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SEMIANNUAL REPORT | JUNE 30, 1998
[GRAPHIC]
PACIFIC
ADVISORS
-
FUND INC.
BALANCED fund
GOVERNMENT SECURITIES fund
INCOME AND EQUITY fund
SMALL CAP fund
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PACIFIC ADVISORS
table of contents
MESSAGE FROM THE CHAIRMAN. . . . . . . . . . . . . . . . . 1
BALANCED FUND. . . . . . . . . . . . . . . . . . . . . . . 2
GOVERNMENT SECURITIES FUND . . . . . . . . . . . . . . . . 4
INCOME AND EQUITY FUND . . . . . . . . . . . . . . . . . . 6
SMALL CAP FUND . . . . . . . . . . . . . . . . . . . . . . 8
SCHEDULE OF INVESTMENTS. . . . . . . . . . . . . . . . . .12
STATEMENT OF ASSETS AND LIABILITIES. . . . . . . . . . . .21
STATEMENT OF OPERATIONS. . . . . . . . . . . . . . . . . .22
STATEMENT OF CHANGES IN NET ASSETS . . . . . . . . . . . .24
NOTES TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . .26
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . .30
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MESSAGE
from the chairman
Fellow Shareholders,
During the first six months of 1998, the equity and bond markets have felt
the impact of the economic crisis in Asia. As it became apparent in the spring
of 1998 that Asia's economic problems were more severe than many economists had
forecasted, investors reacted accordingly.
Asia's problems were good news for the U.S. bond market. Low inflation, a
strong U.S. Dollar, bond yields in the U.S. higher than in other developed
countries, a balanced U.S. budget and domestic political stability, made U.S.
bonds the investment of choice for many foreign investors. This trend which
began in late 1997 should continue into 1999. Interest rates will probably
decline even further from their current range of 5.5% to 6.0%.
On the surface it appeared that the equity markets were not greatly
affected by Asia's problems as the Dow Industrial, S&P 500 and NASDAQ Indices
reached new highs in 1998. However, the performance of these indices was the
result of investors pushing a few stocks, such as General Electric, Microsoft
and other large blue chip stocks, to new highs. Investors believed that only the
largest and most recognized multi-national companies offered liquidity and
safety in an uncertain environment. As a result the valuations for many of these
companies grew to more than twice the market average.
During this same period many large, mid cap and small cap stocks were
experiencing a significant correction. In 1998, 75% of NASDAQ and 45% of S&P 500
stocks have declined 30% from their 52-week high. The primary concern appears to
be that corporate earnings for U.S. companies will slow as the strong U.S.
Dollar makes exports more expensive and imports cheaper. Concerns that Asian
economies may see a further devaluation in their currencies make it difficult
for U.S. companies to raise prices and increase the potential for global
deflation.
We believe that Pacific Advisors' Funds have been relatively well
positioned to weather this economic uncertainty. Investment strategies
implemented in 1997 positioned the Funds well for the market changes we have
experienced. I am pleased to report that both the Government Securities and
Income and Equity Funds have been recognized as two of the top 10 bond funds for
performance in 1998 in the August issue of MONEY MAGAZINE. Both of these Funds
have achieved excellent results over the last one, three and five year periods.
The Balanced Fund has also implemented a more defensive investment strategy
in response to the turmoil in Asia. More details on the Fund's performance and
investment strategy appear later in this report. The year-to-date results for
the Small Cap Fund, however, have been disappointing. Even though many companies
in the Fund had outstanding results their value declined as investors favored
larger stocks. We believe that, as the market continues through this correction,
it will set the stage for small cap stocks to rally from their currently low
valuations.
While there is a great deal of uncertainty in the global markets we remain
optimistic about the long term scenario. Inflation and interest rates have
remained low throughout this period, which should enable the economy to continue
its growth, albeit at a slower rate. These conditions will also enable the stock
market to resume its growth as global market conditions stabilize.
For the first time, Pacific Advisors Fund Inc. is consolidating all of its
Funds into a single semi-annual report. We trust that this consolidated report
will enable you, as shareholders, to become more familiar with all of our
Funds. Should you have questions regarding our Funds, please contact us at
(800) 282-6693.
Sincerely,
/s/ George A. Henning
George A. Henning
Chairman of the Board and President
Pacific Advisors Fund Inc.
1
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PACIFIC ADVISORS
Balanced Fund
INVESTS PRIMARILY IN LARGE AND MEDIUM CAP COMMON STOCKS WITH AT LEAST 25% OF THE
ASSETS IN FIXED-INCOME SECURITIES.
INTERVIEW WITH PORTFOLIO MANAGER
STEPHEN K. BACHE, CFA
Q HOW HAS THE FUND PERFORMED IN THE FIRST SIX MONTHS OF 1998?
A For the six months ended June 30, 1998, the Fund's total return was 8.62%
for Class A shares and -0.46% for Class C shares (inception date April 4, 1998).
During the same period, the Fund's benchmarks, the S&P 500(1) and the Lehman
Intermediate Bond(2), returned 16.84% and 3.38%, respectively. Since the Fund
invests in both stocks and bonds, its performance generally will not mirror
either index. Instead, as was the case for the first part of the year, it is
likely to be a blend of both.
Q WHAT HAS BEEN YOUR INVESTMENT STRATEGY DURING THIS PERIOD?
A In response to market volatility and declining interest rates, we have
taken a more defensive position by investing a greater percentage of the Fund's
assets in long-term bonds. As interest rates continue to decline, these bonds
will appreciate in value, adding to the Fund's total return.
Many of the well known blue chip stocks have become overvalued in recent
months. For this reason, we have been purchasing primarily secondary stocks
which are in the mid to large cap range, but not considered blue chip stocks.
These stocks include such companies as R. H. Donnelly, CNF Transportation and
Price Enterprises. During the first six months of 1998 the market has continued
to favor blue chip stocks such as Pfizer, Nokia and Time Warner. Other equity
positions in the Fund have not performed as well because of the concentration of
the market in the large blue chip stocks.
Q WHAT EVENTS HAVE HAD THE MOST IMPACT ON THE FUND'S PERFORMANCE?
A The Fund's returns were, in part, supported by the FDA' s approval of
Viagra. The drug's remarkable sales translated to substantial growth in the
manufacturer, Pfizer's, stock. Similarly, AT&T's announcement of its decision to
acquire Tele-Communications Inc. significantly improved the value of our
position in Liberty Media.
Among the factors which detracted from performance, the Asian crisis has
had the greatest effect. The Asian crisis has decreased demand from Asia and
increased competition for U.S. companies in Asian markets. Moreover, the strong
U.S. dollar has made U.S. exports more expensive for foreign consumers. All of
these factors combined with rising labor costs in the U.S. have hurt corporate
earnings. As a result, many stocks, such as Boeing--which saw a decline in
earnings due to a decrease in business from Asian airlines--have decreased
in value.
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INVESTMENT MIX as of 6/30/98
[CHART]
<TABLE>
<S> <C>
1. COMMON STOCKS 50.91%
2. CORPORATE BONDS 37.92%
3. CASH 11.17%
</TABLE>
2
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Q HOW IS THE FUND POSITIONED?
A In the last six months we have taken a more defensive position by reducing
our equity position and investing more of the Fund's assets in bonds and cash
equivalents. With the instability of the market due to Asia and declining
interest rates, the increased demand for bonds is likely to increase the value
of these bonds. We have already begun to see the benefits of our defensive
position as certain bonds, such as Barnett Banks, have improved their credit
ratings and appreciated in value.
During this period of uncertainty, we will continue to buy stocks as good
buying opportunities arise. However, it is very possible that the overall equity
position may be reduced further until the global markets begin to stabilize.
Q WHAT IS YOUR INVESTMENT OUTLOOK OVER THE NEXT 12 MONTHS?
A Looking ahead we feel that corporate earnings will continue to decline in
response to the turmoil in Asia. While we are skeptical about the value and
attractiveness of many stocks, we have a more positive outlook on bonds. As
mentioned earlier, as the value of stocks decline, more investors are attracted
to the bond market, increasing the value of bonds. By locking in interest rates
on long-term bonds now, we hope to see these bonds appreciate in value and
contribute to the Fund's total return as interest rates continue to decline.
(1) The Standard & Poor's 500 Index is an unmanaged measure of 500 widely held
common stocks listed on the New York Stock Exchange, American Stock Exchange and
Over-the-Counter market. The Index returns assume reinvestment of dividends but,
unlike the Fund's returns, does not reflect the effects of management fees or
expenses.
(2) The Lehman T-Bond Index is an unmanaged index of intermediate government
bonds since 12/31/80.
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PACIFIC ADVISORS
Government Securities Fund
INVESTS PRIMARILY IN FIXED-INCOME SECURITIES GUARANTEED BY THE U.S. GOVERNMENT
OR ITS INSTRUMENTALITIES. THE FUND MAY ALSO INVEST IN DIVIDEND-PAYING COMMON
STOCKS FOR GROWTH IN INCOME.
INTERVIEW WITH PORTFOLIO MANAGER
R. "KELLY" KELLY
Q HOW HAS THE FUND PERFORMED IN THE FIRST SIX MONTHS OF 1998?
A As of June 30, 1998, the Fund's total return year-to-date was 8.59% for
Class A shares and 4.02% for Class C shares (inception date April 4, 1998). In
comparison, the Fund's benchmark, the Lehman Long-term T-Bond Index(1), returned
6.27% for the same period.
Q WHAT HAS BEEN YOUR INVESTMENT STRATEGY DURING THIS PERIOD?
A We manage the Government Securities Fund with a barbell strategy. When
interest rates rise, we invest primarily in short term bonds; and when interest
rates decline, we invest primarily in long-term bonds. Since the fall of 1997,
our strategy has been to move into longer maturity bonds, in order to capitalize
on declining interest rates. As a result, the average maturity in the Fund has
increased from 17.8 to 24.5 years.
Q WHAT EVENTS HAVE HAD THE MOST IMPACT ON THE FUND'S PERFORMANCE?
