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[GRAPHIC]
SEMIANNUAL REPORT -- JUNE 30, 1999
[LOGO]
PACIFIC
ADVISORS
-
FUND INC.
GOVERNMENT SECURITIES fund
INCOME AND EQUITY fund
BALANCED fund
GROWTH fund
SMALL CAP fund
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PACIFIC ADVISORS
table of contents
MESSAGE FROM THE CHAIRMAN......................................................1
GOVERNMENT SECURITIES FUND.....................................................3
INCOME AND EQUITY FUND.........................................................5
BALANCED FUND..................................................................7
GROWTH FUND....................................................................9
SMALL CAP FUND................................................................10
SCHEDULE OF INVESTMENTS.......................................................13
STATEMENT OF ASSETS AND LIABILITIES...........................................24
STATEMENT OF OPERATIONS.......................................................26
STATEMENT OF CHANGES IN NET ASSETS............................................28
NOTES TO FINANCIAL STATEMENTS.................................................30
FINANCIAL HIGHLIGHTS..........................................................35
<PAGE>
MESSAGE
from the chairman
[GRAPHIC]
Fellow Shareholders,
Strong growth in the U.S. economy continued to have a major impact on the
bond and equity markets during the first six months of 1999. This surprised many
economists who had anticipated slower growth. A significant increase in consumer
spending, supported by higher consumer debt, was the primary catalyst for this
growth.
The strong labor market and profits from the stock market gave consumers the
confidence to increase their spending and take on more debt to finance their
purchases. This caused the market to believe that inflationary pressures would
become more severe. Their concern was reinforced by a tight labor market, which
continued to drive up wages in many areas of the country. As a result, interest
rates began to rise sharply in the first quarter as inflationary concerns
increased. By June 30, 1999, the yield on the 30-Year U.S. Treasury bond was
5.98% compared to 5.09% at the end of 1998. In late June the Federal Reserve
raised short-term interest rates 0.25% and indicated that additional increases
might be necessary to reduce inflationary pressures.
Inflation was not good news for bond investors as bond yields increased. The
Lehman Brothers Long-term Bond Index lost -6.77% during the first six months of
1999. As interest rates began to rise, the Government Securities Fund became
more defensive and moved most of its investments into short-term U.S. treasury
bills to protect principal during this rise in interest rates. The Income &
Equity Fund also reduced its longer-term bond exposure. The implementation of
these investment strategies is consistent with our focus on total investment
return for these Funds.
The impact of rising interest rates was also felt in the stock market. The
equity markets worried that higher interest rates would cause the spectacular
valuations given many large cap, Internet and technology stocks to fall
significantly. As a result, investors began to sell off stock in these companies
and the price for large cap, Internet and technology stocks began to decline.
Many companies including AOL, Amazon.com and E-Bay saw their stock price fall
over 40% from their high in 1999. We believe this correction was healthy and
provided a necessary incentive for investors to look for undervalued stocks in
the broader market.
As the Asian crisis developed in 1997, followed by problems in Russia, South
America and Europe, many investors had concentrated their investments in large
cap, Internet and technology stocks. During the second quarter of 1999,
investors began to move out of these sectors in order to increase their cash
position and reallocate a portion of their portfolio to mid, small and micro cap
stocks. Investors however, were reluctant to move aggressively into the broader
market as they were concerned that inflationary pressures might push interest
rates higher, and that there might be another Internet and technology
correction.
The Balanced Fund took a more defensive position in 1999, by selling out of
large cap stocks, which had become more fully valued, and invested in
undervalued large and mid cap stocks. The Fund also maintained a larger bond
position, as bonds became more attractive than many stocks.
The small cap sector has continued to be greatly undervalued with many
benchmarks at all time historical lows. Investors who were small cap oriented
invested more heavily in Internet and technology stocks which offered
unprecedented high returns. As the market breadth increased in the second
quarter, small cap stocks began to see some recovery. We believe the small cap
market will be more favorable as interest rate concerns begin to ebb and the
market looks for stocks that have not been fully valued.
We continue to believe that inflation is not a long-term concern. Despite
the economic recovery that has begun in Asia, Brazil and Europe there is still a
global surplus of goods and services. Most countries in these regions must still
make significant structural changes in their economy to sustain any long-term
growth. There is also a strong possibility that China will devalue its currency
later this year, which would have a negative impact on other Asian countries.
1
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MESSAGE
from the chairman continued
The weak demand for goods and services in these countries will make it
difficult for many companies to raise prices, forcing them to rely on
productivity gains to offset wage inflation. The inability to raise prices in
global markets will make it difficult for large multi-national companies to
maintain the double-digit profit growth investors have come to expect. As
profits slow, it will be harder to justify high valuations and investors will
follow the normal economic cycle of investing in undervalued companies that have
better growth potential. Historically, this would favor mid, small and micro cap
stocks.
In our last Annual report we announced plans to start a Growth Fund. This
Fund began operations in May, and its investment focus is on stocks of companies
that comprise the Standard & Poor's 500 and NASDAQ 100 Indices. We believe the
addition of this new fund will provide a more diverse portfolio of equity
investments for our shareholders. Starting the Fund during this corrective phase
in the market should provide the opportunity to buy stocks in these indices at
more attractive prices.
The U.S. economy is likely to grow more slowly in the second half of 1999,
as consumer spending subsides. As the economy shows signs of slowing down,
interest rates should also decline. Deflationary pressures worldwide should
continue to keep inflation under control in the U.S. economy. Low inflation
would be a positive influence in both the equity and bond markets.
While it is necessary to make adjustments in investment strategies in
response to short-term market changes, we continue to focus on longer-term
global trends. We believe that over the longer term, the investment outlook
remains favorable.
Sincerely,
[SIGNATURE]
George A. Henning
Chairman of the Board and President
2
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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
IN EARLY 1999 INTEREST RATES ROSE ON THE 30-YEAR TREASURY BOND AND EVENTUALLY
CLIMBED ABOVE 6%. AS A RESULT, FOR THE SIX MONTHS ENDED JUNE 30, 1999, THE FUND
HAD A LOSS OF -5.91% FOR CLASS A SHARES AND -6.39% FOR CLASS C SHARES. THE
FUND'S BENCHMARK, THE LEHMAN INTERMEDIATE TREASURY BOND INDEX(1), RETURNED 0.58%
FOR THE SAME PERIOD.
Q WHAT ARE THE MAJOR FACTORS THAT HAVE CONTRIBUTED TO THE RISE IN LONG-TERM
INTEREST RATES?
A The major factors which have contributed to the rise in long-term
interest rates are a strong U.S. economy, coupled with reviving global
economies, especially in Asia. The strength of these economies has led to an
increased demand for credit by both consumers and corporations. As the demand
for credit has increased, we have seen a rise in interest rates.
We believe, however, that this rise is temporary. In June of this year,
the Fed raised short-term interest rates 0.25%, a move which is expected to help
the economy begin to slow down. Once the U.S. economy begins to slow down, we
believe that the continued surplus in many global economies will once again lead
to a decline in interest rates.
Q HOW HAS YOUR INVESTMENT STRATEGY CHANGED IN RESPONSE TO THE INCREASE IN
LONG-TERM RATES?
A Our strategy became very cautious when long-term interest rates started
to rise. We sold most of our long-term bond and utility common stock positions
in February and April of this year when we recognized that the global and U.S.
economies were growing faster than projected by the market. We had anticipated
that U.S. economic growth would slow while global economies would offset this
expected U.S. sluggishness with a re-acceleration of their economic growth. With
U.S. economic growth continuing in a robust fashion, inflation became a concern
and we began to see long-term interest rates move upward.
As a result of these events, the Fund is now invested primarily in
short-term U.S. Treasury Bills. The average duration of U.S. government
securities in the Fund has been reduced from 24 years at the end of 1998, to
approximately 1.4 years as of June 30, 1999. As we have previously stated,
during periods of rising interest rates we invest in shorter-term bonds to
protect principal. We will continue to maintain this defensive position until we
believe that interest rates are at or near their peak. At that time, we will
begin to invest in longer-term U.S. Treasuries to lock in their higher yield and
potential for price appreciation. This active management of the Fund seeks to
protect principal when interest rates are rising and maximize the yield and
price appreciation potential for bonds when interest rates decline.
Q ON JUNE 28, 1999 THE FED RAISED SHORT-TERM INTEREST RATES 0.25%. WHAT
WILL BE THE IMPACT OF THIS INCREASE ON LONG-TERM RATES?
A The Fed's June increase in short-term rates should have little impact on
long-term rates. As mentioned before, concerns about inflation were the primary
force behind rising interest rates. The anticipation is that the Fed's increase
will help slow down the economy and ease concerns about inflation. Therefore, if
anything, any modest increase in short-term interest rates should encourage
investors to conclude that inflationary pressures will subside and that a
significant increase in long-term interest rates is unlikely.
3
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PACIFIC ADVISORS
Government Securities Fund continued
Q WHAT IS YOUR EXPECTATION FOR LONG-TERM INTEREST RATES FOR THE LAST HALF
OF 1999 AND THE EARLY PART OF 2000?
A We believe that global deflation will continue to be the primary factor
affecting long-term interest rates. At the moment we are experiencing another
rebound in the business cycle which pushes interest rates higher for the short
term. Similar cyclical rebounds have occurred in long-term rates over the last
18 years. In each instance, these cyclical bounces turned out to be great buying
opportunities. The current opportunity to buy long-term U.S. Treasuries is on
the horizon and should become visible when evidence of a slowdown in the U.S.
economy appears. A deep slide in stock prices or an accident in the global
financial system would also create the conditions for us to purchase long-term
U.S. Treasury bonds. Any or all of these events could happen in the next six to
twelve months.
Q WHAT IS YOUR ASSESSMENT OF THE GLOBAL ECONOMY?
A At the moment the global economy is characterized by easy credit and
confident consumers which have fueled the U.S. economy and led to concerns about
inflation. The Fed's June rate increase is expected to help slow the economy and
begin to allay fears of inflation.
This atmosphere of easy credit and consumer confidence has also helped
bring the global economies up out of the deflationary trenches of the last few
years. The possibility of another devaluation by China exists and that would
create major problems for Japan (the world's second largest economy) and Korea.
A global shock of this sort would decrease the demand for credit, causing
interest rates to fall. An event of this nature would be a signal to buy
long-term U.S. Treasuries in order to lock in higher rates before another
interest rate decline.
Q CONSIDERING THE POSITION OF THE U.S. AND GLOBAL ECONOMIES, DO YOU BELIEVE
INFLATION OR DEFLATION IS OF GREATER CONCERN?
