<PAGE> 1
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
annual report | december 31, 1997
[LOGO]
PACIFIC
ADVISORS
&
FUND INC.
balanced
fund
<PAGE> 2
DEAR FELLOW SHAREHOLDERS
December 31, 1997
The Pacific Advisors Balanced Fund ("Fund") had a total investment return of
15.24% for the twelve months ending December 31, 1997. The return reflects the
deduction of the Fund's current maximum sales charge with all dividends and
capital gains reinvested and after expense reimbursements. During 1997 the
Standard & Poor's 500 ("S&P 500") Composite Index and the Lehman Intermediate
Treasury-Bond Index were up 31.10% and 7.67%, respectively.
These indices, by formula, are unmanaged measurements. The S&P 500 includes
the stocks of 500 relatively large companies, weighted by size. The Fund looks
for investment opportunities among the 9,000 or more stocks listed on various
exchanges or traded in the over-the-counter market. It also includes
fixed-income securities which will be a smaller or larger portion of the Fund's
assets based upon our outlook on the economy.
At year-end, the equity and fixed-income positions in the Fund were 55% and
36%, respectively. The remaining assets were invested in short-term investments.
This investment allocation reflected our concern that the economy was slowing
which would lead to lower corporate earnings and declining interest rates. The
economic problems which began to surface in Asia, during the late summer may
accelerate this scenario as multi-national companies experience significantly
lower demand for goods and services in this region and additional competitive
pressures.
PORTFOLIO MANAGEMENT
The investment strategy of the Fund seeks to provide long term stable growth by
investing in equities and bonds. The Fund continues to invest on a selective
basis utilizing our value-oriented approach.
During the first six months, we began to reduce the Fund's exposure in large
cap stocks by investing more of the Fund's assets in mid cap stocks. New
companies added to the Fund included Jostens, Scholastic Corp. and Price
Enterprises Inc. Jostens is a publisher of yearbooks and class rings. The
demographic expansion of high school and college age students over the next
several years should increase the demand for their products. They have also shed
unrelated businesses that were unprofitable, which improved earnings. Scholastic
Corp. is well known as a publisher of educational newspapers such as "The Weekly
Reader". Recently they have begun a successful expansion into publishing
children's books and textbooks. Price Enterprises Inc., is a real estate
investment trust. It is the landlord for Costco and Price Club stores and will
benefit from their continued expansion.
Additions to the Fund since June include GATX Corporation, Thomas Nelson and
Viacom. GATX Corporation is a transportation leasing and logistics company. In
1996, new management began a restructuring of the company and earnings are
growing at a 15% annual rate. In a slower but still growing economy, GATX should
continue to benefit from the transportation of goods across the country. Thomas
Nelson is a Bible publisher, which recently divested its music business to focus
on its core publishing business. Bible sales remain strong and demand should
increase as we approach the millennium. We added to our Viacom position in
anticipation of increased revenues from their revenue sharing in the blockbuster
"Titanic."
The high yields and lower risk of corporate bonds continue to make them more
attractive than many stocks. During 1997, the yield on 30-year US Treasury Bonds
declined from a peak of 7.2% in April to 5.9% by year-end. We continue to
believe the dollar will remain strong and long-term interest rates will decline
as a result of low inflation and moderate economic growth. For this reason, we
have extended the average maturity to about five years and increased our
position in fixed-income securities by about 5%. Most of the fixed-income
securities in the Fund are utility and financial services corporate bonds. They
include Niagara Mohawk Power, NYNEX, Equitable Iowa, Barnett Banks and
Transamerica Corporation.
OUTLOOK
Even though the economy grew at a robust rate of 3.7%
1
<PAGE> 3
and unemployment declined to 4.6%, inflation was only about 2% for the year. It
appears that the economy is slowing but it does not appear that a recession is
imminent. The crisis in Asia should further alleviate inflationary concerns, as
imported goods should be cheaper. The down side is that exports to Asia will be
lower during its recovery which will have a negative impact on the earnings for
multi-national companies. It is still too early to determine the magnitude of
its impact but we would expect to begin to see its effect in earnings results in
the next quarter. Asia accounts for over 30% of the global Gross Domestic
Product so it would be unrealistic to assume it will not impact the global
economy.
