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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-7062
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PACIFIC GLOBAL FUND INC. D/B/A PACIFIC ADVISORS FUND INC.
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(Exact name of registrant as specified in charter)
206 NORTH JACKSON STREET, SUITE 301 GLENDALE, CALIFORNIA 91206
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(Address of principal executive offices) (Zip code)
GEORGE A. HENNING 206 N. JACKSON ST., SUITE 301 GLENDALE, CA 91206
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(Name and address of agent for service)
Registrant's telephone number, including area code: 818-242-6693
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Date of fiscal year end: DECEMBER 31
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Date of reporting period: DECEMBER 31, 2003
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Item 1. Report to Shareholders (filed herewith).
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[PACIFIC ADVISORS LOGO]
PACIFIC ADVISORS - FUND INC.
ANNUAL REPORT
DECEMBER 31, 2003
[GRAPHIC]
GOVERNMENT SECURITIES FUND
INCOME AND EQUITY FUND
BALANCED FUND
GROWTH FUND
MULTI-CAP VALUE FUND
SMALL CAP FUND
<Page>
PACIFIC ADVISORS
TABLE OF CONTENTS
<Table>
MESSAGE FROM THE CHAIRMAN 1
GOVERNMENT SECURITIES FUND 3
INCOME AND EQUITY FUND 6
BALANCED FUND 9
GROWTH FUND 12
MULTI-CAP VALUE FUND 15
SMALL CAP FUND 18
SCHEDULE OF INVESTMENTS 23
STATEMENT OF ASSETS AND LIABILITIES 42
STATEMENT OF OPERATIONS 44
STATEMENT OF CHANGES IN NET ASSETS 46
NOTES TO FINANCIAL STATEMENTS 50
FINANCIAL HIGHLIGHTS 57
</Table>
This Report is for informational purposes only and is not a solicitation, or a
recommendation that any particular investor should purchase or sell any
particular security. The statements in the Report are the opinions and beliefs
expressed at the time of this commentary and are not intended to represent
opinions and beliefs at any other time. These opinions are subject to change
with market conditions and are not meant as a market forecast. All economic and
performance information referenced is historical. Past performance does not
guarantee future results.
For more information on the Pacific Advisors Funds, including information on
charges, expenses and other classes offered, please obtain a copy of the
prospectus by calling (800) 989-6693. Please read the prospectus carefully
before you invest or send money. Shares of the Pacific Advisors Funds are not
deposits or obligations of any bank, are not guaranteed by any bank, are not
insured by the FDIC or any other agency, and involve investment risks, including
the possible loss of the principal amount invested. The investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
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[GRAPHIC]
MESSAGE
FROM THE CHAIRMAN
Fellow Shareholders,
Over the past five years, investors have experienced extremes in the equity
markets. The rollercoaster journey took them from the technology-fueled highs in
the late 90s to the bear market lows during the mild recession exaggerated by
9/11 and the War in Iraq. The equity markets rallied and exhibited strong upward
momentum during the last half of 2003 as the economy recovered and geopolitical
concerns subsided. The tech heavy Nasdaq Index led the way with a 50.01% gain,
followed by the Russell 2000, S&P 500 and DJIA with gains of 45.37%, 26.38% and
25.32%, respectively.
The U.S. economy grew dramatically in the last two quarters with GDP growth
improving from 2.2% in 2002 to a respectable 3.1% in 2003. Consumer and
government spending remained strong throughout the year. In addition, a long
awaited improvement in business spending finally materialized as companies began
to replenish inventories, replace aging equipment, and invest in product
development. The housing market experienced another year of record growth and
the manufacturing sector continued to expand. At the same time, inflation and
interest rates remained low further stimulating economic growth.
Despite these improvements, investors and consumers remained concerned
about the lack of job growth. The labor market, however, is typically one of the
last sectors to benefit from an economic recovery. By year-end, signs of new job
growth were finally beginning to emerge. Continued improvement is expected in
2004 as the economic recovery progresses. Job growth, however, may be tempered
by a loss of jobs to cheaper labor markets overseas.