A Inflation versus deflation continues to be the main debate. There is too
much world deflation because of the excess global business capacity that was
created in the last decade. This will not disappear quickly just because the Fed
raises short-term rates. The fear of inflation will creep in whenever the
business cycle is robust. We are convinced, however, that the secular or
longer-term forces of deflation will continue to overwhelm the cyclical or
shorter-term forces of inflation as it has done for the last two decades. It is
merely a matter of time. For these reasons, we believe that interest rates will
resume their downward trend over the next several months.
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INVESTMENT MIX as of 6/30/99
<TABLE>
<S> <C>
1. U.S. TREASURY BILLS 62.05%
2. U.S. TREASURY NOTES 17.44%
3. EQUITIES 12.33%
4. CASH 8.18%
</TABLE>
1 The Lehman T-Bond Index is an unmanaged index of intermediate term
government bonds since 12/31/80.
4
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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
FOR THE SIX MONTHS ENDED JUNE 30, 1999, THE FUND HAD A LOSS OF -0.78% FOR CLASS
A SHARES AND -0.90% FOR CLASS C SHARES. FOR THE SAME PERIOD, THE FUND'S
BENCHMARK, THE LEHMAN INTERMEDIATE TREASURY BOND INDEX(1), RETURNED 0.58%.
Q WHAT ADJUSTMENTS HAVE YOU MADE IN THE PORTFOLIO IN RESPONSE TO THE
INCREASE IN INTEREST RATES DURING THE FIRST HALF OF 1999?
A The investment strategy for the Fund has been to maintain an average
maturity for bonds at 8-9 years in order to optimize the corporate bond yield
curve. To optimize the corporate bond yield curve, we seek to buy investment
grade bonds, which generate the maximum yield at the shortest maturity. This
strategy increases current income and reduces the risk to principal by being
invested longer term. Since there is the potential for a change in the market
risk of a corporate bond, we believe this is a prudent investment strategy for
the Fund.
The impact of the Fed's rate increase has been minimal but we have
reduced the average maturity to approximately 7 years. We continue to remain
confident that our strategies of optimizing the corporate bond yield curve,
while adding equity exposure for income and potential capital appreciation, will
enhance the total return of the Fund.
Q YOU HAVE DECREASED THE COMMON STOCK POSITION OF THE PORTFOLIO BY
APPROXIMATELY 7% SINCE THE END OF THE YEAR. IS THIS A SHORT OR LONG TERM CHANGE;
AND AT WHAT POINT DO YOU ANTICIPATE INCREASING EQUITY EXPOSURE?
A During the first half of 1999 we modestly reduced our equity position in
response to a more volatile equity market. We accomplished this by maintaining
our equity positions and using new money to increase some of our bond positions.
Toward the end of the second quarter, the equity market entered a corrective
phase. While we are uncertain how long the correction phase will last, we will
begin to increase the Fund's equity exposure to comprise approximately 15-20% of
the portfolio, once we are confident the market is resuming an upward trend.
Another part of our equity strategy has been investing in preferred
stocks. Like bonds, preferred stocks pay a dividend, but because they are
equities, they have the potential for capital appreciation. The volatility in
the equity markets has caused us to defer purchasing additional preferred stock
investments until the corrective phase has run its course.
Q WHAT TYPES OF NEW BONDS HAVE BEEN ADDED TO THE PORTFOLIO?
A Our primary focus this year has been to add to our current position in
bonds such as General Electric Capital, Atlantic Richfield and Texaco Capital,
rather than adding a number of new bonds to the portfolio. As mentioned in last
year's annual report, one advantage of being a smaller fund is that we can buy
small positions in a bond, which often have a higher yield because they are sold
at a discount to the market price. If we retain these small positions, however,
we may also have to discount the bond's price if we decide to sell the position.
Adding to existing bond positions over time can alleviate this situation. This
allows us to take advantage of our ability to buy bonds at a discount and
increase the potential to make a profit when the bond is sold.
5
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PACIFIC ADVISORS
Income and Equity Fund continued
Q WHAT ARE YOUR EXPECTATIONS FOR INTEREST RATES AND ECONOMIC GROWTH
THROUGHOUT THE REST OF 1999?
A We anticipate that interest rates will continue to rise modestly over the
next six months due both to the Fed's intervention and to reviving global
economies, which have begun to put downward pressure on the value of the dollar.
While an increase in rates is likely to slow the growth of the U.S. economy, we
do not believe that the growth rate will slow severely. Once the U.S. economy
has begun to slow, and fears of inflation have been abated, we believe that
interest rates will trend downward.
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INVESTMENT MIX as of 6/30/99
<TABLE>
<S> <C>
1. CORPORATE BONDS 75.59%
2. EQUITIES 10.20%
3. PREFERRED STOCK 5.83%
4. U.S. TREASURY NOTES 4.53%
5. CASH 3.61%
6. FOREIGN GOVERNMENT BONDS 0.24%
</TABLE>
1 The Lehman T-Bond Index is an unmanaged index of intermediate term
government bonds since 12/31/80.
6
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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
FOR THE SIX MONTHS ENDED JUNE 30, 1999, THE FUND RETURNED 6.46% FOR CLASS A
SHARES AND 5.95% FOR CLASS C SHARES. FOR THE SAME PERIOD THE FUND'S BENCHMARKS
THE S&P 500(1) AND THE LEHMAN INTERMEDIATE TREASURY BOND INDEX(2), RETURNED
11.67% AND 0.58% RESPECTIVELY. SINCE THE BALANCED FUND IS REQUIRED TO KEEP AT
LEAST 25% OF ITS ASSETS IN FIXED INCOME SECURITIES, ITS TOTAL RETURN WILL NOT
MIRROR EITHER INDEX, BUT WOULD BE MORE ACCURATELY REPRESENTED BY A BLEND OF THE
TWO INDICES.
Q WHAT INVESTMENT STRATEGIES DID YOU EMPLOY AS THE FUND CONTINUED TO
MAINTAIN A DEFENSIVE POSITION?
A During the first part of the year, we employed several strategies which
led to improved performance. We began by lowering our cash position and
reallocating money to bonds to earn a more favorable rate of return.
In reallocating this money, we selected bonds which we believed would be
less sensitive to changes in interest rates. For example, we looked for bonds
that were likely to see an increase in their value as the result of an improved
credit rating. Bonds in this category included Atlantic Richfield, which had an
improved rating as a result of a merger, Cleveland Electric, whose position was
strengthened by industry deregulation, and Sprint Spectrum which improved its
rating as a result of reducing its debt. In addition to investing in these types
of bonds, we did not extend the maturity of short and intermediate term bonds in
the Fund, in response to rising interest rates.
Finally, in the equity portion of our portfolio we continued to maintain
significant positions in large cap winners, such as Nokia, Viacom and Time
Warner, while increasing our focus on small and mid cap stocks. As a growing
number of large cap stocks became overvalued, we looked for sectors and stocks,
which were undervalued and offered greater potential for price appreciation.
These stocks included such companies as Rayonier, American Greetings and CNF
Transportation.
Q WHAT CHANGES IN THE ECONOMY WOULD LEAD YOU TO TAKE A LESS DEFENSIVE
POSITION WITH THE FUND'S ASSETS?
A We are waiting to see some slowing in the growth of the U.S. economy.
Since mid-1997, when the Asian markets began to experience serious economic
problems, U.S. markets have been the investment of choice. In addition to the
currency and economic risks in Asian markets, the slowing European economy
further increased the demand for U.S. investments.
Now that we are beginning to see signs of recovery in both Asia and
Europe, we expect that the demand for U.S. investments will decrease and
contribute to a slowdown in the U.S. economy. When the market begins to reflect
this change with more realistic stock pricing, we will begin to become less
defensive and increase the Fund's equity exposure.
Q HOW HAVE RISING INTEREST RATES IMPACTED THE PORTFOLIO?
A The primary effect of rising interest rates has been price erosion in the
value of some bonds within the portfolio. The effect of this decline was
minimized by our position in high coupon bonds, such as Sprint Spectrum, Safeway
and Banc One, and in those bonds which benefited from an improved credit rating.
The effect was also minimized by our decision to maintain a shorter average
maturity in the bond portion of the portfolio.
7
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PACIFIC ADVISORS
Balanced Fund continued
Q HAVE YOU MADE ANY SIGNIFICANT CHANGES IN THE PORTFOLIO'S EQUITY
INVESTMENTS?
A We have shifted our equity focus towards "turn around" companies. At a
time when many of the "winners" in the equity market seem to be reaching their
peak, we believe companies in a turn around situation represent some of the best
investment opportunities. One example is McKesson HBOC Inc., which has recently
made several acquisitions that are likely to enhance their operations, and in
turn their market value. Another example is Fairchild Corp., an aerospace
supplier, which is likely to receive an increase in business after Boeing
Corporation's recent decision to eliminate some of their other suppliers.
Q WHAT IS YOUR EXPECTATION FOR ECONOMIC GROWTH, AND DO YOU SEE INFLATION AS
A MAJOR CONCERN?
A As we mentioned earlier, we expect that the U.S. economy will begin to
slow over the course of the next 6 to 12 months. Unfortunately, this isn't
likely to happen until we begin to see more signs of inflation. One sign we are
looking for is a rise in labor costs due to low unemployment numbers; but the
most significant event we expect to see is the weakening of the U.S. dollar. Up
to this point, the problems experienced by other global economies have allowed
the dollar to remain strong, despite the fact that the U.S. has been running a
large trade deficit. With the recovery of these economies it is unlikely that
the dollar will continue to appreciate in value.
In tandem with a slowing economy, we expect to see a continued rise in
interest rates. As these events begin to unfold, we would expect to trim our
bond position in order to reduce the impact of rising interest rates on the
Fund. Once the U.S. economy begins to slow and the fear of inflation subsides,
we anticipate that interest rates will start to come down again.
-------------------------------------------------------
INVESTMENT MIX as of 6/30/99
<TABLE>
<S> <C>
1. EQUITIES 48.25%
2. CORPORATE BONDS 46.50%
3. CASH 5.25%
</TABLE>
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 term
government bonds since 12/31/80.
8
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PACIFIC ADVISORS
Growth Fund
INVESTS PRIMARILY IN COMPANIES WHICH ARE A PART OF EITHER THE S&P 500 COMPOSITE
INDEX OR THE NASDAQ 100 INDEX.
INTERVIEW WITH PORTFOLIO MANAGER
THOMAS H. HANSON
THE GROWTH FUND BEGAN OPERATIONS ON MAY 1, 1999. THIS FUND IS GENERALLY FOR MORE
CONSERVATIVE STOCK INVESTORS WHO WANT TO INVEST IN LARGE, WELL- ESTABLISHED
COMPANIES. AS OF JUNE 30, 1999, THE GROWTH FUND WAS INVESTED IN SHORT-TERM MONEY
MARKET SECURITIES IN ORDER TO GAUGE MARKET RESPONSE TO POTENTIAL INTEREST RATE
INCREASES AND SECOND QUARTER EARNINGS. THE FUND WILL BEGIN INVESTING IN THE
THIRD QUARTER.