If the economy continues to grow at a mild rate, interest rates should
decline further and mid cap and smaller cap companies may outperform larger cap
stocks. It will be difficult for larger cap stocks to retain their premium
valuations if their growth slows to a more modest rate especially in light of
the weakened Asian economy. The momentum investment strategy that has carried
these stocks, as a group, to record highs should give way to an emphasis on
value investing. This investment style focuses on the performance of individual
stocks which should favor mid to small cap companies in more dynamic markets.
It is unrealistic to expect that the stock market can continue to grow at
rates in excess of 20% as we have seen in the past three years. For this reason
we have implemented an investment strategy that will benefit our investors in a
slower economy with declining interest rates.
Sincerely,
/s/ GEORGE A. HENNING
George A. Henning
Chairman
/s/ STEPHEN K. BACHE
Stephen K. Bache, CFA
Adviser
Hamilton & Bache
CHANGE IN VALUE OF $10,000 INVESTMENT*
This chart shows the growth of a $10,000 investment made in Pacific Advisors
Balanced Fund on February 8, 1993 compared to the growth of the Standard &
Poor's (S&P) 500 and Lehman T-Bond Indices.
PACIFIC ADVISORS
BALANCED FUND
Average Annual
Compound Return*
for period ending
December 31,
1997
One Year
- --------
9.39% [GRAPH]
Inception
(2/8/93)
- --------
6.08%
* Performance figures represent the change in value of an investment over the
periods shown, and have been restated to include the maximum 5.75% initial sales
charge, assuming reinvestment of dividends and capital gains at net asset value
and after expense reimbursements.
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.
The Lehman T-Bond Index is an unmanaged index of intermediate government
bonds since 12/31/80.
Past performance does not guarantee future results. Share price and return
fluctuate, so that your shares when redeemed, may be worth more or less than
their original cost.
2
<PAGE> 4
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Number of Shares Value
<S> <C> <C>
COMMON STOCK - 53.60%
Aerospace and Defense - 2.63%
Boeing Company 3,000 $ 146,812
- ------------------------------------------------------------------------------------------
Basic Industries - 1.17%
IMC Global, Inc. 2,000 65,500
- ------------------------------------------------------------------------------------------
Communications - 2.50%
Nokia Corporation - ADR A 2,000 140,000
- ------------------------------------------------------------------------------------------
Containers/Packaging - 1.09%
ACX Technologies* 2,500 61,094
- ------------------------------------------------------------------------------------------
Electrical Components and Equipment - 2.82%
Electroglas, Inc.* 4,000 61,750
Penn Engineering 4,000 96,000
- ------------------------------------------------------------------------------------------
157,750
- ------------------------------------------------------------------------------------------
Entertainment - 8.31%
GC Companies, Inc.* 1,500 71,063
TCI Media GR "A" 2,000 72,500
Time Warner, Inc. 1,500 93,000
Viacom, Inc.* 5,500 227,906
- ------------------------------------------------------------------------------------------
464,469
- ------------------------------------------------------------------------------------------
Factory Equipment - 1.70%
DeVlieg-Bullard* 25,000 95,313
- ------------------------------------------------------------------------------------------
Financial Services - Specialty - 2.25%
Freddie Mac 3,000 125,812
- ------------------------------------------------------------------------------------------
Food - 2.04%
Archer-Daniels-Midland 5,250 113,859
- ------------------------------------------------------------------------------------------
Health Care Provider - 0.72%
Comprehensive Care Corp.* 6,000 40,125
- ------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 5
<TABLE>
Number of Shares Value
<S> <C> <C>
COMMON STOCK CONTINUED
Industrial and Commercial Services - 4.14%
Pinkerton's, Inc.* 2,250 $ 52,875
Reliance Steel 6,000 178,500
- ------------------------------------------------------------------------------------------
231,375
- ------------------------------------------------------------------------------------------
Insurance - Specialty - 1.75%
Farm Family Holdings, Inc.* 3,000 97,688
- ------------------------------------------------------------------------------------------
Lodging - 1.21%
Servico Inc.* 4,000 67,500
- ------------------------------------------------------------------------------------------
Oil Field Equipment & Services - 2.18%
Cooper Cameron* 2,000 122,000
- ------------------------------------------------------------------------------------------
Oil - Secondary - 2.50%
Burlington Resources 1,500 67,219