2003 was a strong year for equities as nearly all market categories
achieved positive returns. Small cap stocks, in particular, performed well as
they benefited early from renewed economic growth. Large and mid-cap equities
also had a banner year and should continue to perform well as the economy
transitions from recovery to expansion. The increase in business spending helped
the technology sector recover from its post-Y2K drought. Technology stocks led
market performance in 2003, but the financial, energy, basic materials, and
transportation sectors also benefited significantly from the economic recovery.
We are pleased to report that our Growth, Multi-Cap Value and Small Cap
Funds achieved strong performance in 2003. The SMALL CAP FUND OUTPERFORMED ITS
BENCHMARK BY OVER 34% AND RANKED AS THE #10 SMALL CAP VALUE FUND out of 517
funds by Lipper based on its one-year return.(1) The MULTI-CAP VALUE FUND
SURPASSED ITS BENCHMARK BY OVER 14% AND RANKED IN THE TOP 2% OF ALL MULTI-CAP
CORE FUNDS out of 579 funds by Lipper based on its one-year return.(2) Detailed
performance information is provided in the Fund Interviews that follow this
letter.
While the equity markets performed well, the fixed-income markets had a
more difficult year. As the economic recovery gained momentum, concerns
developed that the Federal Reserve would begin raising interest rates to manage
economic growth and control inflationary pressures. In anticipation of rising
interest rates, our fixed-income Funds maintained more defensive investment
strategies to protect principal.
To ensure the economic recovery continues, it appears that the Federal
Reserve will take its time raising interest rates. While the Fed may not raise
rates until later this year, it has already begun to reduce liquidity to prevent
the equity market from overheating and becoming more speculative. As interest
rates rise and near a peak in this cycle, fixed-income funds should benefit from
the opportunity to purchase higher-yielding, long-term bonds.
The equity markets should continue to perform well in 2004. Economic growth
in the U.S., Europe and Asia will likely continue at a moderate pace as the
demand for goods and services improves. Any increase in inflation or interest
rates should be modest by historical levels and have a nominal effect on the
equity markets. Investors and businesses may remain cautious as they monitor
geopolitical events, the presidential election and government budget deficits.
We will remain vigilant in light of the potential impact of these concerns or
unforeseen events. Each Fund will seek to adapt its investment strategy to
respond to changing market conditions.
Events during this past year exposed some serious problems within the
mutual fund industry. These problems resulted primarily from market timing and
late trading. These issues caused unfavorable publicity for the industry and
resulted in numerous proposed rules and regulations to eliminate the potential
for further violations. Moreover, Congress is holding hearings on possible
significant changes to the laws applicable to mutual funds.
1
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As I expressed in my letter to shareholders last fall, Pacific Advisors Fund
does not permit late trading and consistently has sought to identify and prevent
market timing activities. Furthermore, we have always maintained long-term
investment strategies which we believe serve the best interests of our
shareholders.
It is essential for the SEC and other regulatory bodies to take steps to
prevent further violations and to preserve and rebuild the trust investors have
placed with mutual fund companies. At the same time, we believe it is important
for regulators and legislators to take a balanced approach. We hope they find
solutions that safeguard investors without imposing undue costs or burdens on
fund companies and their shareholders.
We are pleased to be able to report that our equity funds have performed
well as market conditions improved dramatically this past year. We remain
optimistic about the prospects for the equity markets and believe the
fixed-income markets will improve later in the year. Given the good year in the
equity market, investors may be tempted to focus on past winners as they make
investment decisions for the future. Just as we seek to maintain disciplined
investment strategies, we encourage our shareholders to remain focused on their
investment objectives. We urge you to review your portfolio with your financial
advisor to determine what asset allocation adjustments may be appropriate to
help you meet your financial objectives.