Q HOW IS THE GROWTH FUND POSITIONED?
A At the moment the Growth Fund is poised to begin investing in the market
at an opportune time. With the equity market having just entered a corrective
phase, the Growth Fund will be able to begin purchasing stocks after they have
seen some price depreciation. We have maintained the Fund's assets in cash
equivalents since its inception in May, to take advantage of this anticipated
corrective phase and select the most advantageous time to enter the market.
Looking ahead, however, to when the Growth Fund begins investing, we
expect to see those sectors which led the market in the early part of 1999
reemerge as leaders. Those sectors would include drugs, technology, financials,
oils and selected software stocks.
Q WHAT IS THE BENEFIT OF A GROWTH FUND AS OPPOSED TO A S&P 500 OR A NASDAQ
100 INDEX FUND?
A The primary benefit of a Growth Fund, as opposed to an Index Fund, is
that we have the potential to achieve a higher rate of return. Instead of
modeling the portfolio after one index or the other, we can select the strongest
stocks from both indices. In addition, we are not obligated to maintain the same
concentration of stocks as required by the indices. This gives us the
flexibility to vary the concentrations of our stocks and hold greater positions
in companies we believe have the most growth potential.
Q WHAT ARE THE CRITERIA FOR MAKING YOUR INVESTMENT SELECTIONS?
A As mentioned above, the Fund will invest primarily in companies which
belong to either the S&P 500 Composite Index or the NASDAQ 100 Index. In
addition, we are looking for group, sector and individual stock leadership. As
the market situation changes, we will rotate away from weakening sectors or
stocks in favor of growing and uptrending sectors.
We will select these companies using a blend of technical and fundamental
analysis. We begin by analyzing technical data to determine the relative
strength of various sectors and stocks within the market. Once we've selected
sectors and stocks which we believe are appropriate for the fund, we do further
fundamental analysis. We research individual companies looking at their earnings
potential, management style, and other financial indicators. This information is
used to narrow our select group of stocks to the companies we believe have the
most growth potential.
Q WHAT ARE SOME OF THE ADVANTAGES OF INVESTING IN A NEW FUND?
A The major advantage for investors is the opportunity to enter the market
at a comparatively lower point of volatility and valuation. As discussed
earlier, the equity market is currently in a corrective phase and once that
phase is over, investors in the Growth Fund should be well positioned to take
advantage of the next uptrend in stock prices.
Investors in a new fund also have a slight tax advantage. Relative to an
existing fund, a new fund will usually have modest portfolio sales activity so
realized capital gains should be lower.
9
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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
DURING THE FIRST SIX MONTHS OF 1999, SMALL CAP STOCKS CONTINUED TO UNDERPERFORM
IN THE EQUITY MARKETS. SMALL CAP INDICES SUCH AS THE RUSSELL 2000(1) HAVE SHOWN
IMPROVEMENT, BUT THAT HAS BEEN THE RESULT OF OVER WEIGHTING IN THE INDEX BY SUCH
STOCKS AS E-TRADE AND AMERITRADE WHICH HAVE SEEN THEIR STOCK VALUES SOAR WITH
THE GROWTH IN ON-LINE TRADING. OTHER SMALL CAP STOCKS CONTINUED TO HAVE
DIFFICULTY GAINING RECOGNITION EVEN WITH STRONG EARNINGS AND REVENUE GROWTH.
WHILE IT APPEARS THAT LARGE CAP, INTERNET AND TECHNOLOGY STOCKS HAVE WEAKENED,
THE MARKET HAS BEEN RELUCTANT TO AGGRESSIVELY MOVE INTO OTHER SECTORS. HIGHER
INTEREST RATES FUELED BY INFLATION CONCERNS HAVE CAUSED INVESTORS TO REMAIN
CAUTIOUS. HOWEVER, IT DOES APPEAR THAT AS THE ECONOMY BEGINS TO SLOW, THE
OUTLOOK FOR MID, SMALL AND MICRO CAP STOCKS SHOULD IMPROVE.
Q HOW DID THE FUND PERFORM IN THE FIRST SIX MONTHS OF 1999?
A For the six months ending June 30, 1999, the Fund had a loss of -7.87%
for Class A shares and a loss of -8.22% for Class C shares. During the same
period the Russell 2000, which is the benchmark for the Fund, had a gain of
8.47%.
Q WHY ARE SMALL CAP STOCKS CONTINUING TO UNDERPERFORM COMPARED TO THE
OVERALL EQUITY MARKET?
A During the past two years, the market has focused almost exclusively on
large cap, Internet and technology stocks. The large cap stocks offered
liquidity and stability as economic problems emerged in Asia, Russia, South
America and Europe. Internet and technology stocks offered investors spectacular
returns as the market for Internet stocks soared. Investors saw e-trade as a new
economic force and large bets were made on potential winners in this emerging
market. As a result, investors concentrated more of their assets in these areas
while ignoring companies, which were achieving strong growth by historical
standards. This narrow investment focus continued to distort overall market
performance as measured by indices such as the Russell 2000.
In the second quarter of 1999, we began to see signs that large cap,
Internet and technology stocks were reaching a peak. Rising interest rates,
caused by stronger than expected economic growth, were the primary catalyst in
causing these stocks to weaken. Investors however, were reluctant to
aggressively move into undervalued stocks in the mid, small and micro cap areas
preferring large cap cyclical stocks or cash. This is not surprising given
investor concerns that rising interest rates might weaken all equity markets,
and that large cap, Internet and technology stocks might yet rally again. During
the second quarter we saw some increased interest in the small cap stocks but it
was very limited.
Q HOW WILL RISING INTEREST RATES EFFECT SMALL CAP PERFORMANCE?
A Rising interest rates generally have a negative impact on equity markets
as bonds become more attractive investments since they have less risk.
Historically, stocks that are undervalued will perform better in this
environment because there is less downside risk. Smaller undervalued companies,
which are in strong growth markets, may perform better because they do not have
the competitive pressures, which are present in larger markets. In addition,
they usually do not have as much debt in comparison to larger companies and may
have more flexibility to raise prices and offset increases in their cost of
doing business.
We believe, however, that inflation is not a serious concern at this
time. While the economies of Asia, South America and Europe show signs of
recovery there is still a global surplus of goods and services. This will make
it difficult for large multi-national companies to raise prices to offset rising
wages, interest costs and any increase in the cost of raw materials. This
impediment to raising prices
10
<PAGE>
will make it more difficult to show the growth in earnings necessary to justify
their higher stock price valuations. We expect these economies will recover once
significant changes in their global competitiveness have been achieved.
Q HOW WILL SMALL CAP STOCKS PERFORM RELATIVE TO THE INTERNET AND TECHNOLOGY
SECTORS IN THE FUTURE?
A We believe the performance of smaller cap stocks will improve as Internet
and technology stock prices retreat to more historical valuations for growth
stocks. These stocks will continue to compete for capital but it is unlikely
that they will return to the spectacular valuations experienced in the past
year. Over time, the market will expect them to show earnings growth and will
reward those companies that succeed. Many of these companies, however, will not
survive and will be forced to merge with stronger companies or go out of
business.
Over the next few months, we expect that smaller companies will compete
for investment capital on a more level playing field. We also anticipate that
small cap stocks will be more attractive to individual investors as they find
achieving higher rates of return exclusively in the Internet and technology
sectors more difficult.
Q HAVE YOU MADE ANY CHANGES IN YOUR INVESTMENT STRATEGY?
A We have continued to focus on buying and holding stocks that are
undervalued and have good growth prospects. However, since many small cap stocks
are undervalued, we have put a greater emphasis on identifying companies that
are more likely to find market support near-term. We have also tended to buy
"larger" small cap stocks, as we believe they will benefit early on from a rally
in small cap stocks.
As an example, we bought stock in Republic Group last fall after its
price fell as a result of lower sales and earnings while expanding its
manufacturing capacity for gypsum board. We believed that this disruption in
sales and earnings was temporary. Demand for gypsum board has been very strong
and price increases of 10% have been common every few months, as supply has not
kept up with demand. This stock's price has recovered from its low of last fall
but is still not fully valued based on its earnings potential for next year.
Mobile Mini (leases on site storage facilities) and Helen of Troy (manufactures
personal care products) are other examples of larger small cap companies which
have good market support and strong growth potential.
Q WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 1999?
A Concern over the inflationary pressures on interest rates will likely
create some weakness in the equity markets during the summer. Until there is
some visible evidence that the economy is slowing down, the equity markets will
be under pressure. When the market believes interest rates have peaked, we would
expect to see the broader equity markets rally. Undervalued stocks should
perform better as they have less downside risk and more upside potential. This
would benefit the small cap value investors.
-------------------------------------------------------
INVESTMENT MIX as of 6/30/99
<TABLE>
<S> <C>
1. COMMON STOCKS 97.03%
2. CASH 2.97%
</TABLE>
1 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.
11
<PAGE>
PACIFIC ADVISORS FUND INC.
notes
12
<PAGE>
PACIFIC ADVISORS GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amounts Value
<S> <C> <C>
- ------------------------------------------------------------------
US GOVERNMENT SECURITIES - 78.03%
US Treasury Bills
US Treasury Bill 08/05/99 $1,500,000 $ 1,493,724
US Treasury Bill 09/16/99 2,000,000 1,980,364
- ------------------------------------------------------------------
3,474,088
- ------------------------------------------------------------------
US Treasury Bonds
US Treasury Bond 4.5% 09/30/00 330,000 326,184
US Treasury Bond 5.75% 08/15/03 650,000 650,000
- ------------------------------------------------------------------
976,184
- ------------------------------------------------------------------
TOTAL US GOVERNMENT SECURITIES
(Cost: $4,466,366) 4,450,272
------------
<CAPTION>
Number of
Shares Value
<S> <C> <C>
- ------------------------------------------------------------------
COMMON STOCK - 12.11%
Communications
Ericsson 5,000 164,687
- ------------------------------------------------------------------
Utilities - Electric
DQE, Inc. 5,000 200,625
IPALCO Enterprises, Inc. 5,000 105,938
Nisource, Inc. 8,500 219,406
- ------------------------------------------------------------------
525,969
- ------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $618,520) 690,656
------------
TOTAL INVESTMENT SECURITIES - 90.14%
(Cost: $5,084,886) $ 5,140,928
------------
SHORT-TERM INVESTMENTS - 8.03%
United Missouri Bank Money
Market Fund 457,965
OTHER ASSETS LESS LIABILITIES - 1.83% 104,364
------------
TOTAL NET ASSETS - 100% $ 5,703,257
- ------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
PACIFIC ADVISORS INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amounts Value
<S> <C> <C>
- --------------------------------------------------------------------
CORPORATE BONDS - 73.41%
Aerospace and Defense
McDonnell Douglas 9.75%
04/01/12 $ 22,000 $ 26,297
- --------------------------------------------------------------------
Banks - Money Centers
Citicorp Subordinate Securities
9.5% 02/01/02 50,000 53,717
Union Bank of Switzerland-NY
7.25% 07/15/06 25,000 25,310
- --------------------------------------------------------------------
79,027
- --------------------------------------------------------------------
Banks - Regional
Banc One Corp 9.875% 03/01/09 12,000 14,236
Banc One Corp 7.25% 08/15/04 80,000 81,810
Bank of America Subordinate
Notes 10.0% 02/01/03 45,000 49,589
Bank of New York 8.5% 12/15/04 35,000 37,763
First Union Corporation 6.824%
08/01/26 25,000 25,156
InterAmerican Development Bank
8.4% 09/01/09 10,000 11,353
NCNB Corporation 9.5% 06/01/04 25,000 27,892
Republic New York Corporation
8.375% 02/15/07 43,000 45,619
- --------------------------------------------------------------------
293,418
- --------------------------------------------------------------------
Consumer - Non-cyclical
Procter & Gamble 8.50% 08/10/09 65,000 73,528
- --------------------------------------------------------------------
Financial Services
Associates Corporation N.A.