Union Pacific Resources 3,000 72,750
- ------------------------------------------------------------------------------------------
139,969
- ------------------------------------------------------------------------------------------
Pharmaceuticals - 3.62%
Perrigo Company* 4,000 53,500
Pfizer, Inc. 2,000 149,125
- ------------------------------------------------------------------------------------------
202,625
- ------------------------------------------------------------------------------------------
Publishing - 3.76%
Dun & Bradstreet Corp. 2,500 77,344
Scholastic Corp.* 2,000 75,000
Thomas Nelson, Inc. 5,000 57,812
- ------------------------------------------------------------------------------------------
210,156
- ------------------------------------------------------------------------------------------
Railroads - 0.84%
Wisconsin Central Transportation Corp.* 2,000 46,750
- ------------------------------------------------------------------------------------------
Real Estate - 4.29%
Catellus Development Corporation 12,000 240,000
- ------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 3.26%
Price Enterprises, Inc. 10,000 182,500
- ------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 6
<TABLE>
<CAPTION>
Number of Shares Value
<S> <C> <C>
COMMON STOCK CONTINUED
Recreational Products - 0.82%
Jostens, Inc. 2,000 $ 46,125
- ------------------------------------------------------------------------------------------
Total Common Stock
(Cost: $2,106,092) 2,997,422
=========
Principal Amounts Value
CORPORATE BONDS - 40.04%
Aerospace & Defense - 4.53%
McDonnell Douglas 9.75% 04/01/12 $ 195,000 253,552
- ------------------------------------------------------------------------------------------
Banks - Regional - 4.70%
Barnett Banks FL 10.875% 3/15/03 220.000 262,736
- ------------------------------------------------------------------------------------------
Electric - 8.67%
Alabama Power 9% 12/01/24 115,000 126,913
Carolina Power-Light 6.875% 10/01/98 110,000 100,063
Niagara Mohawk Power 9.75% 11/01/05 225,000 257,781
- ------------------------------------------------------------------------------------------
484,757
- ------------------------------------------------------------------------------------------
Food Retailers - 6.92%
Safeway, Inc. 9.875% 3/15/07 132,000 163,751
Safeway, Inc. 10% 12/01/01 200,000 223,079
- ------------------------------------------------------------------------------------------
386,830
- ------------------------------------------------------------------------------------------
Gas - 1.79%
Northern Illinois Gas 5.875% 02/01/98 100,000 99,994
- ------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 1.80%
Chubb Corporation 8.75% 11/15/99 100,000 100,803
- ------------------------------------------------------------------------------------------
Insurance - Specialty - 1.48%
Equitable of Iowa 8.5% 02/15/05 75,000 82,860
- ------------------------------------------------------------------------------------------
Oil - Secondary - 5.16%
Occidental Petroleum 9.25% 8/01/19 227,000 288,821
- ------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 7
<TABLE>
<CAPTION>
Principal Amounts Value
<S> <C> <C>
CORPORATE BONDS CONTINUED
Telephone Systems - 4.99%
NYNEX Corporation 9.55% 5/01/10 $ 242,218 $ 278,885
- ------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost: $2,169,697) 2,239,238
--------------
TOTAL INVESTMENT SECURITIES - 93.64%
(Cost: $4,275,789) $ 5,236,660
SHORT-TERM INVESTMENTS - 6.48%
United Missouri Bank Money Market Fund 362,689
LIABILITIES LESS OTHER ASSETS - (0.12%) (6,756)
TOTAL NET ASSETS - 100% $ 5,592,593
==========================================================================================
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 8
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS
Investment securities at market value (cost: $4,275,789) $ 5,236,660
Short-term investments, at cost, which is equivalent to market 362,689
Receivable from Investment Manager (Note 3) 5,266
Other Assets 22,265
Accrued income receivable 44,251
Receivable for capital shares sold 30,191
Organizational expenses, net of amortization (Note 1) 1,791
-----------
Total assets 5,703,113
-----------
LIABILITIES
Accounts payable 1,845
Accounts payable to related parties (Note 3) 5,046
Payable for investments purchased 101,838
Payable to Investment Manager (Note 1) 1,791
-----------
Total liabilities 110,520
-----------
NET ASSETS
(Equivalent to $12.06 per share on 463,703 shares of
Capital Stock outstanding - 100 million shares authorized) $ 5,592,593
===========
SUMMARY OF SHAREHOLDERS' EQUITY
Paid-in-capital $ 4,637,665
Accumulated undistributed net realized gains on security transactions 264
Distributions of net investment income in excess of investment
income reported for financial statement purposes (6,207)