A Declining interest rates had the greatest impact on the Fund's performance
for the first half of the year. As the U.S. economy began to feel the effects of
the Asian crisis, interest rates began to come down. One of the major factors
contributing to this trend has been the decline in U.S. exports to Asia. While
exports have declined, the number of low-cost imports coming into the U.S. from
Asia has increased significantly. Low-cost imports deny U.S. manufacturers the
ability to raise prices, which are needed to offset rising labor costs. In
addition, the strength of the U.S. dollar, in comparison to other currencies,
has increased the cost of U.S. exports and hurt sales abroad. With the strong
U.S. dollar working to slow the economy, the Federal Reserve did not have to
raise interest rates in order to protect against inflation. In response to these
pressures, interest rates have declined and the value of long-term bonds has
increased, leading to an increase in the Fund's total return.
In addition to declining interest rates, the gloom which spread across
global financial markets during the second quarter led investors to seek the
relative safety of U.S. Treasury bonds. U.S. stock market gains were
concentrated in a handful of high-profile blue chip stocks. Earnings growth
dropped into the single digit range which caused many investors to move out of
stocks and into bonds. The increased popularity of bonds during this period has
also helped increase the value of the Fund's portfolio.
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INVESTMENT MIX as of 6/30/98
[GRAPHIC]
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<S> <C>
1. U.S. TREASURY BONDS 74.10%
2. EQUITIES 18.51%
3. CASH 7.39%
</TABLE>
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Q HOW IS THE FUND POSITIONED?
A Since a number of conditions exist which seem to indicate that long-term
interest rates will continue to decline, the Fund is now primarily invested in
long-term U.S. Treasury Bonds and public utility stocks. A slowing global
economy with muted inflation and a balanced U.S. budget will leave little need
for the government to sell bonds and compete with the private sector for
capital. Moreover, disappointing profit growth in the equity market may spell
trouble for stock prices, but perhaps set the stage for rising bond prices. As
we head into the second half of the year, we will maintain our investment
position in order to capitalize on declining interest rates and the increased
demand for bonds.
Q WHAT IS THE BENEFIT OF HAVING UTILITY STOCKS IN THE FUND?
A The primary benefit of utility stocks is the protection they offer against
inflation. In selecting these utilities we look for companies with strong
balance sheets as well as above average dividend growth. Whereas the interest
rate on a bond remains stable, even when inflation rises, the rising dividend
income produced by utilities helps to minimize the effects of inflation. The
market tends to value these stocks similar to the 30-year Treasury bond, and
when interest rates decline these stocks usually increase in value.
Q WHAT IS YOUR INVESTMENT OUTLOOK OVER THE NEXT 12 MONTHS?
A The U.S. economy has started to slow in response to deflationary global
forces. We believe that a number of forces have come together that should create
major changes in both bond and stock prices in the near future. For instance, we
expect company earnings to continue to slow in the second half of the year as
the effects of the crisis in Asia and other worldwide forces continue to impact
the U.S. This decline in performance should continue to lead investors out of
the stock market and into the bond market, creating an even stronger demand for
bonds. By late 1998 or early 1999, it is likely that interest rates will move
even lower. Until then, they are likely to remain in the 5.5 to 6.0% range. The
degree to which the rates will decline largely depends on four key factors: 1)
the degree to which the market continues to feel the effects of the Asian
crisis; 2) the strength of the U.S. dollar, which will affect the U.S. trade
balance; 3) the degree to which higher labor costs will affect corporate
earnings; and 4) the growth of the U.S. money supply which drives the economy
and markets.
"NO DOUBT ABOUT IT--U.S. GOVERNMENT BONDS ARE LOOKING GOOD
THESE DAYS...ANOTHER TOP RISK-ADJUSTED PERFORMER, PACIFIC
ADVISORS GOVERNMENT SECURITIES A (UP 19.7% IN THE PAST 12
MONTHS) ACTIVELY MANAGES RISK...PACIFIC ADVISORS IS A
TOTAL-RETURN BOND FUND THAT USES A PROPRIETARY INTEREST-RATE
TIMING MODEL TO BET ON THE DIRECTION OF RATES...KELLY SHORTENS
THE FUND'S DURATION WHEN HE THINKS RATES WILL RISE AND
LENGTHENS THEM WHEN HE THINKS THEY WILL FALL. NOW, HE'S
BUYING BONDS WITH AN AVERAGE MATURITY OF 26 YEARS BECAUSE HE
SEES RATES HEADING LOWER.
THE FUND'S SUCCESS IN MANAGING DURATION HELPS EXPLAIN
WHY THIS FUND HAS THE LOWEST STANDARD DEVIATION--A MEASURE
OF HOW MUCH ITS RETURNS VARY FROM ITS LONG-TERM
AVERAGE--AMONG THE GROUP OF TOP PERFORMERS. BUT THERE'S
ANOTHER REASON PACIFIC ADVISORS HAS DONE WELL. KELLY IS
PERMITTED TO INVEST UP TO 35% OF THE FUND IN STOCKS OF
DOMESTIC AND FOREIGN UTILITIES THAT HAVE GOOD
FUNDAMENTALS--AND ABOVE-AVERAGE DIVIDENDS THAT HAVE BEEN
GROWING."
Reprinted from BUSINESS WEEK August 3, 1998
(1) The Lehman T-Bond Index is an unmanaged index of long term government bonds
since 12/31/80.
5
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PACIFIC ADVISORS
Income and Equity Fund
INVESTS PRIMARILY IN INVESTMENT-GRADE FIXED-INCOME SECURITIES. THE FUND MAY ALSO
INVEST IN STOCKS FOR LONG-TERM CAPITAL APPRECIATION.
INTERVIEW WITH PORTFOLIO MANAGERS
THOMAS H. HANSON
STEPHEN K. BACHE, CFA
Q HOW HAS THE FUND PERFORMED IN THE FIRST SIX MONTHS OF 1998?
A For the six months ended June 30, 1998, the Fund's total return was 7.53%
for Class A shares and 2.32% for Class C shares (inception date April 4,1998).
Over the same period, the Fund outperformed its benchmark, the Lehman
Intermediate T-Bond Index(1), which returned 3.38%. In addition to outperforming
the benchmark, the Fund was also ranked as of June 30 by Morningstar as one of
the top ten bond funds for performance in 1998.
Q WHAT HAS BEEN YOUR INVESTMENT STRATEGY DURING THIS PERIOD?
A Our strategy has been to adjust the ratio of bonds to equities in order to
capitalize on market conditions. Since October of 1997, the Asian economic
crisis has been the most significant force affecting the market. As a result of
this crisis, U.S. exports to Asia have decreased, while low-cost imports from
Asia have poured into the U.S. Under these conditions, U.S. manufacturers have
been unable to raise prices to offset rising labor costs. As a result, we have
seen an economic slowdown with a decrease in corporate earnings. Large cap,
multinational companies have been one of the groups most affected by these
events. In response to this change in market conditions, we have increased the
Fund's bond position from approximately 60%, in October 1997, to approximately
68%, as of June 30, 1998. In the same period of time we have also seen interest
rates begin to decline in response to the strong dollar and the relative
stability of the U.S. government and economy. Both of these factors have led to
an increased demand for bonds, which has resulted in the rise of bond prices. By
increasing our bond exposure, we have been able to take greater advantage of
declining interest rates while reducing our exposure risk in equities.
Q HOW IS THE FUND POSITIONED?
A Presently the Fund has approximately 65% of its assets in corporate bonds
and 15% in equities. This position reflects our belief that over the last
several months many large cap companies have become overvalued by the market. We
have decreased our equity position in order to minimize risk. Instead of selling
equities, however, we have reduced the position primarily by investing new money
coming into the Fund in bonds.
Besides increasing our bond position, we have also increased the average
maturity of our bonds to approximately 6 years. With the likelihood that
interest rates will continue to decline, this allows us to capitalize on the
potential for market appreciation, while keeping our position flexible enough to
allow us to adjust our fixed income position as economic changes occur.
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INVESTMENT MIX as of 6/30/98
<TABLE>
[CHART]
<S> <C>
1. CORPORATE BONDS 65.18%
2. EQUITIES 15.66%
3. CASH 9.89%
4. GOVERNMENT BONDS 9.27%
</TABLE>
6
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Q WHAT TYPES OF BONDS ARE YOU PURCHASING FOR THE FUND?
A We look for high quality, investment grade bonds which are undervalued. At
present, these bonds range in maturity from 2 to 15 years, with an average
maturity of approximately 6 years. With the expectation that interest rates will
continue to decline, we having been purchasing bonds with longer maturities. For
example, in response to the declining equity market in the last quarter, we have
added to a number of existing positions in the 10 to 12 year maturity range.
This allows us to lock in interest rates now, with the potential for these bonds
to appreciate in value as interest rates move lower.
Q WHAT IS THE PURPOSE OF THE EQUITY INVESTMENTS IN THE FUND?
A The equity portion of the portfolio is designed to complement the income
generated by corporate bonds and optimize the Fund's total return. As these
equities increase in value, they generate capital growth which adds to the
Fund's total return. The equity position of the Fund also acts as a hedge
against inflation. Whereas bonds are locked into a fixed rate of return,
equities offer the potential for capital appreciation which can minimize the
effects of inflation. In selecting equities we attempt to diversify the Fund by
maintaining positions in a number of industries, as well as a number of
companies. These companies include such household names such as Microsoft, GE
and Gillette. Diversification in well-established companies helps us minimize
the risk associated with equities while continuing to provide the potential for
capital return.
Q WHAT FACTORS ARE CONSIDERED IN DETERMINING THE PERCENTAGE OF EQUITIES IN
THE FUND?
A In determining the mix between bonds and equities, we look at the overall
economy and equity markets. When the equity market is in an uptrend, we would
expect to invest 25-30% of the Fund's assets in equities. When the market is
declining, we would expect to reduce this percentage and increase our bond
position. This has been the case in light of the impact of global events, such
as the Asian economic crisis, which have an unknown duration and effect. In
response, we take a more cautious position with the Fund by reducing its
exposure to equities. Additionally, when any one company becomes fully valued,
we will begin to prune that position and reallocate the monies in order to
prevent the portfolio from becoming too heavily weighted towards any one stock.
Q WHAT IS YOUR INVESTMENT OUTLOOK OVER THE NEXT 12 MONTHS?