8.55% 07/15/09 150,000 167,420
Associates Corporation N.A.
8.15% 08/01/09 60,000 64,635
General Motors Acceptance
Corporation 9.625% 12/15/01 49,000 52,554
General Motors Acceptance
Corporation 8.875% 06/01/10 33,000 37,923
Progressive Corporation 7.30%
06/01/06 15,000 15,116
- --------------------------------------------------------------------
337,648
- --------------------------------------------------------------------
Financial Services - Diversified
General Electric Capital
Corporation 8.85% 4/01/05 26,000 28,648
General Electric Capital
Corporation 7.875% 12/01/06 99,000 105,340
General Electric Capital
Corporation 8.5% 07/24/08 75,000 83,517
Texaco Capital 9.45% 03/01/00 50,000 51,208
Texaco Capital 8.625% 06/30/10 65,000 73,604
- --------------------------------------------------------------------
342,317
- --------------------------------------------------------------------
Financial Services - Specialty
Ford Capital B.V. 9.5% 06/01/10 75,000 87,100
Ford Motor Credit 6.375%
11/05/08 25,000 23,948
- --------------------------------------------------------------------
111,048
- --------------------------------------------------------------------
Food
Ralston Purina 9.25% 10/15/09 124,000 142,818
- --------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
PACIFIC ADVISORS INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amounts Value
- --------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS CONTINUED
Food Retailers
Safeway, Inc 10.0% 12/01/01 $ 80,000 $ 85,716
Safeway, Inc 9.875% 03/15/07 31,000 35,974
- --------------------------------------------------------------------
121,690
- --------------------------------------------------------------------
Gas - Integrated
BP America, Inc. 7.875%
05/15/02 68,000 70,665
Coastal Corporation 10.25%
10/15/04 95,000 108,769
- --------------------------------------------------------------------
179,434
- --------------------------------------------------------------------
Industrial
Caterpillar, Inc. 9.0% 04/15/06 86,000 94,835
Tenneco Corporation 10.2%
03/15/08 90,000 105,034
- --------------------------------------------------------------------
199,869
- --------------------------------------------------------------------
Insurance-Full Line
American General Financial
8.125% 08/15/09 111,000 118,239
CIGNA Corporation 7.40%
01/15/03 25,000 25,322
CIGNA Corporation 8.25%
01/01/07 72,000 75,956
CIGNA Corporation 7.40% 5/15/07 59,000 59,681
Transamerica Corporation 9.375%
03/01/08 70,000 80,606
- --------------------------------------------------------------------
359,804
- --------------------------------------------------------------------
Insurance-Life
Sunamerica, Inc. 9.95% 08/01/08 23,000 27,997
- --------------------------------------------------------------------
Office Equipment
Xerox Corporation 7.15%
08/01/04 25,000 25,579
- --------------------------------------------------------------------
Oil - Integrated Majors Industrial
Atlantic Richfield 9.125%
03/01/11 160,000 188,097
Phillips Petroleum 9.375%
02/15/11 25,000 29,221
- --------------------------------------------------------------------
217,318
- --------------------------------------------------------------------
Oil - Pipelines
Union Pacific Resources 7.0%
10/15/06 100,000 95,619
- --------------------------------------------------------------------
Real Estate
Secured Finance 9.05% 12/15/04 105,000 115,975
- --------------------------------------------------------------------
Retailers - Broadline
Dayton Hudson Co. 10.0%
01/01/11 20,000 24,276
- --------------------------------------------------------------------
US Government Agency
International Bank
Reconstruction & Development
8.64% 06/18/01 25,000 26,293
- --------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
PACIFIC ADVISORS INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amounts Value
- --------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS CONTINUED
Utilities - Electric
Atlantic City Electric 6.625%
08/01/13 $ 15,000 $ 14,192
Baltimore Gas & Electric 8.54%
09/18/06 60,000 65,036
Niagara Mohawk Power 9.75%
11/01/05 50,000 57,719
Pacific Gas & Electric 8.375%
05/01/25 45,000 46,311
Potomac Electric 5.875%
10/15/08 75,000 70,187
PSI Energy, Inc. 6.35% 11/15/06 40,000 39,019
- --------------------------------------------------------------------
292,464
- --------------------------------------------------------------------
Utilities - Gas
ANR Pipeline 7.0% 06/01/25 21,000 20,452
- --------------------------------------------------------------------
Utilities - Telephone Systems
New York Telephone Co. 8.625%
11/15/10 37,000 41,894
New York Telephone Co. 7.0%
05/01/13 10,000 10,057
New York Telephone Co. 7.0%
06/15/13 40,000 40,182
NYNEX Cap Fund 8.75% 12/01/04 25,000 26,970
- --------------------------------------------------------------------
119,103
- --------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost: $3,319,282) 3,231,974
-------------
<CAPTION>
Number of
Shares Value
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCK - 9.91%
Building Materials
Home Depot, Inc. 1,000 64,437
- --------------------------------------------------------------------
Diversified Companies
General Electric 500 56,500
- --------------------------------------------------------------------
Financial Services - Diversified
Citigroup, Inc. 750 35,625
- --------------------------------------------------------------------
Financial Services - Specialty
Freddie Mac 500 29,000
- --------------------------------------------------------------------
Investment Companies
Alliance Capital Management
L.P. 1,000 32,312
- --------------------------------------------------------------------
Oil - Integrated Majors
Mobil Corporation 400 39,600
- --------------------------------------------------------------------
Pharmaceuticals
Schering-Plough Corporation 600 31,800
- --------------------------------------------------------------------
Retailers - Specialty
Gap, Inc. 1,125 56,672
- --------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
PACIFIC ADVISORS INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- --------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK CONTINUED
Software & Processing Equipment
Microsoft* 1,000 $ 90,188
- --------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $190,268) 436,134
-------------
PREFERRED STOCK - 5.66%
Insurance
American General Financial, LLC 1,200 30,300
Torchmark Capital, LLC Series A 1,200 30,300
Unum Corporation Series A 1,500 38,156
- --------------------------------------------------------------------
98,756
- --------------------------------------------------------------------
Real Estate Investment Trusts (REITs)
Price Enterprises Class A 6,000 89,625
- --------------------------------------------------------------------
Utility - Telehpone Systems
GTE 8.75% Series B 1,200 30,450
GTE 9.25% Series Z 1,200 30,300
- --------------------------------------------------------------------
60,750
- --------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost: $249,630) 249,131
-------------
<CAPTION>
Principal
Amount Value
<S> <C> <C>
- --------------------------------------------------------------------
US GOVERNMENT SECURITIES - 4.40%
US Treasury Note 7.75% 11/30/99 $ 100,000 101,094
US Treasury Note 7.875%
11/15/04 85,000 92,809
- --------------------------------------------------------------------
TOTAL US GOVERNMENT SECURITIES
(Cost: $185,303) 193,903
-------------
FOREIGN GOVERNMENT SECURITIES - 0.23%
Foreign Government Agency Bonds
Ontario Global Bond 7.0%
08/04/05 10,000 10,179
- --------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Cost: $10,305) 10,179
-------------
TOTAL INVESTMENT SECURITIES - 93.61%
(Cost: $3,954,788) $ 4,121,321
-------------
SHORT-TERM INVESTMENTS - 3.50%
United Missouri Bank Money
Market Fund 154,235
OTHER ASSETS LESS LIABILITIES - 2.89% 127,113
-------------
TOTAL NET ASSETS - 100% $ 4,402,669
- --------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
PACIFIC ADVISORS BALANCED FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
<S> <C> <C>
- --------------------------------------------------------------------
COMMON STOCK - 44.06%
Aerospace & Defense
Fairchild Corporation* 10,000 $ 127,500
- --------------------------------------------------------------------
Communications
Nokia Corporation - ADR A 4,000 366,250
- --------------------------------------------------------------------
Entertainment
AT&T Corp. - Liberty Media
Group Class A* 6,000 220,500
GC Companies, Inc.* 2,500 89,375
Time Warner, Inc. 3,000 220,500
Viacom, Inc.* 6,000 264,000
- --------------------------------------------------------------------
794,375
- --------------------------------------------------------------------
Forest Products
Rayonier Inc. 1,500 74,719
- --------------------------------------------------------------------
Financial Services - Diversified
Convergys Corporation* 6,000 115,500
Household International
Corporation 2,000 94,750
- --------------------------------------------------------------------
210,250
- --------------------------------------------------------------------
Financial Services - Specialty
Federal National Mortgage 2,700 184,612
- --------------------------------------------------------------------
Gas - Integrated
Enron Corporation 3,000 245,250
- --------------------------------------------------------------------
Industrial & Commercial Services
Reliance Steel 4,000 156,000
- --------------------------------------------------------------------
Insurance - Specialty
Farm Family Holdings, Inc.* 4,000 136,750
- --------------------------------------------------------------------
Medical and Biotechnology
McKesson HBOC, Inc. 2,000 64,250
- --------------------------------------------------------------------
Oilfield Equipment & Services
Cooper Cameron* 2,500 92,656
- --------------------------------------------------------------------
Paper Products
American Greetings
Corporation-Class A 3,000 90,375
- --------------------------------------------------------------------
Pharmaceuticals
Pfizer Inc. 1,500 164,625
- --------------------------------------------------------------------
Publishing
Dun & Bradstreet Corporation 2,500 88,594
R H Donnelley Corporation* 9,000 176,062
- --------------------------------------------------------------------
264,656
- --------------------------------------------------------------------
Railroads
GATX Corporation 2,000 76,125
- --------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
PACIFIC ADVISORS BALANCED FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- --------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK CONTINUED
Real Estate
Catellus Development
Corporation* 10,000 $ 155,000
- --------------------------------------------------------------------
Real Estate Investment Trusts (REITs)
Redwood Trust, Inc.* 3,000 49,688
- --------------------------------------------------------------------
Trucking
CNF Transportation Incorporated 3,000 115,125
- --------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $1,862,549) 3,368,206
-------------
<CAPTION>
Principal
Amounts Value
<S> <C> <C>
- --------------------------------------------------------------------
CORPORATE BONDS - 46.11%
Banks - Regional
Banc One Corporation 9.875%
03/01/09 $ 165,000 195,753
Barnett Banks, Inc. 10.875%
03/15/03 311,000 350,064
Chase Manhattan Corporation
7.875% 08/01/04 345,000 345,299
- --------------------------------------------------------------------
891,116
- --------------------------------------------------------------------
Banks-Money Centers
Swiss Bank Corporation NY 7.00%
10/15/15 250,000 237,633