Net unrealized appreciation of investments 960,871
-----------
Net assets at December 31, 1997 $ 5,592,593
===========
Maximum offering price per share ($12.06/94.25%): $ 12.80
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 9
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 24,561
Interest 123,426
---------
Total Income 147,987
---------
EXPENSES
Investment Management Fees 36,679
Fund Accounting Fees 23,169
Transfer Agent Expense 25,622
Legal Expense 21,071
Amortization Expense 11,158
Registration Fees 8,091
Printing 14,317
Audit Fees 9,474
Custody Fees 7,059
Director Fees/Meetings 2,996
Distribution Fees (Note 3) 7,219
Other Expense 3,738
---------
Total Expenses, before reimbursements 170,593
Less Fees Waived and Expenses Reimbursed (Note 3) 21,417
---------
Net Expenses 149,176
---------
NET INVESTMENT LOSS $ (1,189)
=========
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 96,101
Net unrealized appreciation of investments
Beginning of Year $ 449,724
End of Year 960,871
---------
Change in net unrealized appreciation of investments 511,147
---------
607,248
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 606,059
=========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 10
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (1,189) $ 28,259
Net realized gain on investments 96,101 10,316
Change in net unrealized appreciation of investments 511,147 352,267
--------------------------
Increase in net assets resulting from operations 606,059 390,842
--------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (5,013) (28,087)
Net capital gains (96,179) (10,790)
--------------------------
Decrease in net assets resulting from distributions (101,192) (38,877)
--------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold (187,918 and 110,863 shares) 2,162,179 1,095,984
Proceeds from shares purchased by reinvestment
of dividends (7,644 and 3,408 shares) 91,190 36,221
Cost of shares repurchased (30,811 and 44,123 shares) (353,082) (426,217)
--------------------------
Increase in net assets derived from capital share transactions
(164,751 and 70,148 shares) 1,900,287 705,988
--------------------------
Increase in net assets 2,405,154 1,057,953
NET ASSETS
Beginning of Year
(includes no undistributed net investment income) 3,187,439 2,129,486
--------------------------
End of Year
(includes no undistributed net investment income) $ 5,592,593 $ 3,187,439
==========================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Pacific Advisors Fund Inc. (the "Company") is an open-end diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Company was organized on May 18, 1992 as a Maryland
corporation and had no operations prior to February 8, 1993, other than those
relating to organizational matters including the sale of 2,778 shares of stock
of each of its four series ("Funds") at $9.00 per share to the Company's
investment manager, Pacific Global Investment Management Company ("Investment
Manager"). The Company currently offers four Funds: Small Cap Fund, Balanced
Fund, Income and Equity Fund, and Government Securities Fund. Each Fund is a
separate investment portfolio of the Company with a distinct investment
objective, investment program, policies, and restrictions. The Balanced Fund
seeks to achieve long-term capital appreciation and income consistent with
reduced market risk.
The Investment Manager paid the organizational and other initial
expenses of the Fund incurred prior to the initial offering of the Fund's
shares. However, the Fund has agreed to reimburse the Investment Manager for
such expenses. The organizational costs will be deferred and amortized by each
Fund over a period during which it is expected that a benefit will be realized,
but no longer than five years from the date of the Funds' commencement of
operations. Prepaid expenses will be amortized over a period not to exceed
twelve months.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION. Securities listed on a national securities
exchange and certain over-the-counter ("OTC") issues traded on the NASDAQ
national market system are valued at the last quoted sale price at the close of
the NYSE. OTC issues not quoted on NASDAQ system and other equity securities for
which no sale price is available, are valued at the last bid price as obtained
from published sources (including Quotron), where available, and otherwise from
brokers who are market makers for such securities. Debt securities with a
maturity of less than 60 days are valued on an amortized cost basis.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME. Security transactions
are accounted for on the trade date. The cost of investments sold is determined
by use of the specific identification method for both financial reporting and
Federal income tax purposes. Dividends are recorded on the ex-dividend date.