/s/ George A. Henning
George A. Henning
Chairman of the Board and President
(1) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The Fund's ranking is
based on 1-year total return of 83.53% for the Small Cap Fund (A) as calculated
by Lipper. As of December 31, 2003, the Small Cap Fund (A) ranked 207th based on
its 5-year average annual return out of 279 small cap core funds; and 67th based
on its 10-year average annual return out of 70 small cap core funds. Fund
returns do not take into account the maximum 5.75% sales charge on Class A
shares. Returns would be lower if the sales charge was included. Performance
figures represent the change in value over the stated period assuming
reinvestment of dividends and capital gains at net asset value and after expense
reimbursements. Returns do not consider individual taxes which may reduce actual
returns when shares are sold.
(2) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The Multi-Cap Value
Fund (A) ranked number 11 based on a 1-year total return of 45.56% as calculated
by Lipper. Fund returns do not take into account the maximum 5.75% sales charge
on Class A shares. Returns would be lower if the sales charge was included.
Performance figures represent the change in value over the stated period
assuming reinvestment of dividends and capital gains at net asset value and
after expense reimbursements. Returns do not consider individual taxes which may
reduce actual returns when shares are sold.
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 OTHER INCOME PRODUCING
INSTRUMENTS, INCLUDING DIVIDEND-PAYING COMMON STOCKS, FOR INCOME AND CAPITAL
APPRECIATION.
INTERVIEW WITH PORTFOLIO MANAGER
THOMAS H. HANSON
FOR THE YEAR ENDED DECEMBER 31, 2003, THE FUND HAD A TOTAL RETURN OF - 2.20% FOR
CLASS A SHARES, AND - 2.98% FOR CLASS C SHARES(1). THE FUND'S BENCHMARK, THE
LEHMAN INTERMEDIATE TREASURY BOND INDEX(2), RETURNED 2.29% DURING THE SAME
PERIOD.
OVER THE COURSE OF THE YEAR, THE FUND'S BOARD OF DIRECTORS BECAME INCREASINGLY
CONCERNED WITH THE FUND'S INVESTMENT PERFORMANCE. AFTER CAREFUL REVIEW AND
CONSIDERATION, THE BOARD DETERMINED IT WAS IN THE BEST INTEREST OF THE FUND AND
ITS SHAREHOLDERS TO TERMINATE THE FUND'S SUB-ADVISORY AGREEMENT WITH SPECTRUM
ASSET MANAGEMENT. ON NOVEMBER 20, 2003, THE BOARD TURNED OVER PORTFOLIO
MANAGEMENT RESPONSIBILITIES TO THE FUND'S INVESTMENT MANAGER, PACIFIC GLOBAL
INVESTMENT MANAGEMENT COMPANY. THOMAS H. HANSON, CO-MANAGER OF THE INCOME &
EQUITY FUND, NOW SERVES AS PORTFOLIO MANAGER FOR THE FUND.
Q HOW WILL THE CHANGE IN PORTFOLIO MANAGERS IMPACT THE FUND'S INVESTMENT
STRATEGY?
A The Board did not take this action to change the Fund's investment
strategy. In the Board's view, the adaptive barbell approach remains the most
effective investment strategy for this type of fund. The Fund will continue to
focus on total return by seeking to provide current income while protecting
principal.
The Fund uses an adaptive barbell investment strategy to help minimize
interest rate risk as it seeks to achieve its investment objectives. We seek to
manage to the "sweet spot" on the yield curve by investing in the highest
yielding government securities at maturities with the least amount of market
risk. As interest rates rise, the Fund typically shortens its average maturity
to protect principal. When interest rates peak, the Fund moves into longer-term
bonds to capture higher yields and capital appreciation potential as rates
decline. When interest rates near the bottom of cycle, the Fund moves back into
shorter-term government securities to protect principal. The Fund seeks to gain
additional income and capital appreciation by investing a small portion of its
portfolio in high-quality, dividend paying common and preferred stocks.