- --------------------------------------------------------------------
Food Retailers
Safeway, Inc. 9.65% 01/15/04 165,000 182,825
Safeway, Inc. 9.875% 03/15/07 231,000 268,064
- --------------------------------------------------------------------
450,889
- --------------------------------------------------------------------
Insurance - Full Line
CIGNA Corporation 8.25%
01/01/07 100,000 105,495
CIGNA Corporation 7.40%
05/15/07 225,000 227,597
- --------------------------------------------------------------------
333,092
- --------------------------------------------------------------------
Oil - Integrated Majors
Atlantic Richfield 9.125 %
03/01/11 265,000 311,536
- --------------------------------------------------------------------
Utility - Electric
Alabama Power 9.0% 12/01/24 125,000 129,277
Cleveland Electric Illumination
7.625% 08/01/02 250,000 254,166
Cleveland Electric Illumination
7.375% 06/01/03 75,000 76,056
Niagra Mohawk Power 9.75%
11/01/05 275,000 317,457
- --------------------------------------------------------------------
776,956
- --------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
PACIFIC ADVISORS BALANCED FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amounts Value
- --------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS CONTINUED
Utility - Telephone
Bellsouth Telecommunications
5.85% 11/15/45 $ 100,000 $ 100,516
Nynex Corporation 9.55%
05/01/10 276,875 308,577
Sprint Spectrum L P 11%
08/15/06 100,000 114,000
- --------------------------------------------------------------------
523,093
- --------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost: $3,576,249) 3,524,315
-------------
<CAPTION>
Number of
Shares Value
<S> <C> <C>
- --------------------------------------------------------------------
PREFERRED STOCK - 3.79%
Real Estate Investment Trusts (REITs)
Price Enterprises - Preferred
Class A 19,400 289,787
- --------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost: $262,330) 289,787
-------------
TOTAL INVESTMENT SECURITIES - 93.96%
(Cost: $5,701,128) $ 7,182,308
-------------
SHORT-TERM INVESTMENTS - 5.21%
United Missouri Bank Money
Market Fund 398,304
OTHER ASSETS LESS LIABILITIES - 0.83% 63,145
-------------
TOTAL NET ASSETS - 100% $ 7,643,757
- --------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
PACIFIC ADVISORS GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
<S> <C> <C>
- -----------------------------------------------------------------
TOTAL INVESTMENT SECURITIES - 0.00%
(Cost: $0) $ -
------------
SHORT-TERM INVESTMENTS - 97.52%
United Missouri Bank Money
Market Fund 96,512
OTHER ASSETS LESS LIABILITIES - 2.48% 2,455
------------
TOTAL NET ASSETS - 100% $ 98,967
- -----------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
PACIFIC ADVISORS SMALL CAP FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
<S> <C> <C>
- ---------------------------------------------------------------------
COMMON STOCK - 97.20%
Banks-Regional
East West Bankcorp, Inc.* 25,000 $ 251,562
- ---------------------------------------------------------------------
Building Materials
Q.E.P. Company, Inc.* 35,000 264,688
- ---------------------------------------------------------------------
Chemicals
Ocean Bio-Chem, Inc.* 100,000 112,500
Polymer Research Corporation of
America* 29,500 51,625
- ---------------------------------------------------------------------
164,125
- ---------------------------------------------------------------------
Containers and Packaging
Mobile Mini, Inc.* 14,000 273,875
- ---------------------------------------------------------------------
Computers and Related Equipment
3DFX Interactive, Inc.* 16,000 250,000
Intervoice, Inc.* 30,000 433,125
- ---------------------------------------------------------------------
683,125
- ---------------------------------------------------------------------
Cosmetic/Personal Care
Chattem, Inc.* 4,000 127,250
Helen of Troy Ltd.* 12,000 215,250
Herbalife Class A 7,333 80,205
Herbalife Class B 13,500 116,437
Natural Alternatives
International* 50,000 171,875
Nature's Sunshine 34,000 357,000
- ---------------------------------------------------------------------
1,068,017
- ---------------------------------------------------------------------
Electrical Components & Equipment
Tridex Corporation* 43,000 110,188
- ---------------------------------------------------------------------
Financial Services - Diversified
American National Financial,
Inc. 35,000 179,375
- ---------------------------------------------------------------------
Food
Worthington Foods, Inc. 37,000 610,500
- ---------------------------------------------------------------------
Health Care Provider
Children's Comprehensive
Services* 25,000 173,437
Managed Care Solutions, Inc.* 36,200 131,225
- ---------------------------------------------------------------------
304,662
- ---------------------------------------------------------------------
Home Construction
Modtech, Inc.* 32,971 375,045
- ---------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
PACIFIC ADVISORS SMALL CAP FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK CONTINUED
Industrial & Commercial Services
Diversified Corporate
Resources, Inc.* 29,200 $ 149,650
Healthcare Services Group* 40,000 390,000
RCM Technologies, Inc.* 15,000 198,750
Rentrak Corporation* 20,000 100,000
- ---------------------------------------------------------------------
838,400
- ---------------------------------------------------------------------
Insurance - Specialty
Interstate National Dealer
Services* 80,000 540,000
Warrantech Corporation* 55,000 134,064
- ---------------------------------------------------------------------
674,064
- ---------------------------------------------------------------------
Medical Equipment, Devices, & Supplies
Meridian Medical Technologies,
Inc.* 55,000 350,625
- ---------------------------------------------------------------------
Paper Products
Republic Group, Inc. 30,000 540,000
- ---------------------------------------------------------------------
Railroads
Railamerica, Inc.* 85,000 876,562
- ---------------------------------------------------------------------
Restaurants
Panchos Mexican Restaurants* 37,333 114,332
- ---------------------------------------------------------------------
Semiconductor & Related
Cerprobe Corporation* 40,000 400,000
- ---------------------------------------------------------------------
Transportation Equipment
IMPCO Technologies* 22,000 280,500
- ---------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $8,262,070) 8,359,645
--------------
TOTAL INVESTMENT SECURITIES - 97.20%
(Cost: $8,262,070) $ 8,359,645
--------------
SHORT-TERM INVESTMENTS - 2.97%
United Missouri Bank Money
Market Fund 255,811
OTHER ASSETS LESS LIABILITIES - (0.17%) (14,760)
--------------
TOTAL NET ASSETS - 100% $ 8,600,696
- ---------------------------------------------------------------------
</TABLE>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
PACIFIC ADVISORS FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME
GOVERNMENT AND
SECURITIES EQUITY
FUND FUND
------------ ------------
<S> <C> <C>
ASSETS
Investment securities
At cost $ 5,084,886 $ 3,954,788
------------ ------------
------------ ------------
At market value $ 5,140,928 $ 4,121,321
Short-term investments, at cost,
which is equivalent to
market 457,965 154,235
Receivable for investments sold - -
Other assets 10,245 3,733
Accrued income receivable 21,968 66,409
Receivable from Investment Manager
(Note 3) 41,364 14,994
Receivable for capital shares sold 34,887 51,419
------------ ------------
Total assets 5,707,357 4,412,111
------------ ------------
LIABILITIES
Payable for investments purchased - -
Payable for capital shares
repurchased 697 2,893
Accounts payable - 1,021
Accounts payable to related parties
(Note 3) 3,403 5,528
Payable to Investement Manager (Note
1) - -
------------ ------------
Total Liabilities 4,100 9,442
------------ ------------
NET ASSETS $ 5,703,257 $ 4,402,669
------------ ------------
SUMMARY OF SHAREHOLDERS' EQUITY
Paid in capital $ 5,561,828 $ 4,239,605
Accumulated undistributed net
investment income (loss) 620 2,167
Accumulated undistributed net
realized gains (losses) on
security transactions 84,767 (5,636)
Distributions in excess of net
realized gains on security
transactions - -
Net unrealized appreciation
(depreciation) of investments 56,042 166,533
------------ ------------
Net assets at June 30, 1999 $ 5,703,257 $ 4,402,669
------------ ------------
CLASS A:
Net assets $ 4,389,505 $ 3,025,870
------------ ------------
------------ ------------
Shares authorized 50,000,000 50,000,000
Shares outstanding 447,395 289,112
Net asset value and redemption price
per share $ 9.81 $ 10.47
------------ ------------
------------ ------------
Maximum offering price per share $ 10.30 $ 10.99
Sales load 4.75% 4.75%
CLASS C:
Net assets $ 1,313,752 $ 1,376,799
------------ ------------
------------ ------------
Shares authorized 50,000,000 50,000,000
Shares outstanding 135,383 133,300
Net asset value and redemption price
per share $ 9.70 $ 10.33
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL
BALANCED GROWTH CAP
FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Investment securities
At cost $ 5,701,128 $ - $ 8,262,070
------------ ------------ ------------
------------ ------------ ------------
At market value $ 7,182,308 $ - $ 8,359,645
Short-term investments, at cost,
which is equivalent to
market 398,304 96,512 255,811
Receivable for investments sold - - 33,248
Other assets 10,418 - 18,911
Accrued income receivable 81,456 249 1,132
Receivable from Investment Manager
(Note 3) - 2,244 -
Receivable for capital shares sold 37,816 - 3,399
------------ ------------ ------------
Total assets 7,710,302 99,005 8,672,146
------------ ------------ ------------
LIABILITIES
Payable for investments purchased 52,325 - 50,663
Payable for capital shares
repurchased 865 - 5,335
Accounts payable 6,140 - 6,753
Accounts payable to related parties
(Note 3) 5,083 38 3,575
Payable to Investement Manager (Note
1) 2,132 - 5,124
------------ ------------ ------------
Total Liabilities 66,545 38 71,450
------------ ------------ ------------
NET ASSETS $ 7,643,757 $ 98,967 $ 8,600,696
------------ ------------ ------------
SUMMARY OF SHAREHOLDERS' EQUITY
Paid in capital $ 5,956,209 $ 99,012 $ 7,721,837
Accumulated undistributed net
investment income (loss) 30,924 (45) -
Accumulated undistributed net
realized gains (losses) on
security transactions 175,444 - 781,284
Distributions in excess of net
realized gains on security
transactions - - -
Net unrealized appreciation
(depreciation) of investments 1,481,180 - 97,575
------------ ------------ ------------
Net assets at June 30, 1999 $ 7,643,757 $ 98,967 $ 8,600,696
------------ ------------ ------------
CLASS A:
Net assets $ 6,856,755 $ 34,023 $ 8,204,644
------------ ------------ ------------
------------ ------------ ------------
Shares authorized 50,000,000 50,000,000 50,000,000
Shares outstanding 507,591 3,401 625,894
Net asset value and redemption price
per share $ 13.51 $ 10.00 $ 13.11
------------ ------------ ------------
------------ ------------ ------------
Maximum offering price per share $ 14.33 $ 10.61 $ 13.91
Sales load 5.75% 5.75% 5.75%
CLASS C:
Net assets $ 787,002 $ 64,944 $ 396,052
------------ ------------ ------------
------------ ------------ ------------
Shares authorized 50,000,000 50,000,000 50,000,000
Shares outstanding 58,929 6,500 30,297
Net asset value and redemption price
per share $ 13.36 $ 9.99 $ 13.07
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
25
<PAGE>
PACIFIC ADVISORS FUND INC.