Interest income is recorded on an accrual basis.
C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. The Balanced Fund
declares and distributes dividends of its net investment income, if any,
annually. The Board of Directors will determine the amount and timing of such
payments. 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 Balanced Fund in
connection with its organization, registration and initial public offering of
shares have been deferred and are being amortized using the straight-line method
over a five-year period.
F. USE OF ESTIMATES. The preparation of
10
<PAGE> 12
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 3. INVESTMENT MANAGEMENT, DISTRIBUTOR AND OTHER RELATED PARTY TRANSACTIONS
The Company and Balanced Fund have entered into an investment management
agreement ("Management Agreement") with the Investment Manager. The Management
Agreement provides for investment management fees, payable monthly, and
calculated at the maximum annual rate of 0.75% of average net assets for the
Balanced Fund. The Investment Manager has entered into a sub-advisory agreement
("Sub-Advisory Agreement") with Hamilton & Bache, Inc. ("Advisor"). The
Investment Manager is solely responsible for the payment of these fees to the
Advisor.
Pursuant to an Expense Limitation Agreement, with the Company, on behalf
of the Balanced Fund, for the year ended December 31, 1997, the Investment
Manager has agreed to waive $21,417 of management and sub-advisory fees for the
Balanced Fund. These waived fees may be subject to future recoupment by the
Investment Manager.
Fund operating expenses may not fall below the current expense level in
subsequent years until the Investment Manager has fully recouped fees forgone
and expenses paid or assumed, as the Fund will reimburse the Investment Manager
in subsequent years during which the Fund's total assets are greater than
$20,000,000. Such recoupments, if any, are limited to a period of five years
from the date on which the first reimbursement is made to the Investment
Manager. As of December 31, 1997, the cumulative amounts unrecouped by the
Investment Manager since the commencement of operations is $235,848.
For the year ended December 31, 1997, Pacific Global Fund Distributors,
Inc. ("PGFD"), the principal underwriter for the Company, received $7,727 of
commissions on sales of capital stock of the Balanced Fund, after deducting
$37,174 allowed to authorized distributors as commissions. PGFD is a
wholly-owned subsidiary of the Investment Manager.
The Company and the Balanced Fund have entered into an agreement with
Pacific Global Investor Services, Inc. ("PGIS") to provide fund accounting
services at the monthly fee of three basis points for the first one hundred
million in net assets or a minimum of $1,250. In addition, an agreement to
provide transfer agent services has also been entered into at a 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.
Certain officers of the Company are also officers of the Investment
Manager, PGFD and PGIS.
The Company has adopted a plan of distribution, whereby the Balanced
Fund may pay a service fee in an amount up to 0.25% per annum of the Fund's
average daily net assets to qualified recipients. For the year ended December
31, 1997, service fees totaled $7,219.
NOTE 4. PURCHASE AND SALES OF SECURITIES
For the year ended December 31, 1997, the Balanced Fund had aggregate
cost of purchases and proceeds from sales of securities, other than short-term
investments of $4,287,570 and $2,598,718 respectively. The cost of securities
held is the same for Federal income tax and financial reporting purposes.
Aggregate gross unrealized appreciation and aggregate gross unrealized
depreciation on securities were $1,025,808 and $64,937 respectively. Net
unrealized appreciation for tax purposes is $960,871.