A We believe that the problems in Asia will continue to be a key factor in
the market's performance. The duration of the crisis and the full extent of its
effects are still unknown. In addition, we also see signs that indicate a
continued decline in interest rates. The strong dollar, higher interest rates in
developing countries, and the government operating on a balanced budget have
eliminated the need for the Federal Reserve to raise rates. The relative
stability of the U.S. government and corporations, coupled with the current
economic conditions, also indicate that U.S. bonds will continue to gain in
popularity, further increasing their value. We will maintain our current
position in order to capitalize on the demand for bonds until we see
opportunities to increase our equity position.
(1) The Lehman T-Bond Index is an unmanaged index of intermediate government
bonds since 12/31/80.
7
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PACIFIC ADVISORS
Small Cap Fund
INVESTS PRIMARILY IN SMALL COMPANY STOCKS WITH AN AVERAGE MARKET CAP BELOW $150M
WITH A LOW P/E AND HIGH EARNINGS MOMENTUM.
INTERVIEW WITH PORTFOLIO MANAGERS
THOMAS H. HANSON
GEORGE A. HENNING
Q HOW HAS THE FUND PERFORMED IN THE FIRST SIX MONTHS OF 1998?
A For the six months ended June 30, 1998, the Fund had a loss of -1.43% for
Class A shares and -12.39% for Class C shares (inception date April 4, 1998).
During the same period, the NASDAQ Composite(1) and Russell 2000(2) indices had
total returns of 20.66% and 4.66%, respectively.
Q WHY DID THE FUND UNDER PERFORM IN COMPARISON TO THE NASDAQ COMPOSITE AND
RUSSELL 2000 INDICES?
A When the market became fully aware of the Asian economic crisis in late
1997, it took a downturn. Small cap stocks in particular were affected as
investors desired the greater liquidity and perceived safety offered by large
cap stocks. In the first part of 1998, believing that the impact of Asia may
have been overestimated, the market made a slight comeback and by the end of
March the Fund had a year-to-date return of 12.34%. In April, however, after the
release of first quarter earnings, the market reevaluated the impact of Asia and
began to take another downturn. In this downturn investors sold-off small cap
stocks and concentrated their money primarily in large cap stocks which they
believed would offer greater liquidity.
This shift in the market has not been adequately reflected in either the
NASDAQ Composite or the Russell 2000 Index. NASDAQ is heavily weighted toward
large cap stocks, in particular technology stocks. For example, Microsoft and
Intel comprise 10% and 5% of the Index, respectively. The Fund's emphasis on
small cap value stocks (which often eliminates technology stocks) is not
reflected in these indices.
While the Russell 2000 tracks stocks with market capitalizations of $1
billion or less, this threshold is still well above the Fund's, which focuses on
companies under $500 million. The Russell 2000 is also weighted towards
financial services stocks, which do not comprise a large portion of the Fund's
assets.
During the last six months the performance of both indices has reflected
investors' preference for large cap stocks in these two heavily favored sectors
(technology & financial services). The near 15% difference in returns for the
two indices demonstrates the disparity between large and small cap stocks during
this time.
Q WHAT HAS BEEN YOUR INVESTMENT STRATEGY IN 1998?
A Our strategy with respect to the Fund has been and continues to be to look
for small cap and micro cap (under $150 million) stocks which are undervalued
and under followed. Although not widely recognized, these companies are
characterized by a history of strong revenue and earnings growth as well as
strong and capable management. In addition to these traits, we also look for
companies which may have a catalyst (such as new large contracts or
acquisitions) in the foreseeable future which will cause the stock to receive
market recognition and rise in value.
Since late 1997 we have tried to capitalize on changing market conditions
by raising capital through the sale of stocks which have become fully valued.
Our strategy has been to capitalize on the market pullback by using this money
to make significant purchases of new stocks which meet our criteria but are
undervalued by the market. One example, Biosource, a manufacturer of test kits
for biomedical research, has maintained sales and revenue growth of 20% with
pretax earnings growing well above 20%. Despite continued demand for its
products and solid performance, the stock is
8
<PAGE>
selling near 10 times its earnings for 1997, whereas similar companies are
trading at 20 times their earnings. Biosource continues to experience a growth
in demand for its product and we believe that after the market correction the
value of its stock will increase. Other stocks in the portfolio fit a scenario
similar to Biosource's, by exhibiting good performance and providing services
and products in high demand, while remaining under appreciated by the market.
These stocks include Rentrak, which has exclusive agreements with many major
movie studios to provide videos to video rental stores on a revenue sharing
basis; and Diversified Corporate Resources, a temporary and placement agency
servicing the growing market for high tech personnel. In implementing this
rotation, the Fund continues to maintain its philosophy of being more fully
invested, but has been more aggressive in taking profits to redeploy in these
types of stocks as the opportunities arise.
Q HOW DO YOU DEFINE SMALL CAP FOR THIS FUND?
A Over the last several years the definition of "small cap" has changed
dramatically. In today's market many would consider small cap companies as those
with a market capitalization of $2 billion or less. As stated in the prospectus,
the Fund focuses on stocks with a market capitalization under $500 million, with
a particular emphasis on companies with $150 million or less, which are termed
"micro-cap stocks". We are generally attracted to companies who demonstrate
market leadership in new products and services. This leadership makes these
companies attractive because of their potential to develop into larger companies
or to become attractive for acquisition by larger companies. Despite lagging
performance in the last year or two, small cap stocks have historically
performed well, and we expect that after this market correction they will resume
their market leadership.
Q WHY ARE LARGE CAP STOCKS OUTPERFORMING SMALL CAP STOCKS?
A The crisis in Asia has weakened corporate earnings and raised questions
about global economic stability, leading investors to concentrate their money in
stocks with greater liquidity and brand-name recognition. They believe this
objective can be accomplished by investing in large cap companies such as
Coca-Cola, Microsoft and Gillette. Investors believe that these types of
companies represent a safer investment because of their size and status as
market leaders. The added fact that these companies are also widely followed by
market analysts tends to make their earnings projections more accurate. Finally,
because of their size and performance history, these stocks have greater
liquidity and can be more easily traded, even when poor market conditions
prevail.
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INVESTMENT MIX as of 6/30/98
[GRAPHIC]
<TABLE>
<S> <C>
1. COMMON STOCKS 96.36%
2. CASH 3.64%
</TABLE>
9
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PACIFIC ADVISORS
Small Cap Fund continued
Q WHAT INVESTMENTS HAVE BEEN MOST SUCCESSFUL IN 1998?
A Although the small cap market has been depressed, the Fund has several
stocks which have performed well. Healthcare Services, which provides services
to nursing homes, has been relatively unaffected by the Asian crisis and
continues to expand its business, and in turn revenues. Natural Alternatives has
also done well, benefiting from the decision to begin manufacturing vitamins in
pill form, which has made its products more marketable. Finally, Elcor, a
southwestern company which specializes in roofing materials, has seen business
growth due to the effects of El Nino. We also believe that sectors such as
health and personal care services, financial services and insurance services
have potential for growth and will demonstrate market leadership in the future.
Each of these industries are represented in the Fund.
Q WHAT IS YOUR EXPECTATION FOR SMALL CAP STOCKS IN THE NEXT 12 MONTHS?
A We believe that small cap stocks are significantly undervalued and will
recover over the next several months. Recent figures have shown that
approximately 75% of NASDAQ stocks have experienced a 30% correction from their
52-week high. This devaluation has occurred despite the fact that earnings
growth projections for small cap stocks are higher than for larger cap stocks.
The performance of small cap stocks, compared to large blue chip stocks,
has been disappointing over the past eighteen months. However, it is not unusual
for a sector of the market to be out of favor at some point in a market cycle.
This is why it is important for investors to diversify their portfolio. Our
investment strategy has always been to invest with a three to five year time
horizon, since it is often difficult to anticipate when the market will
recognize the performance of an individual stock or sector.
As certain sectors of the market become fully valued, investors will search
out new opportunities that provide growth opportunities. However, the
uncertainty created by problems in Asia, Russia and other global events may
cause the market to remain volatile until it appears that these economies are
stabilizing. Looking at similar corrections in the past, however, small cap
stocks have usually led the market out of its correction. Unlike large cap
stocks, many of which have become fully or overvalued, small cap stocks have a
great potential for growth.
(1) The NASDAQ Composite 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.
(2) 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.
