agreement, 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
December 31, 1996, the cumulative amounts unrecouped by the Investment Manager
since commencement of operations is $200,409.
For the year ended December 31, 1996, Pacific Global Fund Distributors,
Inc. ("PGFD"), the principal underwriter for the Company, received $9,504 of
commissions on sales of capital stock of the Small Cap Fund, after deducting
$47,279 allowed to authorized distributors as commissions. For the fiscal year
ended December 31, 1996 PGFD earned $55,227 in introducing brokerage fees
related to securities transactions for the Small Cap Fund. PGFD is a
wholly-owned subsidiary of the Investment Manager.
The Company and Small Cap Fund have entered into an agreement with
Pacific Global Investor Services, Inc., ("PGIS") to provide fund accounting
services at the monthly fee of 3 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 the monthly fee based upon the
number of accounts or a minimum of $1,250. PGIS is a wholly-owned subsidiary of
the Investment Manager.
The Fund has adopted a plan of distribution, whereby the Small Cap 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 year ended December 31, 1996,
$14,339 was accrued or paid.
NOTE 4. PURCHASE AND SALES OF SECURITIES
For the year ended December 31, 1996, the Small Cap Fund had purchases
of securities, other than short-term investments of $4,982,153. 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 $2,607,036 and $201,747, respectively. Net
unrealized appreciation for tax purposes is $2,405,289.
10
<PAGE> 12
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the Period
For the Year Ended December 31 February 8, 1993(3)
1996 1995 1994 to December 31, 1993
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year $ 11.82 $ 10.35 $ 11.47 $ 9.00
--------------------------------------------- -----------
Income from Investment Operations:
Investment Income 0.09 0.19 0.19 0.09
Expenses (0.30) (0.27) (0.23) (0.12)
--------------------------------------------- -----------
Net Investment Income (loss) (0.21) (0.08) (0.04) (0.03)
Net realized and unrealized gain (loss) on securities 5.35 1.89 (0.42) 2.50
--------------------------------------------- -----------
Total from Investment Operations 5.14 1.81 (0.46) 2.47
Less Distributions
Distributions from net capital gains (0.49) (0.34) (0.66) 0.00
Net Asset Value, End of Year $ 16.47 $ 11.82 $ 10.35 $ 11.47
============================================= ===========
TOTAL INVESTMENT RETURN (4) 43.70% 17.27% (3.97%) 29.94%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) $ 8,549 $ 4,279 $ 3,169 $ 2,175
Ratio of Expenses to Average Net Assets(1) 2.91% 2.49% 2.45% 2.20%(2)
Ratio of Net Investment Income (loss)
to Average Net Assets (1) (2.06%) (0.71%) (0.42%) (0.32%)(2)
Portfolio Turnover Ratio 51.83% 44.95% 49.79% 5.91%(2)
Average Commission Per Share
Paid on Equity Transactions $ 0.0807 $ 0.0833 -- --
</TABLE>
(1) Without the voluntary fee waivers and reimbursement of expenses, the ratio
of expenses to average daily net assets for the Small Cap Fund would have
been 3.24%, 3.64%, 5.40% and 7.20%, for the years 1996 through 1993
respectively, and the ratio of net investment income (loss) to average net
assets would have been (2.39%), (1.88%), (3.37%), and (5.32%), for the
years 1996 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> 13
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
PACIFIC ADVISORS FUND INC.
SMALL CAP FUND
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Pacific Advisors Fund Inc. Small Cap Fund as
of December 31, 1996, the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the years ended December 31,
1996, 1995, and 1994 and for the period February 8, 1993 (commencement of
operations) to December 31, 1993. These financial statements and financial
highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Pacific Advisors Fund Inc. Small Cap Fund as of December 31,
1996, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for the years ended December 31, 1996, 1995, and 1994 and for the
period February 8, 1993 (commencement of operations) to December 31, 1993, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
January 29, 1997
12
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<PAGE> 15
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
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
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.