STATEMENT OF OPERATIONS (UNAUDITED)
For the period ended June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME
GOVERNMENT AND
SECURITIES EQUITY
FUND FUND
----------- -----------
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 14,677 $ 13,401
Interest 117,874 97,244
----------- -----------
Total Income 132,551 110,645
----------- -----------
EXPENSES
Investment Management Fees 19,486 15,403
Transfer Agent Expense 10,515 10,977
Fund Accounting Fees 14,828 13,012
Legal Expense 12,086 8,551
Audit Fees 9,745 5,777
Registration Fees 10,415 8,281
Printing 12,921 6,162
Custody Fees 2,784 4,604
Director Fees/Meetings 835 578
Distribution Fees (Note 3) 8,900 7,442
Other Expense 3,070 1,735
----------- -----------
Total Expenses, before
reimbursements 105,585 82,522
Less fees waived and expenses reimbursed
(Note 3) 57,708 44,957
----------- -----------
Net Expenses 47,877 37,565
----------- -----------
NET INVESTMENT INCOME (LOSS) 84,674 73,080
----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)ON
INVESTMENTS
Net Realized gain (loss) on investments 84,734 (5,676)
Net unrealized appreciation
(depreciation) of investments (516,026) (104,110)
----------- -----------
(431,292) (109,786)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (346,618) $ (36,706)
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL
BALANCED GROWTH CAP
FUND FUND FUND
----------- --------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 25,648 $ - $ 18,542
Interest 121,872 249 2,918
----------- --------- -------------
Total Income 147,520 249 21,460
----------- --------- -------------
EXPENSES
Investment Management Fees 28,510 81 34,438
Transfer Agent Expense 14,241 2,514 19,024
Fund Accounting Fees 19,622 2,519 23,731
Legal Expense 17,178 27 22,542
Audit Fees 12,475 51 17,223
Registration Fees 10,337 24 12,347
Printing 16,465 19 18,375
Custody Fees 3,564 51 3,014
Director Fees/Meetings 1,069 3 1,292
Distribution Fees (Note 3) 9,456 70 10,494
Other Expense 3,568 11 3,884
----------- --------- -------------
Total Expenses, before
reimbursements 136,485 5,370 166,364
Less fees waived and expenses reimbursed
(Note 3) 14,257 5,076 -
----------- --------- -------------
Net Expenses 122,228 294 166,364
----------- --------- -------------
NET INVESTMENT INCOME (LOSS) 25,292 (45) (144,904)
----------- --------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)ON
INVESTMENTS
Net Realized gain (loss) on investments 179,548 - 780,878
Net unrealized appreciation
(depreciation) of investments 242,383 - (1,407,867)
----------- --------- -------------
421,931 - (626,989)
----------- --------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 447,223 $ (45) $ (771,893)
----------- --------- -------------
</TABLE>
27
<PAGE>
PACIFIC ADVISORS FUND INC.
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME AND EQUITY FUND
GOVERNMENT SECURITIES FUND -----------------------
--------------------------- Period
Year ended ended Year ended
Period ended December June 30, December
June 30, 1999 31, 1998 1999 31, 1998
-------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 84,674 $ 160,810 $ 73,080 $ 91,460
Net realized gain (loss) on
investments 84,734 378,940 (5,676) 30,423
Change in net unrealized
appreciation (depreciation)
of investments (516,026) 257,522 (104,110) 160,159
-------------- ----------- ---------- -----------
Increase (decrease) in net assets
resulting from operations (346,618) 797,272 (36,706) 282,042
-------------- ----------- ---------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income (70,622) (146,241) (53,159) (74,762)
Net capital gains - (332,026) - (24,021)
Class C:
Net investment income (14,507) (15,510) (20,431) (14,485)
Net capital gains - (47,268) - (6,355)
-------------- ----------- ---------- -----------
Decrease in net assets resulting
from distributions (85,129) (541,045) (73,590) (119,623)
-------------- ----------- ---------- -----------
FROM CAPITAL SHARE TRANSACTIONS
(NOTE 5)
Proceeds from shares sold 1,231,104 3,206,684 1,405,272 1,428,550
Proceeds from shares purchased by
reinvestment of dividends 66,956 459,455 52,856 79,419
Cost of shares repurchased (1,414,031) (1,610,336) (293,097) (216,738)
-------------- ----------- ---------- -----------
Increase (decrease) in net assets
derived from capital share
transactions (115,971) 2,055,803 1,165,031 1,291,231
-------------- ----------- ---------- -----------
Increase (decrease) in net assets (547,718) 2,312,030 1,054,735 1,453,650
NET ASSETS
Beginning of period 6,250,975 3,938,945 3,347,934 1,894,284
-------------- ----------- ---------- -----------
End of period $ 5,703,257 $ 6,250,975 $4,402,669 $ 3,347,934
-------------- ----------- ---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED FUND GROWTH FUND SMALL CAP FUND
--------------------------- -------------------------- --------------------------
Year ended Period ended Year ended Period ended Year ended
Period ended December June 30, December 31, June 30, December 31,
June 30, 1999 31, 1998 1999 1998 1999 1998
-------------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 25,292 $ 12,012 $ (45) $ - $ (144,904) $ (396,194)
Net realized gain (loss) on
investments 179,548 153,998 - - 780,878 235,446
Change in net unrealized
appreciation (depreciation)
of investments 242,383 277,926 - - (1,407,867) (1,816,090)
-------------- ----------- ------------ ------------ ------------ ------------
Increase (decrease) in net assets
resulting from operations 447,223 443,936 (45) - (771,893) (1,976,838)
-------------- ----------- ------------ ------------ ------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income - - - - - -
Net capital gains - (150,322) - - - (229,623)
Class C:
Net investment income - (172) - - - -
Net capital gains - (8,044) - - - (5,886)
-------------- ----------- ------------ ------------ ------------ ------------
Decrease in net assets resulting
from distributions - (158,538) - - - (235,509)
-------------- ----------- ------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
(NOTE 5)
Proceeds from shares sold 1,184,485 1,207,016 99,012 - 1,156,810 2,235,324
Proceeds from shares purchased by
reinvestment of dividends - 141,953 - - - 182,048
Cost of shares repurchased (785,791) (429,120) - - (1,353,770) (1,760,436)
-------------- ----------- ------------ ------------ ------------ ------------
Increase (decrease) in net assets
derived from capital share
transactions 398,694 919,849 99,012 - (196,960) 656,936
-------------- ----------- ------------ ------------ ------------ ------------
Increase (decrease) in net assets 845,917 1,205,247 98,967 - (968,853) (1,555,411)
NET ASSETS
Beginning of period 6,797,840 5,592,593 - - 9,569,549 11,124,960
-------------- ----------- ------------ ------------ ------------ ------------
End of period $ 7,643,757 $ 6,797,840 $ 98,967 $ - $ 8,600,696 $ 9,569,549
-------------- ----------- ------------ ------------ ------------ ------------
</TABLE>
29
<PAGE>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
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 original series ("Funds") at $9.00 per share to the
Company's investment manager, Pacific Global Investment Management Company
("Investment Manager"). The Company currently offers five Funds: Government
Securities Fund, Income and Equity Fund, Balanced Fund, Growth 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 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 seeks to provide current income and
secondarily, long-term capital appreciation. The Balanced Fund seeks to achieve
long-term capital appreciation and income consistent with reduced market risk.
The Growth Fund seeks to achieve long-term capital appreciation through
investment in medium to large capitalization companies. The Small Cap Fund seeks
to provide capital appreciation through investment in small capitalization
companies.
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 may 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 Government
Securities Fund and the Income and Equity Fund declare and distribute dividends
of their net investment income, if any, quarterly. The Balanced Fund, Growth
Fund and Small Cap Fund declare and distribute dividends of their 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. 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 in the financial
statements and footnotes. 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
Government Securities Fund and 0.75% of average net assets for the Income and
Equity, Balanced, Growth 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 Bache,
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, Income and Equity and Growth 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%, 1.85% and 2.50%,
respectively, of average daily net assets of the respective Funds, and to
reimburse the Government Securities, Income and Equity, and Growth 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
30
<PAGE>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
the Investment Manager, the following amounts were waived or reimbursed for the
six months ended June 30, 1999.
<TABLE>
<CAPTION>
Management Expense
Fees Reimbursements
<S> <C> <C>
Government Securities Fund $ 18,098 $ 39,610
Income and Equity Fund 14,443 30,514
Balanced Fund 14,257 -
Growth Fund 76 5,000
</TABLE>
With the exception of the Growth Fund, 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 the Investment Manager
on a fund by fund basis. As of June 30, 1999, the cumulative amounts unrecouped
by the Investment Manager since the commencement of operations are:
<TABLE>
<S> <C>
Government Securities Fund $534,184
Income and Equity Fund 407,399
Balanced Fund 275,017
Small Cap Fund 217,445
</TABLE>
For the six months ended June 30, 1999, 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>
Government Securities Fund $ 1,024 $ 5,536
Income and Equity Fund 878 4,412
Balanced Fund 886 4,255
Growth Fund 1 3
Small Cap Fund 4,367 21,402
</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 have 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 to qualified recipients in an amount up to 0.25% and 1.00% per
annum of each Fund's daily net assets for A shares and C shares respectively.