10
<PAGE>
PACIFIC ADVISORS
financial statements
11
<PAGE>
PACIFIC ADVISORS BALANCED FUND
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Net Number of
Assets Shares Value
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
COMMON STOCK - 50.91%
Aerospace & Defense
Boeing Company 1.39% 2,000 $ 89,125
- ---------------------------------------------------------------------------
Communications
Nokia Corporation - ADR A 3.40% 3,000 217,687
- ---------------------------------------------------------------------------
Containers & Packaging
ACX Technologies* 0.85% 2,500 54,375
- ---------------------------------------------------------------------------
Electrical Components & Equipment
Electroglas, Inc.* 0.82% 4,000 52,250
- ---------------------------------------------------------------------------
Entertainment
GC Companies, Inc.* 1.21% 1,500 77,812
TCI Liberty Media "A"* 1.82% 3,000 116,438
Time Warner, Inc. 2.00% 1,500 128,156
Viacom, Inc.* 5.00% 5,500 320,375
- ---------------------------------------------------------------------------
10.03% 642,781
- ---------------------------------------------------------------------------
Factory Equipment
Devlieg-Bullard* 0.88% 25,000 56,250
- ---------------------------------------------------------------------------
Financial Services - Specialty
Federal National Mortgage 2.35% 3,200 150,600
- ---------------------------------------------------------------------------
Food
Archer-Daniels-Midland 1.59% 5,250 101,719
- ---------------------------------------------------------------------------
Food Retailers
Fleming Companies, Inc. 1.37% 5,000 87,813
- ---------------------------------------------------------------------------
Gas - Integrated
Enron Corporation 2.53% 3,000 162,187
- ---------------------------------------------------------------------------
Health Care Provider
Comprehensive Care
Corporation* 1.38% 9,000 88,312
- ---------------------------------------------------------------------------
Industrial & Commercial Services
Pinkertons Inc.* 1.46% 4,500 93,375
Reliance Steel 3.61% 6,000 231,750
- ---------------------------------------------------------------------------
5.07% 325,125
- ---------------------------------------------------------------------------
Insurance - Specialty
Farm Family Holdings,
Inc.* 1.82% 3,000 116,813
- ---------------------------------------------------------------------------
Iron & Steel
Oregon Steel Mills, Inc. 0.87% 3,000 55,875
- ---------------------------------------------------------------------------
Oilfield Equipment & Services
Cooper Cameron* 1.19% 1,500 76,500
- ---------------------------------------------------------------------------
Pharmaceuticals
Pfizer Inc. 2.54% 1,500 163,031
- ---------------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
PACIFIC ADVISORS BALANCED FUND
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Net Number of
Assets Shares Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK CONTINUED
Publishing
Dun & Bradstreet
Corporation 1.41% 2,500 $ 90,313
Scholastic Corporation* 1.24% 2,000 79,750
Thomas Nelson, Inc. 1.04% 5,000 66,875
- ---------------------------------------------------------------------------
3.69% 236,938
- ---------------------------------------------------------------------------
Railroads
GATX Corporation 1.37% 2,000 87,750
- ---------------------------------------------------------------------------
Real Estate
Catellus Development
Corporation* 2.76% 10,000 176,875
- ---------------------------------------------------------------------------
Real Estate Investment Trusts (REITs)
Price Enterprises, Inc. 2.87% 10,000 183,750
Redwood Trust, Inc. 0.82% 3,000 52,688
- ---------------------------------------------------------------------------
3.69% 236,438
- ---------------------------------------------------------------------------
Trucking
CNF Transportation 1.32% 2,000 85,000
- ---------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $2,188,061) 3,263,444
--------------
<CAPTION>
% of Net Principal
Assets Amounts Value
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
CORPORATE BONDS - 37.92%
Aerospace & Defense
McDonnell Douglas 4.22% $ 205,000 270,328
- ---------------------------------------------------------------------------
Banks - Regional
Banc One Corp 9.875%
03/01/09 2.96% 150,000 189,535
Nations Bank 10.875%
03/15/03 4.90% 264,000 314,382
- ---------------------------------------------------------------------------
7.86% 503,917
- ---------------------------------------------------------------------------
Food Retailers
Safeway, Inc. 9.65%
01/15/04 1.80% 100,000 115,315
Safeway, Inc. 9.875%
03/15/07 4.85% 252,000 311,137
- ---------------------------------------------------------------------------
6.65% 426,452
- ---------------------------------------------------------------------------
Insurance - Property & Casualty
Chubb Corporation 8.75%
11/15/99 1.59% 100,000 102,120
- ---------------------------------------------------------------------------
Insurance - Specialty
Equitable of Iowa 8.5%
02/15/05 1.30% 75,000 83,704
- ---------------------------------------------------------------------------
Oil, Secondary
Occidental Petroleum 9.25%
08/01/19 5.13% 250,000 328,615
- ---------------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
PACIFIC ADVISORS BALANCED FUND
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Net Principal
Assets Amounts Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS CONTINUED
Utility - Electric
Alabama Power 9.0%
12/01/24 1.96% $ 115,000 $125,823
Niagara Mohawk Power 9.75%
11/01/05 4.90% 266,000 314,124
- ---------------------------------------------------------------------------
6.86% 439,947
- ---------------------------------------------------------------------------
Utility - Telephone
Nynex Corporation 9.55%
05/01/10 4.31% 239,151 276,284
- ---------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost: $2,322,753) 2,431,367
--------------
TOTAL INVESTMENT SECURITIES -
88.83%
(Cost: $4,510,814) $ 5,694,811
--------------
SHORT-TERM INVESTMENTS - 9.68%
United Missouri Bank Money
Market Fund 30,678
United Missouri Bank Repurchase Agreement with an
effective yield of 4.97%,
dated 6/26/98, due 7/1/98, secured by $580,000 US
Treasury Notes, 8.25% due 7/15/98
(market value of collateral is $602,139 including
interest). 590,000
OTHER ASSETS LESS LIABILITIES - 1.49% 95,095
--------------
TOTAL NET ASSETS - 100% $ 6,410,584
- ---------------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
PACIFIC ADVISORS GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Net Principal
Assets Amounts Value
<S> <C> <C> <C>
- --------------------------------------------------------------------------
US GOVERNMENT SECURITIES - 74.10%
US Treasury Bond 6.625%
02/15/27 8.70% $ 330,000 $ 372,797
US Treasury Bond 6.75%
08/15/26 8.02% 300,000 343,500
US Treasury Bond 6.00%
02/15/26 7.29% 300,000 312,094
US Treasury Bond 6.25%
08/15/23 6.99% 280,000 299,687
US Treasury Bond 7.625%
02/15/25 7.35% 250,000 314,766
US Treasury Bond 7.50%
11/15/24 7.24% 250,000 310,078
US Treasury Bond 6.875%
08/15/25 6.76% 250,000 289,610
US Treasury Bond 8.125%
08/15/21 6.09% 200,000 260,688
US Treasury Bond 7.25%
08/15/22 5.59% 200,000 239,375
US Treasury Bond 8.125%
08/15/19 6.03% 200,000 258,125
US Treasury Bond -
Stripped 08/15/25 4.04% 800,000 173,272
- --------------------------------------------------------------------------
TOTAL US TREASURY BONDS
(Cost: $(2,961,926) 3,173,992
-------------
<CAPTION>
% of Net Number of
Assets Shares Value
<S> <C> <C> <C>
- --------------------------------------------------------------------------
COMMON STOCK - 18.51%
Communications
Nokia Corporation - ADR A 2.37% 1,400 101,588
- --------------------------------------------------------------------------
Utilities - Diversified
Sierra Pacific Resources 1.86% 2,200 79,887
- --------------------------------------------------------------------------
Utilities - Electric
CMS Energy Corporation 3.49% 3,400 149,600
IPALCO Enterprises, Inc. 3.63% 3,500 155,531
Nipsco Industries, Inc. 3.66% 5,600 156,800
- --------------------------------------------------------------------------
10.78% 461,931
- --------------------------------------------------------------------------
Utilities - Telephone Systems
TECO Energy, Inc. 3.50% 5,600 150,150
- --------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $664,812) 793,556
-------------
TOTAL INVESTMENT SECURITIES -
92.61%
(Cost: $3,626,738) $ 3,967,548
-------------
SHORT-TERM INVESTMENTS - 4.63%
United Missouri Bank Money
Market Fund 198,239
OTHER ASSETS LESS LIABILITIES - 2.76% 118,236
-------------
TOTAL NET ASSETS - 100% $ 4,284,023
- --------------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
PACIFIC ADVISORS INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Net Principal
Assets Amounts Value
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
CORPORATE BONDS - 65.18%
Banks - Money Centers
Citicorp Subordinate
Securities 9.5% 02/01/02 2.29% $ 50,000 $ 55,545
Union Bank of
Switzerland-NY 7.25%
07/15/06 1.11% 25,000 26,812
- ---------------------------------------------------------------------------
3.40% 82,357
- ---------------------------------------------------------------------------
Banks - Regional
Bank of America
Subordinate Notes 10.0%
02/01/03 2.14% 45,000 51,908
Bank of New York 8.5%
12/15/04 1.62% 35,000 39,326
First Chicago NBD 7.25%
08/15/04 2.17% 50,000 52,507
InterAmerican Development
Bank 8.4% 09/01/09 0.50% 10,000 12,059
Merchants National Bank
9.875% 10/01/99 0.86% 20,000 20,910
Nationsbank 5.125%
09/15/98 1.86% 45,000 44,942
Nationsbank Corporation
9.875% 06/01/01 3.42% 75,000 82,864
- ---------------------------------------------------------------------------
12.57% 304,516
- ---------------------------------------------------------------------------
Financial Services
Associates Corporation
N.A. 8.55% 07/15/09 2.44% 50,000 59,063
General Motors Acceptance
Corporation 9.625%
12/15/01 2.25% 49,000 54,415
- ---------------------------------------------------------------------------
4.69% 113,478
- ---------------------------------------------------------------------------
Financial Services - Diversified
General Electric Capital
Corporation 8.5% 07/24/08 3.16% 65,000 76,609
- ---------------------------------------------------------------------------
Financial Services - Specialty
Ford Capital B.V. 9.5%
06/01/10 1.14% 22,000 27,559
- ---------------------------------------------------------------------------
Food
Ralston Purina 9.25%
10/15/09 4.66% 92,000 112,917
- ---------------------------------------------------------------------------
Food Retailers
Safeway, Inc 9.875%
03/15/07 2.25% 44,000 54,325
Safeway, Inc 10.0%
12/01/01 2.30% 50,000 55,738
- ---------------------------------------------------------------------------
4.55% 110,063
- ---------------------------------------------------------------------------
Industrial
Tenneco Corporation 10.2%
03/15/08 4.83% 90,000 116,918
- ---------------------------------------------------------------------------
Insurance - Full Line
American General Financial
8.125% 08/15/09 2.64% 56,000 63,830
CIGNA Corporation 7.40%
01/15/03 1.08% 25,000 26,117
CIGNA Corporation 7.40%
5/15/07 1.10% 25,000 26,662
Transamerica Corporation
9.375% 03/01/08 1.26% 25,000 30,462
- ---------------------------------------------------------------------------
6.08% 147,071
- ---------------------------------------------------------------------------
Office Equipment
Xerox Corporation 7.15%
08/01/04 1.09% 25,000 26,396
- ---------------------------------------------------------------------------
Oil - Integrated Majors
Atlantic Richfield 9.125%
03/01/11 1.35% 26,000 32,649
- ---------------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
PACIFIC ADVISORS INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Net Principal
Assets Amounts Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS CONTINUED
Oil - Pipelines
Union Pacific Resources
7.0% 10/15/06 2.17% $ 50,000 $ 52,481
Union Texas Petroleum
8.375% 03/15/05 1.14% 25,000 27,716
- ---------------------------------------------------------------------------
3.31% 80,197
- ---------------------------------------------------------------------------
Retailers - Broadline
Dayton Hudson Co. 10.0%
01/01/11 1.08% 20,000 26,163
Sears Roebuck Co. 9.5%
06/01/99 1.06% 25,000 25,718
- ---------------------------------------------------------------------------
2.14% 51,881
- ---------------------------------------------------------------------------
US Government Agency
International Bank
Reconstruction &
Development
8.64% 06/18/01 1.11% 25,000 26,935
- ---------------------------------------------------------------------------
Utilities - Electric
Baltimore Gas & Electric
8.54% 09/18/06 2.86% 60,000 69,287
PSI Energy, Inc. 6.35%
11/15/06 1.68% 40,000 40,554
Public Service Electric &
Gas 8.875% 06/01/03 3.43% 75,000 82,935
- ---------------------------------------------------------------------------
7.97% 192,776
- ---------------------------------------------------------------------------
Utilities - Gas
Consolidated Natural Gas
6.625% 12/01/13 0.86% 20,000 20,714
- ---------------------------------------------------------------------------
Utilities - Telephone Systems
New York Telephone Co.