Q WHAT CHALLENGES DID THE INTEREST RATE ENVIRONMENT PRESENT IN 2003?
A Interest rate uncertainty throughout 2003 led to increased volatility and
risk in the bond market. Early in the year, the Fund shifted its portfolio
concentration to longer-term bonds in anticipation of decline in long-term
interest rates. As concerns about the strength of the economic recovery lingered
in the first half of the year, bond prices rose and long-term interest rates
declined. The Fund benefited from this decline through its longer-term holdings.
By June, the vast majority of economic data suggested the economy was on
track for continued growth. The bond market became concerned that the Federal
Reserve would begin raising short-term interest rates to manage economic growth
and inflationary pressures. Even with signs of a sustained recovery, investors
remained concerned about the potential impact weak job growth and geopolitical
threats on economic growth. During the last half of the year, the bond market
experienced heightened volatility as investors attempted to gauge the strength
of the economy and anticipate when the Fed would begin raising interest rates.
Q WHAT CHANGES DID YOU MAKE IN THE FUND'S PORTFOLIO DURING 2003?
A In an unpredictable interest rate environment, the Fund's primary goal is
to preserve earning power by protecting principal. When we assumed portfolio
management responsibilities, we sought to ensure that the Fund was structured to
manage current risks and positioned to take advantage of new opportunities in
2004. We began by shortening the Fund's average maturity to approximately 3 1/2
years to minimize the impact of interest rate volatility. We concentrated the
Fund's holdings in U.S. government agencies, such as FANNIE MAE, FEDERAL HOME
LOAN BANK, and FREDDIE MAC, which offered more attractive yields than U.S.
treasury notes or bonds. In addition, we modestly
3
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increased the Fund's preferred stock holdings to take advantage of yield
opportunities in the equity market. The Fund focused on opportunities in the
financial services sector with preferred stock investments in CITIGROUP CAPITAL,
PHOENIX COMPANIES, and ABBEY NATIONAL.
Q WHAT TYPE OF INTEREST RATE ENVIRONMENT DO YOU ANTICIPATE IN 2004?
A A number of situations present challenges to continued economic growth,
including lackluster job growth, the widening trade deficit, and a weaker
dollar. Nonetheless, a number of signs suggest the economy will continue to grow
at a healthy pace in 2004. Corporate earnings grew significantly in 2003,
prompting an increase in capital spending by businesses. Consumer spending
remains strong and the U.S. government remains committed to accommodative fiscal
policies. If economic growth continues, we would expect the Federal Reserve to
modestly raise short-term interest rates by the end of the year.
We anticipate little change in the bond market during the first half of the
year. Interest rates will likely remain somewhat volatile, fluctuating in a
narrow trading range as investors monitor economic data and await action by the
Fed. If the economy continues to expand and the Fed moves closer to raising
short-term interest rates, we would expect to see a modest but sustained upward
trend in long-term interest rates in the latter part of the year.
Q HOW WILL THE FUND ADAPT ITS INVESTMENT STRATEGY TO RISING INTEREST RATES?
A As long as the bond market remains volatile, the Fund will maintain a
defensive position in shorter-term holdings to protect principal. When we see a
MEANINGFUL and SUSTAINED rise in rates, the Fund will begin to rotate out of
these positions. We will seek to stay within the "sweet spot" on the yield curve
by lengthening the Fund's maturity to capture higher yields and appreciation
potential on longer-term bonds. We believe this adaptive strategy will protect
the interests of the Fund's shareholders and give the Fund the best opportunity
to achieve its investment objectives.
[CHART]
INVESTMENT MIX as of 12/31/03
<Table>
1. U.S. GOVERNMENT AGENCIES 62.93%
2. U.S. TREASURY BILLS 20.75%
3. U.S. TREASURY NOTES 6.91%
4. EQUITIES 4.83%
5. PREFERRED STOCK 4.58%
</Table>
(1) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Fund returns do not
take into account the maximum 4.75% sales charge on Class A shares. Returns
would be lower if the sales charge was included. Performance figures represent
the change in value over the stated period assuming reinvestment of dividends
and capital gains at net asset value and after expense reimbursements. Returns
do not consider individual taxes which may reduce actual returns when shares are
sold.