For the six months ended June 30,1999, total service fees were:
<TABLE>
<S> <C>
Government Securities Fund $ 8,900
Income and Equity Fund 7,442
Balanced Fund 9,456
Growth Fund 70
Small Cap Fund 10,494
</TABLE>
NOTE 4. YEAR 2000
Like other investment companies, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems it uses and those used by the Fund's brokers and other major
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Issue".
The Fund has assessed its computer systems and the systems compliance
issues of its brokers and other major service providers. The Fund has taken
steps that it believes are reasonably designed to address the Year 2000 issue
with respect to the computer systems it uses and has obtained satisfactory
assurances that comparable steps are being taken by its brokers and other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any material adverse impact on the Fund. The
inability of the Fund or its third party providers to timely complete all
necessary procedures to address the Year 2000 Issue could have a material
adverse effect on the Fund's operations. Management will continue to monitor the
status of and its exposure to this issue. For the six months ended June 30,
1999, the Fund incurred no significant Year 2000 related expenses and it does
not expect to incur significant Year 2000 expenses in the future.
The Fund is in the process of establishing a contingency plan to address
recovery from unavoided or unavoidable Year 2000 problems, if any.
31
<PAGE>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
NOTE 5. 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 six months ended and as of June 30, 1999.
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Cost of Proceeds Unrealized Unrealized Appreciation
Purchases From Sales Appreciation Depreciation (Depreciation)
<S> <C> <C> <C> <C> <C>
Government Securities
Fund $ 5,983,982 $ 6,212,527 $ 75,022 $ 18,980 $ 56,042
Income and Equity Fund 1,487,003 491,713 262,596 96,063 166,533
Balanced Fund 1,934,003 1,606,521 1,586,992 105,812 1,481,180
Growth Fund - - - - -
Small Cap Fund 2,644,896 3,058,144 1,624,577 1,527,002 97,575
</TABLE>
NOTE 6. CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
Period ended Year ended
June 30, 1999 December 31, 1998
----------------------- -----------------------
Shares Amount Shares Amount
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
GOVERNMENT SECURITIES FUND
Class A
Shares Sold 44,765 $ 447,798 218,063 $ 2,343,958
Reinvestment of Distributions 5,360 52,689 38,067 397,397
-------- ------------- -------- -------------
50,125 500,487 256,130 2,741,355
Shares Repurchased (117,924) (1,207,509) (140,050) (1,496,807)
-------- ------------- -------- -------------
Net Increase (decrease) (67,799) $ (707,022) 116,080 $ 1,244,548
-------- ------------- -------- -------------
Class C
Shares Sold 79,112 $ 783,306 80,090 $ 862,726
Reinvestment of Distributions 1,465 14,267 5,980 62,058
-------- ------------- -------- -------------
80,577 797,573 86,070 924,784
Shares Repurchased (20,849) (206,522) (10,415) (113,529)
-------- ------------- -------- -------------
Net Increase (decrease) 59,728 $ 591,051 75,655 $ 811,255
-------- ------------- -------- -------------
</TABLE>
32
<PAGE>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
NOTE 6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Period ended Year ended
June 30, 1999 December 31, 1998
----------------------- -----------------------
Shares Amount Shares Amount
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
INCOME AND EQUITY FUND
Class A
Shares Sold 60,130 $ 644,484 70,114 $ 736,108
Reinvestment of Distributions 3,075 32,425 5,544 58,579
-------- ------------- -------- -------------
63,205 676,909 75,658 794,687
Shares Repurchased (20,375) (215,749) (19,249) (201,807)
-------- ------------- -------- -------------
Net Increase (decrease) 42,830 $ 461,160 56,409 $ 592,880
-------- ------------- -------- -------------
Class C
Shares Sold 72,588 $ 760,788 65,537 $ 692,442
Reinvestment of Distributions 1,973 20,431 1,978 20,840
-------- ------------- -------- -------------
74,561 781,219 67,515 713,282
Shares Repurchased (7,376) (77,348) (1,400) (14,931)
-------- ------------- -------- -------------
Net Increase (decrease) 67,185 $ 703,871 66,115 $ 698,351
-------- ------------- -------- -------------
</TABLE>
<TABLE>
<CAPTION>
Period ended Year ended
June 30, 1999 December 31, 1998
----------------------- -----------------------
Shares Amount Shares Amount
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
BALANCED FUND
Class A
Shares Sold 60,861 $ 800,622 65,239 $ 830,434
Reinvestment of Distributions - - 10,614 133,736
-------- ------------- -------- -------------
60,861 800,622 75,853 964,170
Shares Repurchased (59,315) (778,651) (33,511) (425,402)
-------- ------------- -------- -------------
Net Increase (decrease) 1,546 $ 21,971 42,342 $ 538,768
-------- ------------- -------- -------------
Class C
Shares Sold 29,471 $ 383,863 29,657 $ 376,582
Reinvestment of Distributions - - 656 8,217
-------- ------------- -------- -------------
29,471 383,863 30,313 384,799
Shares Repurchased (552) (7,140) (303) (3,718)
-------- ------------- -------- -------------
Net Increase (decrease) 28,919 $ 376,723 30,010 $ 381,081
-------- ------------- -------- -------------
</TABLE>
33
<PAGE>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1999
- --------------------------------------------------------------------------------
NOTE 6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Period ended Year ended
June 30, 1999 December 31, 1998
------------------------ ------------------------
Shares Amount Shares Amount
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
GROWTH FUND
Class A
Shares Sold 3,401 $ 34,012 - $ -
Reinvestment of Distributions - - - -
-------- -------------- -------- --------------
3,401 34,012 - -
Shares Repurchased - - - -
-------- -------------- -------- --------------
Net Increase (decrease) 3,401 $ 34,012 - $ -
-------- -------------- -------- --------------
Class C
Shares Sold 6,500 $ 65,000 - $ -
Reinvestment of Distributions - - - -
-------- -------------- -------- --------------
6,500 65,000 - -
Shares Repurchased - - - -
-------- -------------- -------- --------------
Net Increase (decrease) 6,500 $ 65,000 - $ -
-------- -------------- -------- --------------
</TABLE>
<TABLE>
<CAPTION>
Period ended Year ended
June 30, 1999 December 31, 1998
----------------------- -----------------------
Shares Amount Shares Amount
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
SMALL CAP FUND
Class A
Shares Sold 70,656 $ 938,666 114,853 $ 1,925,336
Reinvestment of Distributions - - 12,485 176,162
-------- ------------- -------- -------------
70,656 938,666 127,338 2,101,498
Shares Repurchased (100,311) (1,307,394) (107,128) (1,711,220)
-------- ------------- -------- -------------
Net Increase (decrease) (29,655) $ (368,728) 20,210 $ 390,278
-------- ------------- -------- -------------
Class C
Shares Sold 16,898 $ 218,144 19,103 $ 309,988
Reinvestment of Distributions - - 417 5,886
-------- ------------- -------- -------------
16,898 218,144 19,520 315,874
Shares Repurchased (3,399) (46,376) (2,722) (49,216)
-------- ------------- -------- -------------
Net Increase (decrease) 13,499 $ 171,768 16,798 $ 266,658
-------- ------------- -------- -------------
</TABLE>
34
<PAGE>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES FUND
----------------------------------------------------------------------
Class A
----------------------------------------------------------------------
Six months For the year ended December 31,
ended -----------------------------------------------------
June 30, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.59 $ 9.87 $ 9.30 $ 10.16 $ 8.82
-------------- ----------- ----------- ----------- -----------
Income from investing operations
Net investment income 0.16 0.34 0.35 0.33 0.31
Net realized and unrealized gains
(losses) on securities (0.79) 1.38 0.71 (0.65) 1.53
-------------- ----------- ----------- ----------- -----------
Total from investment operations (0.63) 1.72 1.06 (0.32) 1.84
-------------- ----------- ----------- ----------- -----------
Less distributions
From net investment income (0.15) (0.33) (0.35) (0.32) (0.31)
From net capital gains - (0.67) (0.14) (0.22) (0.19)
-------------- ----------- ----------- ----------- -----------
Total distributions (0.15) (1.00) (0.49) (0.54) (0.50)
-------------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 9.81 $ 10.59 $ 9.87 $ 9.30 $ 10.16
-------------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN (B) (5.91)%(a) 17.82% 11.72% (3.15)% 20.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 4,389 $ 5,456 $ 3,939 $ 7,096 $ 5,837
Ratio of net investment income to
average net assets
With expense reductions 1.58%(a) 3.32% 3.36% 3.46% 3.75%
Without expense reductions 0.57%(a) 1.04% 1.51% (2.17)% (2.60)%
Ratio of expenses to average net assets
With expense reductions 0.75%(a) 1.66% 1.65% 1.66% 1.65%
Without expense reductions 1.76%(a) 3.94% 3.51% 2.95% 2.80%
Portfolio turnover rate 21.52% 41.98% 68.52% 50.49% 57.85%
<CAPTION>
Class C
-----------------------------------
Six months April 2, 1998(c)
ended to
June 30, 1999 December 31, 1998
<S> <C> <C>
-----------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.50 $ 10.24
-------------- ------------------
Income from investing operations
Net investment income 0.14 0.23
Net realized and unrealized gains
(losses) on securities (0.81) 1.02
-------------- ------------------
Total from investment operations (0.67) 1.25
-------------- ------------------
Less distributions
From net investment income (0.13) (0.32)
From net capital gains - (0.67)
-------------- ------------------
Total distributions (0.13) (0.99)
-------------- ------------------
Net asset value, end of period $ 9.70 $ 10.50
-------------- ------------------
TOTAL INVESTMENT RETURN (B) (6.38)%(a) 12.48%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 1,314 $ 795
Ratio of net investment income to
average net assets
With expense reductions 1.02%(a) 2.05%(a)
Without expense reductions 0.03%(a) 0.63%(a)
Ratio of expenses to average net assets
With expense reductions 1.27%(a) 1.06%(a)
Without expense reductions 2.26%(a) 2.48%(a)
Portfolio turnover rate N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
(a) Not annualized
(b) The Fund's maximum sales charge is not included in the total return
calculation.