11
<PAGE> 13
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period
For the year ended December 31 February 8, 1993(3)
1997 1996 1995 1994 to December 31, 1993
-------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $ 10.66 $ 9.31 $ 8.75 $ 8.99 $ 9.00
-------------------------------------------- -----------
Income from Investment Operations
Net investment income 0.00 0.09 0.18 0.02 0.01
Net realized and unrealized gains (losses)
on securities 1.62 1.39 0.57 (0.24) (0.01)
-------------------------------------------- -----------
Total from investment operations 1.62 1.48 0.75 (0.22) 0.00
-------------------------------------------- -----------
Less Distributions
From net investment income (0.01) (0.09) (0.18) (0.02) (0.01)
From net capital gains (0.21) (0.04) (0.01) 0.00 0.00
-------------------------------------------- -----------
Total distributions (0.22) (0.13) (0.19) (0.02) (0.01)
-------------------------------------------- -----------
Net Asset Value, End of Period $ 12.06 $ 10.66 $ 9.31 $ 8.75 $ 8.99
============================================ ===========
TOTAL INVESTMENT RETURN(4) 15.24% 15.92% 8.70% (2.41%) 0.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 5,593 $ 3,187 $ 2,219 $ 1,341 $ 121
Ratio of Expenses to Average Net Assets(1) 3.28% 2.48% 2.24% 1.83% 1.60%(2)
Ratio of Net Investment Income to
Average Net Assets(1) (0.03%) 1.12% 2.46% 0.93% 0.25%(2)
Portfolio Turnover Rate 64.13% 65.94% 41.23% 60.68% 61.71%(2)
Average Commission Per Share
Paid on Equity Transactions $ 0.0945 $ 0.0812 $ 0.1005 -- --
</TABLE>
1 Without the voluntary fee waivers and reimbursement of expenses, the ratio
of expenses to average daily net assets for the Balanced Fund would have
been 3.75%, 4.36%, 5.31%, 17.85% and 108.91% for the years 1997 through 1993
respectively, and the ratio of net investment income (loss) to average net
assets would have been (0.50%), (0.76%), (0.62%), (15.11%), and (106.91%)
for the years 1997 through 1993 respectively.
2 Annualized.
3 Commencement of Operations.
4 The Fund's Maximum sales charge is not included in the total return
computation.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
PACIFIC ADVISORS FUND INC.
BALANCED FUND
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Balanced Fund (one of the portfolios
constituting Pacific Advisors Fund Inc.) as of December 31, 1997, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the years ended December 31, 1997, 1996, 1995, and
1994 and for the period from February 8, 1993 (commencement of operations) to
December 31, 1993. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Balanced Fund of Pacific Advisors Fund Inc. as of December 31,
1997, and the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for the years ended December 31, 1997, 1996, 1995, and 1994
and the period from February 8, 1993 (commencement of operations) to December
31, 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
January 23, 1998
13
<PAGE> 15
PACIFIC ADVISORS FUND INC.
DIRECTORS
GEORGE A. HENNING, CHAIRMAN
VICTORIA L. BREEN
THOMAS M. BRINKER
KATHLEEN M. FISHKIN
L. MICHAEL HALLER III
SIEGFRED S. KAGAWA
TAKASHI MAKINODAN, PH.D.
GERALD E. MILLER
LOUISE K. TAYLOR, PH.D.
OFFICERS
GEORGE A. HENNING, PRESIDENT
THOMAS H. HANSON, VICE PRESIDENT AND SECRETARY
VICTORIA L. BREEN, ASSISTANT SECRETARY
PAUL W. HENNING, TREASURER
INVESTMENT MANAGER
PACIFIC GLOBAL INVESTMENT MANAGEMENT COMPANY
206 NORTH JACKSON STREET, SUITE 201
GLENDALE, CALIFORNIA 91206
ADVISER
HAMILTON & BACHE, INC.
206 NORTH JACKSON STREET, SUITE 201
GLENDALE, CALIFORNIA 91206
TRANSFER AGENT AND ADMINISTRATOR
PACIFIC GLOBAL INVESTOR SERVICES, INC.
206 NORTH JACKSON STREET, SUITE 201
GLENDALE, CALIFORNIA 91206
DISTRIBUTOR
PACIFIC GLOBAL FUND DISTRIBUTORS, INC.
206 NORTH JACKSON STREET, SUITE 201
GLENDALE, CALIFORNIA 91206
(800) 989-6693
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless
accompanied or preceded by a current effective prospectus of the Fund, which
contains information concerning the investment policies of the Fund as well as
other pertinent information.