(2) The Lehman Treasury Bond Index is an unmanaged index of intermediate term
government bonds since 12/31/80.
4
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CHANGE IN VALUE OF $10,000 INVESTMENT(1)
This chart shows the growth of a $10,000 investment made in Pacific Advisors
Government Securities Fund, Class A shares, on February 8, 1993 compared to the
growth of the Lehman Intermediate T-Bond Index(2).
[CHART]
GOVERNMENT SECURITIES FUND
<Table>
<Caption>
GOVERNMENT SECURITIES FUND LEHMAN T-BOND INDEX
2/8/93 $ 9,525 $ 10,000
12/31/93 $ 9,557 $ 10,826
12/31/94 $ 9,543 $ 10,604
12/31/95 $ 11,600 $ 12,140
12/31/96 $ 11,235 $ 12,622
12/31/97 $ 12,552 $ 13,590
12/31/98 $ 14,789 $ 14,764
12/31/99 $ 14,065 $ 14,829
12/31/2000 $ 16,656 $ 16,339
12/31/2001 $ 16,574 $ 17,643
12/31/2002 $ 17,035 $ 19,282
12/31/2003 $ 16,660 $ 19,708
</Table>
Average Annual Compounded Return for period ending December 31, 2003 (Class A
shares)
<Table>
One Year - 6.86%
Five Year 1.39%
Ten Year 5.18%
</Table>
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(1) Performance figures represent the change in value of an investment over the
periods shown, and have been restated to include the maximum 4.75% initial sales
charge, assuming reinvestment of dividends and capital gains at net asset value
and after expense reimbursements. Past performance does not guarantee future
results. Share price and returns fluctuate, so that your shares, when redeemed,
may be worth more or less than their original cost.
(2) The Lehman T-Bond Index is an unmanaged index of intermediate government
bonds since 12/31/80.
5
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PACIFIC ADVISORS
INCOME AND EQUITY FUND
INVESTS PRIMARILY IN INVESTMENT-GRADE FIXED-INCOME SECURITIES. THE FUND MAY ALSO
INVEST IN STOCKS FOR LONG-TERM CAPITAL APPRECIATION.
INTERVIEW WITH PORTFOLIO MANAGERS
THOMAS H. HANSON
STEPHEN K. BACHE, CFA
FOR THE YEAR ENDED DECEMBER 31, 2003, THE FUND HAD A TOTAL RETURN OF 6.63% FOR
CLASS A SHARES, AND 5.88% FOR CLASS C SHARES(1). THE FUND'S BENCHMARKS, THE
LEHMAN INTERMEDIATE TREASURY BOND INDEX(2) AND THE S&P 500 INDEX(3), RETURNED
2.29% AND 28.69%, RESPECTIVELY, DURING THE SAME PERIOD.
Q WHAT CHALLENGES DID THE CORPORATE BOND MARKET PRESENT IN 2003?
A Interest rate uncertainty throughout 2003 led to sustained volatility in
the corporate bond market. Early in the year, concerns about the strength of the
economic recovery made bonds more attractive driving rates lower. In the third
quarter, stronger economic growth prompted a sudden rise in rates as investors
weighed the potential of an increase in short-term rates by the Federal Reserve.
This rise, however, was short lived. Lingering concerns about the weaker dollar,
the federal budget deficit and weak job growth raised questions about the
viability of long-term economic growth and created volatility in the bond market
throughout the remainder of the year.