7.0% 06/15/13 1.09% 25,000 26,431
NYNEX Cap Fund 8.75%
12/01/04 1.18% 25,000 28,596
- ---------------------------------------------------------------------------
2.27% 55,027
- ---------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost: $1,531,024) 65.18% 1,578,063
--------------
US GOVERNMENT SECURITIES - 8.83%
US Treasury Notes - 8.83%
US Treasury Note 7.75%
11/30/99 4.89% 115,000 118,414
US Treasury Note 7.875%
11/15/04 3.94% 85,000 95,466
- ---------------------------------------------------------------------------
8.83% 213,880
- ---------------------------------------------------------------------------
TOTAL US GOVERNMENT SECURITIES
(Cost: $200,368) 213,880
--------------
FOREIGN GOVERNMENT SECURITIES - 0.44%
Ontario Global Bond 7.0%
08/04/05 0.44% 10,000 10,554
- ---------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Cost: $10,348) 10,554
--------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
PACIFIC ADVISORS INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Net Number of
Assets Shares Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK - 14.48%
Building Materials
Home Depot, Inc. 1.71% $ 500 $ 41,531
- ---------------------------------------------------------------------------
Computer Software & Processing
Microsoft* 2.24% 500 54,187
- ---------------------------------------------------------------------------
Cosmetic/Personal Care
Gillette Company 1.40% 600 34,013
- ---------------------------------------------------------------------------
Diversified Companies
General Electric Co. 1.88% 500 45,500
- ---------------------------------------------------------------------------
Financial Services - Diversified
Travelers Group, Inc. 1.88% 750 45,469
- ---------------------------------------------------------------------------
Investment Companies
Alliance Capital
Management L.P. 1.05% 1,000 25,313
- ---------------------------------------------------------------------------
Oil - Integrated Majors
Mobil Corporation 1.27% 400 30,650
- ---------------------------------------------------------------------------
Pharmaceuticals
Schering-Plough
Corporation 1.14% 300 27,487
- ---------------------------------------------------------------------------
Retailers - Specialty
Gap Inc. 1.91% 750 46,219
- ---------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $198,134) 350,369
--------------
PREFERRED STOCK - 1.18%
Insurance - Full Line
Unum Corporation Series A 0.53% 500 $ 12,969
- ---------------------------------------------------------------------------
Utility - Telephone Systems
GTE 8.75% Series B 0.65% 600 15,712
- ---------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost: $28,990) 28,681
--------------
TOTAL INVESTMENT SECURITIES -
90.11%
(Cost: 1,968,864) $ 2,181,547
--------------
SHORT-TERM INVESTMENTS - 7.54%
United Missouri Bank Money
Market Fund 182,655
OTHER ASSETS LESS LIABILITIES - 2.35% 56,805
--------------
TOTAL NET ASSETS - 100% $ 2,421,007
- ---------------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
PACIFIC ADVISORS SMALL CAP FUND
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Net Number of
Assets Shares Value
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
COMMON STOCK - 96.36%
Airlines
Mercury Air Group, Inc.* 2.04% 30,000 $ 230,625
- ---------------------------------------------------------------------------
Automobile Parts & Equipment
Budget Group, Inc.* 4.24% 15,032 480,085
- ---------------------------------------------------------------------------
Banks - Regional
Trustco Bank Corporation -
NY 1.39% 6,000 157,500
- ---------------------------------------------------------------------------
Building Materials
Elcor Corporation 0.22% 1,000 25,250
Q.E.P. Company, Inc.* 3.04% 40,000 345,000
- ---------------------------------------------------------------------------
3.26% 370,250
- ---------------------------------------------------------------------------
Chemicals
Ocean Bio-Chem, Inc.* 1.65% 115,000 186,875
Polymer Research
Corporation of America* 1.20% 32,000 136,000
- ---------------------------------------------------------------------------
2.85% 322,875
- ---------------------------------------------------------------------------
Computers and Related Equipment
Compass Plastics & Tech,
Inc.* 0.56% 28,000 63,000
PC Service Source, Inc.* 1.34% 38,000 152,000
- ---------------------------------------------------------------------------
1.90% 215,000
- ---------------------------------------------------------------------------
Computers Software & Processing
Telescan, Inc.* 0.96% 14,000 108,500
Vista Information
Solutions* 2.02% 30,000 228,750
- ---------------------------------------------------------------------------
2.98% 337,250
- ---------------------------------------------------------------------------
Cosmetic/Personal Care
American Safety Razor
Corporation* 5.16% 40,000 585,000
Herbalife Class A 1.81% 8,333 205,200
Herbalife Class B* 1.46% 8,000 165,000
Natural Alternatives
International* 7.94% 45,000 900,000
Natures Sunshine 2.99% 15,000 338,437
- ---------------------------------------------------------------------------
19.36% 2,193,637
- ---------------------------------------------------------------------------
Electrical Components & Equipment
Transact Technologies,
Inc.* 2.51% 32,000 284,000
Tridex Corporation* 3.04% 47,500 344,375
- ---------------------------------------------------------------------------
5.55% 628,375
- ---------------------------------------------------------------------------
Food
Armanino Foods of
Distinction* 0.72% 100,000 81,250
Green Mountain Coffee,
Inc.* 1.69% 32,000 192,000
Worthington Foods, Inc. 7.39% 40,000 837,500
- ---------------------------------------------------------------------------
9.80% 1,110,750
- ---------------------------------------------------------------------------
Health Care Provider
America Service Group* 2.16% 20,000 245,000
- ---------------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
PACIFIC ADVISORS SMALL CAP FUND
SCHEDULE OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Net Number of
Assets Shares Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK CONTINUED
Home Construction
Modtech, Inc.* 3.51% 20,000 $ 397,500
- ---------------------------------------------------------------------------
Industrial & Commercial Services
Diversified Corporate
Resources, Inc.* 1.81% 18,000 204,750
Healthcare Services Group* 5.60% 40,000 635,000
Itex Corporation* 1.14% 70,000 129,066
RCM Technologies, Inc.* 1.79% 10,000 203,125
Rentrak Corporation* 2.47% 50,000 279,690
- ---------------------------------------------------------------------------
12.81% 1,451,631
- ---------------------------------------------------------------------------
Insurance - Specialty
Interstate National Dealer
Services* 5.23% 80,000 592,504
Warrantech Corporation* 2.06% 55,000 233,750
- ---------------------------------------------------------------------------
7.29% 826,254
- ---------------------------------------------------------------------------
Medical Equipment, Devices, & Supplies
Biosource* 0.49% 10,000 55,625
Meridian Medical
Technologies, Inc.* 1.84% 22,000 209,000
- ---------------------------------------------------------------------------
2.33% 264,625
- ---------------------------------------------------------------------------
Railroads
Railamerica, Inc.* 4.59% 85,000 520,625
- ---------------------------------------------------------------------------
Restaurants
Panchos Mexican
Restaurants* 1.94% 130,000 219,375
- ---------------------------------------------------------------------------
Semiconductor & Related
Cerprobe Corporation* 4.75% 41,000 538,125
- ---------------------------------------------------------------------------
Transportation Equipment
DSP Technology, Inc.* 1.75% 24,000 198,000
IMPCO Technologies* 1.86% 13,000 211,250
- ---------------------------------------------------------------------------
3.61% 409,250
- ---------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $8,782,305) 10,918,732
--------------
TOTAL INVESTMENT SECURITIES -
96.36%
(Cost: $8,782,305) $ 10,918,732
--------------
SHORT-TERM INVESTMENTS - 1.89%
United Missouri Bank Money
Market Fund 213,704
OTHER ASSETS LESS LIABILITIES - 1.75% 198,394
--------------
TOTAL NET ASSETS - 100% $ 11,330,830
- ---------------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
PACIFIC ADVISORS FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC ADVISORS
----------------------------------------------------------
INCOME
GOVERNMENT AND SMALL
BALANCED SECURITIES EQUITY CAP
FUND FUND FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investment securities
At cost $ 4,510,814 $ 3,626,738 $ 1,968,864 $ 8,782,305
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
At market value $ 5,694,811 $ 3,967,548 $ 2,181,547 $ 10,918,732
Short-term
investments, at
cost, which is
equivalent to
market 620,678 198,239 182,655 213,704
Receivable for investments
sold - - - 96,784
Other assets 41,489 38,601 17,278 90,962
Accrued income receivable 55,654 63,812 32,078 5,150
Receivable from Investment
Manager (Note 3) - 15,298 1,323 -
Receivable for capital
shares sold 47 718 6,242 13,005
------------- ------------- ------------- -------------
Total assets 6,412,679 4,284,216 2,421,123 11,338,337
------------- ------------- ------------- -------------
LIABILITIES
Accounts payable 15 23 20 108
Accounts payable to
related parties (Note
3) 2,080 170 96 7,399
------------- ------------- ------------- -------------
Total Liabilities 2,095 193 116 7,507
------------- ------------- ------------- -------------
NET ASSETS $ 6,410,584 $ 4,284,023 $ 2,421,007 $ 11,330,830
------------- ------------- ------------- -------------
SUMMARY OF SHAREHOLDERS'
EQUITY
Paid in capital $ 4,967,690 $ 3,704,621 $ 2,197,099 $ 8,064,825
Accumulated undistributed
net investment income
(loss) 16,384 1,271 589 -
Accumulated undistributed
net realized gains
(losses) on security
transactions 242,513 237,321 10,636 1,129,578
Net unrealized
appreciation
(depreciation) of
investments 1,183,997 340,810 212,683 2,136,427
------------- ------------- ------------- -------------
Net assets at June 30,
1998 $ 6,410,584 $ 4,284,023 $ 2,421,007 $ 11,330,830
------------- ------------- ------------- -------------
CLASS A:
Net assets $ 6,402,576 $ 4,151,505 $ 2,357,005 $ 11,276,055
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Shares outstanding 488,858.490 394,059.169 223,440.925 653,199.440
Net asset value and
redemption price per
share $ 13.10 $ 10.54 $ 10.55 $ 17.26
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Maximum offering price per
share $ 13.90 $ 11.07 $ 11.08 $ 18.31
Sales load 5.75% 4.75% 4.75% 5.75%
CLASS C:
Net assets $ 8,008 $ 132,518 $ 64,002 $ 54,775
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Shares outstanding 611.690 12,586.183 6,070.285 3,172.734
Net asset value and
redemption price per
share $ 13.09 $ 10.53 $ 10.54 $ 17.26
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
PACIFIC ADVISORS FUND INC.