(c) Commencement of Operations
N/A Not Applicable
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME AND EQUITY FUND
----------------------------------------------------------------------
Class A
----------------------------------------------------------------------
Six months For the year ended December 31,
ended -----------------------------------------------------
June 30, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.74 $ 9.98 $ 9.42 $ 9.67 $ 8.98
-------------- ----------- ----------- ----------- -----------
Income from investing operations
Net investment Income 0.19 0.37 0.33 0.35 0.31
Net realized and unrealized gains
(losses) on securities (0.27) 0.83 0.56 (0.19) 0.72
-------------- ----------- ----------- ----------- -----------
Total from investment operations (0.08) 1.20 0.89 0.16 1.03
-------------- ----------- ----------- ----------- -----------
Less distributions
From net investment income (0.19) (0.34) (0.33) (0.35) (0.31)
From net capital gains - (0.10) - (0.06) (0.03)
-------------- ----------- ----------- ----------- -----------
Total distributions (0.19) (0.44) (0.33) (0.41) (0.34)
-------------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 10.47 $ 10.74 $ 9.98 $ 9.42 $ 9.67
-------------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN (B) (0.78)%(a) 12.14% 9.60% 1.78% 11.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 3,026 $ 2,646 $ 1,894 $ 1,211 $ 1,071
Ratio of net investment income to
average net assets
With expense reductions 1.90%(a) 3.68% 3.56% 3.75% 4.06%
Without expense reductions 0.74%(a) 0.83% (0.96)% (1.69)% (2.32)%
Ratio of expenses to average net assets
With expense reductions 0.95%(a) 1.83% 1.85% 1.85% 1.86%
Without expense reductions 2.11%(a) 4.67% 6.38% 7.29% 8.25%
Portfolio turnover rate 13.29% 16.72% 42.30% 28.23% 33.40%
<CAPTION>
Class C
-----------------------------------
Six months April 2, 1998(c)
ended to
June 30, 1999 December 31, 1998
<S> <C> <C>
-----------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.62 $ 10.39
-------------- ------------------
Income from investing operations
Net investment Income 0.22 0.22
Net realized and unrealized gains
(losses) on securities (0.32) 0.43
-------------- ------------------
Total from investment operations (0.10) 0.65
-------------- ------------------
Less distributions
From net investment income (0.19) (0.32)
From net capital gains - (0.10)
-------------- ------------------
Total distributions (0.19) (0.42)
-------------- ------------------
Net asset value, end of period $ 10.33 $ 10.62
-------------- ------------------
TOTAL INVESTMENT RETURN (B) (0.90)%(a) 6.41%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 1,377 $ 702
Ratio of net investment income to
average net assets
With expense reductions 1.78%(a) 2.16%(a)
Without expense reductions 0.65%(a) 0.31%(a)
Ratio of expenses to average net assets
With expense reductions 0.99%(a) 1.43%(a)
Without expense reductions 2.11%(a) 3.28%(a)
Portfolio turnover rate N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
(a) Not annualized
(b) The Fund's maximum sales charge is not included in the total return
calculation.
(c) Commencement of operations
N/A Not Applicable
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED FUND
----------------------------------------------------------------------
Class A
----------------------------------------------------------------------
Six months For the year ended December 31,
ended -----------------------------------------------------
June 30, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 12.69 $ 12.06 $ 10.66 $ 9.31 $ 8.75
-------------- ----------- ----------- ----------- -----------
Income from investing operations
Net investment income 0.05 0.03 - 0.09 0.18
Net realized and unrealized gains
(losses) on securities 0.77 0.90 1.62 1.39 0.57
-------------- ----------- ----------- ----------- -----------
Total from investment operations 0.82 0.93 1.62 1.48 0.75
-------------- ----------- ----------- ----------- -----------
Less distributions
From net investment income - - (0.01) (0.09) (0.18)
From net capital gains - (0.30) (0.21) (0.04) (0.01)
-------------- ----------- ----------- ----------- -----------
Total distributions - (0.30) (0.22) (0.13) (0.19)
-------------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 13.51 $ 12.69 $ 12.06 $ 10.66 $ 9.31
-------------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN (B) 6.46%(a) 7.76% 15.24% 15.92% 8.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 6,857 $ 6,420 $ 5,593 $ 3,187 $ 2,219
Ratio of net investment income to
average net assets
With expense reductions 0.40%(a) 0.22% (0.03)% 1.12% 2.46%
Without expense reductions 0.20%(a) (0.18)% (0.50)% (0.76)% (0.62)%
Ratio of expenses to average net assets
With expense reductions 1.66%(a) 3.48% 3.28% 2.48% 2.24%
Without expense reductions 1.86%(a) (3.88)% 3.75% 4.36% 5.31%
Portfolio turnover rate 23.07% 53.97% 64.13% 65.94% 41.23%
<CAPTION>
Class C
-----------------------------------
Six months April 2, 1998(c)
ended to
June 30, 1999 December 31, 1998
<S> <C> <C>
-----------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 12.61 $ 13.09
-------------- ------------------
Income from investing operations
Net investment income - (0.04)
Net realized and unrealized gains
(losses) on securities 0.75 (0.13)
-------------- ------------------
Total from investment operations 0.75 (0.17)
-------------- ------------------
Less distributions
From net investment income - (0.01)
From net capital gains - (0.30)
-------------- ------------------
Total distributions - (0.31)
-------------- ------------------
Net asset value, end of period $ 13.36 $ 12.61
-------------- ------------------
TOTAL INVESTMENT RETURN (B) 5.95%(a) (1.28)%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 787 $ 378
Ratio of net investment income to
average net assets
With expense reductions (0.20)%(a) (0.64)%(a)
Without expense reductions (0.39)%(a) (0.91)%(a)
Ratio of expenses to average net assets
With expense reductions 2.21%(a) 3.12%(a)
Without expense reductions 2.41%(a) 3.39%(a)
Portfolio turnover rate N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
(a) Not annualized
(b) The Fund's maximum sales charge is not included in the total return
calculation.
(c) Commencement of operations
N/A Not Applicable
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH FUND
---------------------------------
Class A Class C
--------------- ---------------
May 3, 1999(c) May 3, 1999(c)
to to
June 30, 1999 June 30, 1999
<S> <C> <C>
--------------- ---------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period $ 10.00 $ 10.00
--------------- ---------------
Income from investing operations
Net investment expense - (0.01)
Net realized and unrealized
gains (losses) on
securities - -
--------------- ---------------
Total from investment operations - (0.01)
--------------- ---------------
Less distributions
From net investment income - -
From net capital gains - -
--------------- ---------------
Total distributions - -
--------------- ---------------
Net asset value, end of period $ 10.00 $ 9.99
--------------- ---------------
TOTAL INVESTMENT RETURN (B) 0.00%(a) (0.10)%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 34 $ 65
Ratio of net investment income to
average net assets
With expense reductions 0.04%(a) (0.09)%(a)
Without expense
reductions (7.13)%(a) (4.77)%(a)
Ratio of expenses to average net
assets
With expense reductions 0.31%(a) 0.32%(a)
Without expense
reductions 7.48%(a) 5.00%(a)
Portfolio turnover rate N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
(a) Not annualized
(b) The Fund's maximum sales charge is not included in the total return
calculation.
(c) Commencement of operations
N/A Not Applicable
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP FUND
----------------------------------------------------------------------
Class A
----------------------------------------------------------------------
Six months For the year ended December 31,
ended -----------------------------------------------------
June 30, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 14.23 $ 17.51 $ 16.47 $ 11.82 $ 10.35
-------------- ----------- ----------- ----------- -----------
Income from investing operations
Net investment expense (0.28) (0.58) (0.38) (0.21) (0.08)
Net realized and unrealized gains
(losses) on securities (0.84) (2.34) 1.52 5.35 1.89
-------------- ----------- ----------- ----------- -----------
Total from investment operations (1.12) (2.92) 1.14 5.14 1.81
-------------- ----------- ----------- ----------- -----------
Less distributions
From net investment income - - - - -
From net capital gains - (0.36) (0.10) (0.49) (0.34)
-------------- ----------- ----------- ----------- -----------
Total distributions - (0.36) (0.10) (0.49) (0.34)
-------------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 13.11 $ 14.23 $ 17.51 $ 16.47 $ 11.82
-------------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN (B) (7.87)%(a) (16.66)% 6.95% 43.70% 17.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 8,205 $ 9,331 $ 11,125 $ 8,549 $ 4,279
Ratio of net investment income to
average net assets
With expense reductions (1.66)%(a) (3.71)% (2.82)% (2.06)% (0.71)%
Without expense reductions (1.66)%(a) (3.71)% (2.99)% (2.39)% (1.88)%
Ratio of expenses to average net assets
With expense reductions 1.90%(a) 4.02% 3.18% 2.91% 2.49%
Without expense reductions 1.90%(a) 4.02% 3.35% 3.24% 3.64%
Portfolio turnover rate 31.07% 49.63% 30.72% 51.83% 44.95%
<CAPTION>
Class C
-----------------------------------
Six months April 2, 1998(c)
ended to
June 30, 1999 December 31, 1998
<S> <C> <C>
-----------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 14.24 $ 19.70
-------------- ------------------
Income from investing operations
Net investment expense (0.05) (0.29)
Net realized and unrealized gains
(losses) on securities (1.12) (4.81)
-------------- ------------------
Total from investment operations (1.17) (5.10)
-------------- ------------------
Less distributions
From net investment income - -
From net capital gains - (0.36)
-------------- ------------------
Total distributions - (0.36)
-------------- ------------------
Net asset value, end of period $ 13.07 $ 14.24
-------------- ------------------
TOTAL INVESTMENT RETURN (B) (8.22)%(a) (25.88)%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 396 $ 239
Ratio of net investment income to
average net assets
With expense reductions (1.91)%(a) (3.68)%(a)
Without expense reductions (1.91)%(a) (3.68)%(a)
Ratio of expenses to average net assets
With expense reductions 2.15%(a) 3.85%(a)
Without expense reductions 2.15%(a) 3.85%(a)
Portfolio turnover rate N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
(a) Not annualized
(b) The Fund's maximum sales charge is not included in the total return
calculation.
(c) Commencement of operations
N/A Not Applicable
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
PACIFIC ADVISORS FUND INC.
notes
<PAGE>
PACIFIC ADVISORS FUND INC.
notes
<PAGE>
PACIFIC ADVISORS
Fund Inc
[GRAPHIC]
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 301
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 301
GLENDALE, CALIFORNIA 91206
DISTRIBUTOR
PACIFIC GLOBAL FUND DISTRIBUTORS, INC.
206 NORTH JACKSON STREET, SUITE 301
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>
<TABLE>
<C> <S> <C>
PACIFIC GLOBAL FUND DISTRIBUTORS, INC.
[LOGO] 206 NORTH JACKSON STREET, SUITE 301 BULK RATE
GLENDALE, CALIFORNIA 91206 U. S. POSTAGE
PAID
GLENDALE, CA
PERMIT NO. 1090
</TABLE>
pg101.898