In 2003, we maintained an active and adaptive investment strategy to manage
risk in the corporate bond market. Early in the year, we began to shorten the
Fund's average maturity to protect principal as rates declined. We sold lower
rated, longer-term bonds and used the proceeds to acquire high-quality,
shorter-term bonds. Many of the best investment opportunities came from
companies in the financial services, utility and manufacturing sectors including
BANK ONE, PIEDMONT NATURAL GAS and WHIRLPOOL CORPORATION. We maintained a
shorter average maturity of 4 to 5 years in response to continued volatility
throughout the year. With this adaptive approach, the Fund achieved good bond
performance while managing risk.
Q WHAT BENEFIT DID THE FUND'S EQUITY COMPONENT PROVIDE IN THIS TYPE OF
MARKET?
A As the economic recovery gained strength in 2003, performance in the equity
market improved significantly. To take advantage of this recovery, we maintained
a greater equity position at approximately 20% of the Fund's portfolio. We
focused on acquiring and adding to positions in high-quality, dividend paying
common stocks in the stronger sectors of the market such as commodities,
financial services and utilities. The Fund acquired new positions in ALCOA and
WILMINGTON TRUST while adding to existing holdings in FREDDIE MAC, JOHNSON &
JOHNSON, and HOSPITALITY PROPERTIES. We also maintained approximately 10% of the
Fund's portfolio in high-quality preferred stocks to provide additional current
income and capital appreciation potential.
In 2003, the absolute low level of interest rates made high-quality,
high-yielding corporate bonds more difficult to find. Like consumers, many
businesses refinanced their debt to take advantage of low interest rates. In
addition, bond market volatility required the Fund to maintain a more defensive
and conservative investment strategy to manage risk. With the Fund's equity
holdings, we were able to take advantage of stronger performance in the equity
market to improve the Fund's total return during this period.
Q WHY DOES THE FUND FOCUS ON TOTAL RETURN?
A The Income and Equity Fund is designed for more conservative investors
seeking current income. Many investors and mutual funds seeking current income
focus exclusively on yield while ignoring total return. With this focus on
yield, many funds may maintain a high level of current income even as the
principal value of their underlying investments decline.
We utilize an investment strategy that focuses on achieving total return to
help protect against price fluctuations and provide investment stability. In the
Fund's bond portfolio, we seek to manage to the yield curve by investing in the
highest yielding bonds at maturities with the least amount of market risk. This
allows the Fund to
6
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achieve its current income objective while managing interest rate risk. Unlike
many other bond funds, the Income and Equity Fund invests a small portion of its
portfolio in high quality, dividend paying common and preferred stocks. These
investments help supplement the Fund's current income while providing additional
opportunities for capital appreciation. With the recent reduction in taxes on
certain dividends, the Fund should receive an even greater benefit from its
equity holdings.
Q WHAT IS YOUR OUTLOOK FOR THE CORPORATE BOND MARKET IN 2004?
A We anticipate the corporate bond market will remain somewhat challenging in
2004. Economic indicators suggest the economy will grow at a healthy rate in the
coming year, which will make equities more attractive when compared to bonds. In
addition, we expect corporations will continue to take advantage of lower
interest rates by refinancing their debt to improve profitability. These
conditions will likely make high-quality, high-yielding bonds harder to find.
If economic growth remains healthy, we would expect the Federal Reserve to
begin raising short-term interest rates by the end of year. The corporate bond
market will likely remain volatile as bond investors await action by the Fed. We
expect that corporate bond rates will remain in a trading range for most of the
year as the bond market attempts to gauge the strength of the economy and
anticipate the timing of any interest rate increases by the Fed. When the Fed
begins to raise rates, we would expect to see a modest, but sustained, rise in
corporate bond rates.
As long as corporate bond rates remain in a trading range, we will maintain
a shorter average maturity in the Fund's bond portfolio. This will enable us to
manage bond market volatility while positioning the Fund to capitalize on new
opportunities when rates begin to rise. As we see confirmation of a sustained
rise in rates, we would expect to gradually move into longer-term bonds as we
continue to manage to the yield curve. We also anticipate maintaining the Fund's
higher equity position in the coming year to capitalize on continued growth in
the equity market.