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC ADVISORS
-------------------------------------------------------
BALANCED FUND GOVERNMENT SECURITIES FUND
--------------------------- --------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 18,820 $ 15,339
Interest 89,255 85,879
------------- ------------
Total income 108,075 101,218
------------- ------------
EXPENSES
Investment management fees 24,037 13,910
Transfer agent fees 11,580 9,029
Fund accounting fees 13,438 8,997
Legal fees 10,061 7,389
Audit fees 7,044 5,066
Registration fees 7,571 5,991
Printing 11,059 7,928
Custody fees 3,042 2,838
Director fees/meetings 870 581
Distribution fees (Note 3) 3,426 2,177
Amortization expense (Note
1) 1,829 1,887
Other expense 3,545 1,659
------------- ------------
Total Expenses,
before
reimbursements 97,502 67,452
Less fees waived and
expenses reimbursed
(Note 3) 12,018 34,643
------------- ------------
Net Expenses 85,484 32,809
------------- ------------
NET INVESTMENT INCOME (LOSS) $ 22,591 $ 68,409
------------ ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
on investments 242,249 236,934
Net unrealized
appreciation
(depreciation) of
investments
Beginning of period $ 960,871 $ 314,546
End of period 1,183,997 340,810
------------- ------------
Change in net
unrealized
appreciation
(depreciation)
of
investments 223,126 26,264
------------ ------------
465,375 263,198
------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS $ 487,966 $ 331,607
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
PACIFIC ADVISORS FUND INC.
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC ADVISORS
---------------------------------------------------------
INCOME AND EQUITY FUND SMALL CAP FUND
-------------------------- -----------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 3,303 $ 11,079
Interest 53,159 11,436
------------ --------------
Total income 56,462 22,515
------------ --------------
EXPENSES
Investment management fees 8,232 46,953
Transfer agent fees 10,061 22,645
Fund accounting fees 8,908 26,441
Legal fees 2,619 16,577
Audit fees 2,361 14,131
Registration fees 3,548 12,642
Printing 1,907 16,064
Custody fees 2,845 3,939
Director fees/meetings 289 1,743
Distribution fees (Note 3) 1,448 8,018
Amortization expense (Note
1) 1,807 1,893
Other expense 864 4,060
------------ --------------
Total Expenses, before
reimbursements 44,889 175,106
Less fees waived and
expenses reimbursed
(Note 3) 25,832 -
------------ --------------
Net Expenses 19,057 175,106
------------ --------------
NET INVESTMENT INCOME (LOSS) $ 37,405 $ (152,591 )
------------ -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
on investments 10,643 1,129,109
Net unrealized
appreciation
(depreciation) of
investments
Beginning of period $ 110,484 $ 3,321,532
End of period 212,683 2,136,427
------------ --------------
Change in net
unrealized
appreciation
(depreciation)
of
investments 102,199 (1,185,105 )
------------ -------------
112,842 (55,996 )
------------ -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS $ 150,247 $ (208,587 )
------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
PACIFIC ADVISORS FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC ADVISORS
-----------------------------------------------------------
BALANCED FUND
---------------------------- GOVERNMENT SECURITIES FUND
Six months -----------------------------
ended Six months
June 30, Year ended ended Year ended
1998 December 31, June 30, 1998 December 31,
(Unaudited) 1997 (Unaudited) 1997
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net investment income
(loss) $ 22,591 $ (1,189 ) $ 68,409 $ 187,675
Net realized gain (loss)
on investments 242,249 96,101 236,934 56,573
Change in net unrealized
appreciation
(depreciation) of
investments 223,126 511,147 26,264 233,907
------------ -------------- ------------- --------------
Increase (decrease) in net
assets resulting from
operations 487,966 606,059 331,607 478,155
------------ -------------- ------------- --------------
FROM DISTRIBUTION TO
SHAREHOLDERS
Class A:
Net investment income - (5,013 ) (68,031) (187,473 )
Net capital gains - (96,179 ) - (57,411 )
Class C:
Net investment income - - (1,123) -
Net capital gains - - - -
------------ -------------- ------------- --------------
Decrease in net assets
resulting from
distributions - (101,192 ) (69,154) (244,884 )
------------ -------------- ------------- --------------
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 5)
Proceeds from shares sold 491,470 2,162,179 486,122 760,764
Proceeds from shares
purchased by
reinvestment of
dividends - 91,190 57,836 215,344
Cost of shares repurchased (161,445) (353,082 ) (461,333) (4,366,761 )
------------ -------------- ------------- --------------
Increase (decrease) in net
assets derived from
capital share
transactions 330,025 1,900,287 82,625 (3,390,653 )
------------ -------------- ------------- --------------
Increase (decrease) in net
assets 817,991 2,405,154 345,078 (3,157,382 )
NET ASSETS
Beginning of period 5,592,593 3,187,439 3,938,945 7,096,327
------------ -------------- ------------- --------------
End of period $ 6,410,584 $ 5,592,593 $ 4,284,023 $ 3,938,945
------------ -------------- ------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
PACIFIC ADVISORS FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC ADVISORS
-------------------------------------------------------------
INCOME AND FUND
---------------------------- SMALL CAP FUND
Six months -------------------------------
ended Six months
June 30, Year ended ended Year ended
1998 December 31, June 30, 1998 December 31,
(Unaudited) 1997 (Unaudited) 1997
------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net investment income
(loss) $ 37,405 $ 53,556 $ (152,591) $ (280,055 )
Net realized gain (loss)
on investments 10,643 (44 ) 1,129,109 65,239
Change in net unrealized
appreciation
(depreciation) of
investments 102,199 87,034 (1,185,105) 916,243
------------ -------------- -------------- ---------------
Increase (decrease) in net
assets resulting from
operations 150,247 140,546 (208,587) 701,427
------------ -------------- -------------- ---------------
FROM DISTRIBUTION TO
SHAREHOLDERS
Class A:
Net investment income (36,737) (53,539 ) - -
Net capital gains - - - (64,399 )
Class C:
Net investment income (542) - - -
Net capital gains - - - -
------------ -------------- -------------- ---------------
Decrease in net assets
resulting from
distributions (37,279) (53,539 ) - (64,399 )
------------ -------------- -------------- ---------------
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 5)
Proceeds from shares sold 484,135 765,748 1,363,629 3,511,363
Proceeds from shares
purchased by
reinvestment of
dividends 22,394 35,535 - 51,981
Cost of shares repurchased (92,774) (205,156 ) (949,172) (1,624,170 )
------------ -------------- -------------- ---------------
Increase (decrease) in net
assets derived from
capital share
transactions 413,755 596,127 414,457 1,939,174
------------ -------------- -------------- ---------------
Increase (decrease) in net
assets 526,723 683,134 205,870 2,576,202
NET ASSETS
Beginning of period 1,894,284 1,211,150 11,124,960 8,548,758
------------ -------------- -------------- ---------------
End of period $ 2,421,007 $ 1,894,284 $ 11,330,830 $ 11,124,960
------------ -------------- -------------- ---------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (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: Balanced Fund, Government
Securities Fund, Income and Equity Fund and Small Cap 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 Government Securities Fund seeks to provide high
current income, preservation of capital, and rising future income, consistent
with prudent investment risk. The Income and Equity Fund (previously known as
the Income Fund) seeks to provide current income and secondarily, long-term
capital appreciation. 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.
Effective April 1, 1998 the Funds offer Class A and Class C shares, each
of which has equal rights as to assets and voting privileges except that Class A
and Class C each has exclusive voting rights with respect to its distribution
plan. Investment income, realized and unrealized capital gains and losses, and
the common expenses of each Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each Class of shares differs in its respective service and distribution
expenses and my differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
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 the 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 Government Securities Fund declares and distributes dividends of
its net investment income, if any, quarterly. The Income and Equity Fund
declares and distributes dividends of its net investment income, if any,
quarterly. 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. Income dividends and capital gains
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments of income and gain on various investment
securities held by the Funds, timing differences and differing characterization
of distributions made by the Funds.
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 Funds in connection with
their 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. For the period from January 1, 1998 through June 30, 1998, the Funds had
the following amounts of amortization expense for organizational expenses.
<TABLE>
<S> <C>
Balanced Fund $1,791
Government Securities Fund 1,791
Income and Equity Fund 1,791
Small Cap Fund 1,791
</TABLE>
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 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 the Funds have entered into investment management
agreements ("Management Agreements") with the Investment Manager. The Management
Agreements provide for investment management fees, payable monthly, and
calculated at the maximum annual rate of 0.65% of average net assets for the
26
<PAGE>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Government Securities Fund and 0.75% of average net assets for the Balanced,
Income and Equity and Small Cap Funds. The Investment Manager has entered into
sub-advisory agreements ("Sub-Advisory Agreements") with Hamilton & Bache, Inc.
and Spectrum Asset Management, Inc. ("Advisors") for the Balanced and Government
Securities Funds respectively. It has also entered into a co-management
agreement ("Co-management Agreement") with Hamilton and Bach, Inc. ("Advisor")
for the Income and Equity Fund. The Investment Manager is solely responsible for
the payment of these fees to the Advisors.
In accordance with Expense Limitation agreements, with the Company, on
behalf of the Government Securities and Income and Equity Funds, the Investment
Manager is required to reduce its investment management fees in any fiscal year
in which all fund Operating Expenses exceed 1.65% and 1.85%, respectively, of
average daily net assets of the respective Funds, and to reimburse the
Government Securities and Income and Equity Funds for any additional amounts
that exceed these limits. These agreements may be terminated by either party. In
addition, from time to time, the Investment Manager and Advisors may voluntarily
waive their management and sub-advisory fees, and/or absorb certain expenses for
the Funds.
Pursuant to the Expense Limitation Agreements, 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, 1998 through June 30,
1998.
<TABLE>
<CAPTION>
Management and Expense
Sub-Advisory Fees Reimbursements
<S> <C> <C>
Balanced Fund $ 12,018 $ -
Government Securities Fund 12,916 21,727
Income and Equity Fund 7,718 18,114
Small Cap Fund - -
</TABLE>
These waived and reimbursed expenses may be subject to future recoupment
by the Investment Manager.
Fund operating expenses may not fall below the current expense levels in
subsequent years until the Investment Manager has fully recouped fees forgone
and expenses paid or assumed, as each fund will reimburse the Investment Manager
in subsequent years during which the Fund's total assets are greater than
$20,000,000. Such recoupments, if any, are limited to a period of five years
from the date on which the first reimbursement is made to theInvestment Manager
on a fund by fund basis. As of June 30, 1998 the cumulative amounts unrecouped
by the Investment Manager since the commencement of operations are:
<TABLE>
<S> <C>
Balanced Fund $247,866
Government Securities Fund 400,824
Income and Equity Fund 316,894
Small Cap Fund 217,445
</TABLE>
For the period from January 1, 1998 through June 30, 1998, Pacific
Global Fund Distributors, Inc. ("PGFD"), the principal underwriter for the
Company, received commissions on sales of capital stock, after deducting amounts
allowed to authorized distributors as commissions. The amounts are as follows.
<TABLE>
<CAPTION>
Underwriting Commissions
Fees Retained Paid
<S> <C> <C>
Balanced Fund $ 1,110 $ 5,438
Government Securities Fund 567 3,005
Income and Equity Fund 1,103 5,893
Small Cap Fund 7,510 37,965
</TABLE>
PGFD is a wholly-owned subsidiary of the Investment Manager.
The Company and the Funds have entered into agreements with Pacific
Global Investor Services, Inc. ("PGIS") to provide fund accounting services at
the monthly fee of three basis points for the first one hundred million in net
assets or a minimum of $1,250. In addition, agreements to provide transfer agent
services has also been entered into at a rate of $18.00 per year per open
account and $2.00 per year per closed account with a minimum charge of $1,250
per month. PGIS is a wholly owned subsidiary of the Investment Manager.
Accounts payable to related parties consists of management fees payable
to the Investment Manager and fund accounting and transfer agent fees payable to
PGIS.
The Company has adopted a plan of distribution, whereby the Funds may
pay a service fee in an amount up to 0.25% per annum of each Fund's average
daily net assets to qualified recipients. For the period from January 1, 1998 to
June 30, 1998, total service fees were:
<TABLE>
<S> <C>
Balanced Fund $ 3,426
Government Securities Fund 2,177
Income and Equity Fund 1,448
Small Cap Fund 8,018
</TABLE>
27
<PAGE>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 4. PURCHASE AND SALES OF SECURITIES
The following summarizes purchases and sales of investment securities,
other than short-term investments, and aggregate gross unrealized appreciation
and depreciation by each Fund for the period ended June 30, 1998
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Cost of Proceeds Unrealized Unrealized Appreciation
Purchases from Sales Appreciation Depreciation (Depreciation)
<S> <C> <C> <C> <C> <C>
Balanced Fund $ 1,847,855 $ 1,839,310 $ 1,237,450 $ 53,453 $ 1,183,997
Government Securities
Fund 1,072,094 1,137,637 340,810 - 340,810
Income and Equity Fund 413,502 135,434 212,992 309 212,683
Small Cap Fund 2,979,.441 2,986,976 3,161,744 1,025,317 2,136,427
</TABLE>
NOTE 5. CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
Six months ended
June 30, 1998 Year ended
(Unaudited) December 31, 1997
---------------------- ------------------------
Shares Amount Shares Amount
------- ------------- -------- --------------
<S> <C> <C> <C> <C>
BALANCED FUND
Class A:
Shares sold 37,882 $ 483,463 187,918 $ 2,162,179
Reinvestment of distributions - - 7,644 91,190
------- ------------- -------- --------------
37,882 483,463 195,562 2,253,369
Shares repurchased (12,726) (161,445 ) (30,811) (353,082 )
------- ------------- -------- --------------
Net increase (decrease) 25,156 $ 322,018 164,751 $ 1,900,287
------- ------------- -------- --------------
Class C:
Shares sold 612 $ 8,007 - $ -
Reinvestment of distributions - - - -
------- ------------- -------- --------------
612 8,007 - -
Shares repurchased - - - -
------- ------------- -------- --------------
Net increase (decrease) 612 $ 8,007 - $ -
------- ------------- -------- --------------
GOVERNMENT SECURITIES FUND
Class A:
Shares sold 34,773 $ 355,122 81,886 $ 760,764
Reinvestment of distributions 5,494 56,713 22,761 215,344
------- ------------- -------- --------------
40,267 411,834 104,647 976,108
Shares repurchased (45,322) (461,333 ) (468,492) (4,366,761 )
------- ------------- -------- --------------
Net increase (decrease) (5,055) $ (49,498 ) (363,845) $ (3,390,653 )
------- ------------- -------- --------------
Class C:
Shares sold 12,479 $ 131,000 - $ -
Reinvestment of distributions 107 1,123 - -
------- ------------- -------- --------------
12,586 132,123 - -
Shares repurchased - - - -
------- ------------- -------- --------------
Net increase (decrease) 12,586 $ 132,123 - $ -
------- ------------- -------- --------------
</TABLE>
28
<PAGE>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 5. CAPITAL SHARE TRANSACTIONS CONTINUED
<TABLE>
<CAPTION>
Six months ended
June 30, 1998 Year ended
(Unaudited) December 31, 1997
----------------------- ------------------------
Shares Amount Shares Amount
------- -------------- -------- --------------
<S> <C> <C> <C> <C>
INCOME AND EQUITY FUND
Class A:
Shares sold 40,487 $ 420,752 78,841 $ 765,748
Reinvestment of distributions 2,098 21,852 3,664 35,535
------- -------------- -------- --------------
42,585 442,604 82,505 801,283
Shares repurchased (9,018) (92,774 ) (21,236) (205,156 )
------- -------------- -------- --------------
Net increase (decrease) 33,567 $ 349,830 61,269 $ 596,127
------- -------------- -------- --------------
Class C:
Shares sold 6,019 $ 63,383 - $ -
Reinvestment of distributions 51 542 - -
------- -------------- -------- --------------
6,070 63,925 - -
Shares repurchased - - - -
------- -------------- -------- --------------
Net increase (decrease) 6,070 $ 63,925 - $ -
------- -------------- -------- --------------
SMALL CAP FUND
Class A:
Shares sold 68,011 $ 1,253,276 211,910 $ 3,511,363
Reinvestment of distributions - - 3,024 51,981
------- -------------- -------- --------------
68,011 1,253,276 214,934 3,563,344
Shares repurchased (50,151) (901,751 ) (98,652) (1,624,170 )
------- -------------- -------- --------------
Net increase (decrease) 17,860 $ 351,525 116,282 $ 1,939,174
------- -------------- -------- --------------
Class C:
Shares sold 5,763 $ 110,353 - $ -
Reinvestment of distributions - - - -
------- -------------- -------- --------------
5,763 110,353 - -
Shares repurchased (2,590) (47,421 ) - -
------- -------------- -------- --------------
Net increase (decrease) 3,173 $ 62,932 - $ -
------- -------------- -------- --------------
</TABLE>
29
<PAGE>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED FUND
---------------------------------------------------------------------------------------------
Class A
---------------------------------------------------------------------------------------------
Six months ended For the year ended December 31,
June 30, 1998 --------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
---------------------- --------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period $ 12.06 $ 10.66 $ 9.31 $ 8.75 $ 8.99
---------------------- --------------- --------------- --------------- --------------
Income from investing
operations
Net investment
income 0.05 - 0.09 0.18 0.02
Net realized and
unrealized
gains
(losses) on
securities 0.99 1.62 1.39 0.57 (0.24)
---------------------- --------------- --------------- --------------- --------------
Total from investment
operations 1.04 1.62 1.48 0.75 (0.22)
---------------------- --------------- --------------- --------------- --------------
Less distributions
From net
investment
income - (0.01) (0.09) (0.18) (0.02)
From net capital
gains - (0.21) (0.04) (0.01) -
---------------------- --------------- --------------- --------------- --------------
Total distributions - (0.22) (0.13) (0.19) (0.02)
---------------------- --------------- --------------- --------------- --------------
Net asset value, end
of period $ 13.10 $ 12.06 $ 10.66 $ 9.31 $ 8.75
---------------------- --------------- --------------- --------------- --------------
TOTAL INVESTMENT RETURN 8.62%* 15.24% 15.92% 8.70% (2.41)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $ 6,403 $ 5,593 $ 3,187 $ 2,219 $ 1,341
Ratio of net
investment
income to
average net
assets
With expense
reductions 0.38%* (0.03)% 1.12% 2.46% 0.93%
Without
expense
reductions 0.18%* (0.50)% (0.76)% (0.62)% (15.11)%
Ratio of expenses to
average net
assets
With expense
reductions 1.44%* 3.28% 2.48% 2.24% 1.83%
Without
expense
reductions 1.65%* 3.75% 4.36% 5.31% 17.85%
Portfolio turnover
rate 27.43% 64.13% 65.94% 41.23% 60.68%
Average commission
per share paid
on equity
transactions $ 0.0871 $ 0.0945 $ 0.0812 $ 0.1005 $ -
<CAPTION>
Class C
-------------------------
April 2, 1998 to
June 30, 1998
(Unaudited)
<S> <C>
-------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period $ 13.09
-------------------------
Income from investing
operations
Net investment
income 0.01
Net realized and
unrealized
gains
(losses) on
securities (0.01)
-------------------------
Total from investment
operations 0.00
-------------------------
Less distributions
From net
investment
income -
From net capital
gains -
-------------------------
Total distributions -
-------------------------
Net asset value, end
of period $ 13.09
-------------------------
TOTAL INVESTMENT RETURN (0.46%)*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $ 8
Ratio of net
investment
income to
average net
assets
With expense
reductions 0.15%*
Without
expense
reductions 0.02%*
Ratio of expenses to
average net
assets
With expense
reductions 0.99%*
Without
expense
reductions 1.12%*
Portfolio turnover
rate N/A
Average commission
per share paid
on equity
transactions N/A
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized
N/A Not applicable
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
---------------------------------------------------------------------------------------------
Class A
---------------------------------------------------------------------------------------------
Six months ended For the year ended December 31,
June 30, 1998 --------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
---------------------- --------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period $ 9.87 $ 9.30 $ 10.16 $ 8.82 $ 9.00
---------------------- --------------- --------------- --------------- --------------
Income from investing
operations
Net investment
income 0.17 0.35 0.33 0.31 0.13
Net realized and
unrealized
gains
(losses) on
securities 0.67 0.71 (0.65) 1.53 (0.14)
---------------------- --------------- --------------- --------------- --------------
Total from investment
operations 0.84 1.06 (0.32) 1.84 (0.01)
---------------------- --------------- --------------- --------------- --------------
Less distributions
From net
investment
income (0.17) (0.35) (0.32) (0.31) (0.17)
From net capital
gains - (0.14) (0.22) (0.19) -
---------------------- --------------- --------------- --------------- --------------
Total distributions (0.17) (0.49) (0.54) (0.50) (0.17)
---------------------- --------------- --------------- --------------- --------------
Net asset value, end
of period $ 10.54 $ 9.87 $ 9.30 $ 10.16 $ 8.82
---------------------- --------------- --------------- --------------- --------------
TOTAL INVESTMENT RETURN 8.59%* 11.72% (3.15)% 20.32% (0.15)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $ 4,151 $ 3,939 $ 7,096 $ 5,837 $ 3,185
Ratio of net
investment
income to
average net
assets
With expense
reductions 1.73%* 3.36% 3.46% 3.75% 2.09%
Without
expense
reductions 0.86%* 1.51% (2.17)% (2.60)% (1.17)%
Ratio of expenses to
average net
assets
With expense
reductions 0.83%* 1.65% 1.66% 1.65% 1.60%
Without
expense
reductions 1.70%* 3.51% 2.95% 2.80% 4.86%
Portfolio turnover
rate 27.05% 68.52% 50.49% 57.85% 81.59%
Average commission
per share paid
on equity
transactions $ 0.7512 $ 0.0771 $ 0.0770 $ 0.0884 $ -
<CAPTION>
Class C
-------------------------
April 2, 1998 to
June 30, 1998
(Unaudited)
<S> <C>
-------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period $ 10.24
-------------------------
Income from investing
operations
Net investment
income 0.01
Net realized and
unrealized
gains
(losses) on
securities 0.37
-------------------------
Total from investment
operations 0.38
-------------------------
Less distributions
From net
investment
income (0.09)
From net capital
gains -
-------------------------
Total distributions (0.09)
-------------------------
Net asset value, end
of period $ 10.53
-------------------------
TOTAL INVESTMENT RETURN 4.02%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $ 133
Ratio of net
investment
income to
average net
assets
With expense
reductions 0.33%*
Without
expense
reductions (0.54)%*
Ratio of expenses to
average net
assets
With expense
reductions 0.25%*
Without
expense
reductions 1.12%*
Portfolio turnover
rate N/A
Average commission
per share paid
on equity
transactions N/A
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized
N/A Not applicable
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME AND EQUITY FUND
---------------------------------------------------------------------------------------------
Class A
---------------------------------------------------------------------------------------------
Six months ended For the year ended December 31,
June 30, 1998 --------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
---------------------- --------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period $ 9.98 $ 9.42 $ 9.67 $ 8.98 $ 9.06
---------------------- --------------- --------------- --------------- --------------
Income from investing
operations
Net investment
income 0.35 0.33 0.35 0.31 0.16
Net realized and
unrealized
gains
(losses) on
securities 0.40 0.56 (0.19) 0.72 (0.07)
---------------------- --------------- --------------- --------------- --------------
Total from investment
operations 0.75 0.89 0.16 1.03 0.09
---------------------- --------------- --------------- --------------- --------------
Less distributions
From net
investment
income (0.18) (0.33) (0.35) (0.31) (0.17)
From net capital
gains - - (0.06) (0.03) -
---------------------- --------------- --------------- --------------- --------------
Total distributions (0.18) (0.33) (0.41) (0.34) (0.17)
---------------------- --------------- --------------- --------------- --------------
Net asset value, end
of period $ 10.55 $ 9.98 $ 9.42 $ 9.67 $ 8.98
---------------------- --------------- --------------- --------------- --------------
TOTAL INVESTMENT RETURN 7.53%* 9.60% 1.78% 11.98% 0.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $ 2,357 $ 1,894 $ 1,211 $ 1,071 $ 632
Ratio of net
investment
income to
average net
assets
With expense
reductions 1.81%* 3.56% 3.75% 4.06% 2.17%
Without
expense
reductions 1.29%* (0.96)% (1.69)% (2.32)% (8.80)%
Ratio of expenses to
average net
assets
With expense
reductions 0.92%* 1.85% 1.85% 1.86% 1.75%
Without
expense
reductions 1.44%* 6.38% 7.29% 8.25% 12.73%
Portfolio turnover
rate 6.54% 42.30% 28.23% 33.40% 37.12%
Average commission
per share paid
on equity
transactions $ 0.3333 $ 0.1291 $ 0.1347 $ 0.1472 $ -
<CAPTION>
Class C
-------------------------
April 2, 1998 to
June 30, 1998
(Unaudited)
<S> <C>
-------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period $ 10.39
-------------------------
Income from investing
operations
Net investment
income 0.02
Net realized and
unrealized
gains
(losses) on
securities 0.22
-------------------------
Total from investment
operations 0.24
-------------------------
Less distributions
From net
investment
income (0.09)
From net capital
gains -
-------------------------
Total distributions (0.09)
-------------------------
Net asset value, end
of period $ 10.54
-------------------------
TOTAL INVESTMENT RETURN 2.32%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $ 64
Ratio of net
investment
income to
average net
assets
With expense
reductions 0.72%*
Without
expense
reductions 0.20%*
Ratio of expenses to
average net
assets
With expense
reductions 0.21%*
Without
expense
reductions 0.73%*
Portfolio turnover
rate N/A
Average commission
per share paid
on equity
transactions N/A
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized
N/A Not applicable
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP FUND
---------------------------------------------------------------------------------------------
Class A
---------------------------------------------------------------------------------------------
Six months ended For the year ended December 31,
June 30, 1998 --------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
---------------------- --------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period $ 17.51 $ 16.47 $ 11.82 $ 10.35 $ 11.47
---------------------- --------------- --------------- --------------- --------------
Income from investing
operations
Net investment
expense (0.23) (0.38) (0.21) (0.08) (0.04)
Net realized and
unrealized
gains
(losses) on
securities (0.02) 1.52 5.35 1.89 (0.42)
---------------------- --------------- --------------- --------------- --------------
Total from investment
operations (0.25) 1.14 5.14 1.81 (0.46)
---------------------- --------------- --------------- --------------- --------------
Less distributions
From net
investment
income - - - - -
From net capital
gains - (0.10) (0.49) (0.34) (0.66)
---------------------- --------------- --------------- --------------- --------------
Total distributions - (0.10) (0.49) (0.34) (0.66)
---------------------- --------------- --------------- --------------- --------------
Net asset value, end
of period $ 17.26 $ 17.51 $ 16.47 $ 11.82 $ 10.35
---------------------- --------------- --------------- --------------- --------------
TOTAL INVESTMENT RETURN (1.43)%* 6.95% 43.70% 17.27% (3.97)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $ 11,276 $ 11,125 $ 8,549 $ 4,279 $ 3,169
Ratio of net
investment
income to
average net
assets
With expense
reductions (1.35)%* (2.82)% (2.06)% (0.71)% (0.42)%
Without
expense
reductions 0.00%* (2.99)% (2.39)% (1.88)% (3.37)%
Ratio of expenses to
average net
assets
With expense
reductions 1.55%* 3.18% 2.91% 2.49% 2.45%
Without
expense
reductions 1.55%* 3.35% 3.24% 3.64% 5.40%
Portfolio turnover
rate 26.33% 30.72% 51.83% 44.95% 49.79%
Average commission
per share paid
on equity
transactions $ 0.0774 $ 0.0809 $ 0.0807 $ 0.0833 $ -
<CAPTION>
Class C
-------------------------
April 2, 1998 to
June 30, 1998
(Unaudited)
<S> <C>
-------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period $ 19.70
-------------------------
Income from investing
operations
Net investment
expense (0.14)
Net realized and
unrealized
gains
(losses) on
securities (2.30)
-------------------------
Total from investment
operations (2.44)
-------------------------
Less distributions
From net
investment
income -
From net capital
gains -
-------------------------
Total distributions -
-------------------------
Net asset value, end
of period $ 17.26
-------------------------
TOTAL INVESTMENT RETURN (12.25)%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $ 55
Ratio of net
investment
income to
average net
assets
With expense
reductions (0.97)%*
Without
expense
reductions 0.00%*
Ratio of expenses to
average net
assets
With expense
reductions 1.10%*
Without
expense
reductions 1.10%*
Portfolio turnover
rate N/A
Average commission
per share paid
on equity
transactions N/A
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized
N/A Not applicable
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
PACIFIC ADVISORS
notes
34
<PAGE>
PACIFIC ADVISORS
notes
35
<PAGE>
PACIFIC ADVISORS
notes
36
<PAGE>
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
BALANCED FUND ADVISER
HAMILTON & BACHE, INC.
206 NORTH JACKSON STREET, SUITE 201
GLENDALE, CALIFORNIA 91206
GOVERNMENT SECURITIES FUND 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>
---------------
[GRAPHIC] 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
---------------
pg101.898