[CHART]
INVESTMENT MIX as of 12/31/03
<Table>
1. CORPORATE BONDS 64.44%
2. EQUITIES 17.23%
3. PREFERRED STOCK 10.45%
4. CASH 6.20%
5. FOREIGN BONDS 0.99%
6. U.S. GOVERNMENT SECURITIES 0.69%
</Table>
(1) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Fund returns do not
take into account the maximum 4.75% sales charge on Class A shares. Returns
would be lower if the sales charge was included. Performance figures represent
the change in value over the stated period assuming reinvestment of dividends
and capital gains at net asset value and after expense reimbursements. Returns
do not consider individual taxes which may reduce actual returns when shares are
sold.
(2) The Lehman Treasury Bond Index is an unmanaged index of intermediate term
government bonds since 12/31/80.
(3) The Standard & Poor's 500 Index is an unmanaged, market capitalization
weighted measure of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and The Nasdaq Stock Market. The Index returns
assume reinvestment of dividends, but, unlike the Fund's returns, do not reflect
the effects of management fees or expenses.
7
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CHANGE IN VALUE OF $10,000 INVESTMENT(1)
This chart shows the growth of a $10,000 investment made in Pacific Advisors
Income & Equity Fund, Class A shares, on February 8, 1993 compared to the growth
of the Lehman Intermediate T-Bond Index(2).
[CHART]
INCOME AND EQUITY FUND
<Table>
<Caption>
INCOME AND EQUITY FUND S&P 500 INDEX LEHMAN T-BOND INDEX
2/8/93 $ 9,525 $ 10,000 $ 10,000
12/31/93 $ 9,630 $ 10,706 $ 10,826
12/31/94 $ 9,725 $ 10,541 $ 10,604
12/31/95 $ 10,905 $ 14,137 $ 12,140
12/31/96 $ 11,100 $ 17,348 $ 12,622
12/31/97 $ 12,166 $ 22,728 $ 13,590
12/31/98 $ 13,643 $ 28,789 $ 14,764
12/31/99 $ 13,685 $ 34,412 $ 14,829
12/31/2000 $ 14,510 $ 30,922 $ 16,339
12/31/2001 $ 14,892 $ 26,890 $ 17,643
12/31/2002 $ 14,755 $ 20,606 $ 19,282
12/31/2003 $ 15,733 $ 26,042 $ 19,708
</Table>
Average Annual Compounded Return for period ending December 31, 2003 (Class A
shares)
<Table>
One Year 1.60%
Five Year 1.86%
Ten Year 4.51%
</Table>
- ----------
(1) Performance figures represent the change in value of an investment over the
periods shown, and have been restated to include the maximum 4.75% initial sales
charge, assuming reinvestment of dividends and capital gains at net asset value
and after expense reimbursements. Past performance does not guarantee future
results. Share price and returns fluctuate, so that your shares, when redeemed,
may be worth more or less than their original cost.
(2) The Lehman T-Bond Index is an unmanaged index of intermediate government
bonds since 12/31/80.
8
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PACIFIC ADVISORS
Balanced Fund
INVESTS PRIMARILY IN LARGE AND MEDIUM CAP COMMON STOCKS WITH AT LEAST 25% OF THE
ASSETS INVESTED IN FIXED-INCOME SECURITIES.
INTERVIEW WITH PORTFOLIO MANAGER
STEPHEN K. BACHE, CFA
FOR THE YEAR ENDED DECEMBER 31, 2003, THE FUND RETURNED 18.63% FOR CLASS A
SHARES, AND 17.58% FOR CLASS C SHARES(1). DURING THE SAME PERIOD, THE FUND'S
BENCHMARKS, THE S&P 500 INDEX(2) AND THE LEHMAN INTERMEDIATE TREASURY BOND
INDEX(3), RETURNED 28.69% AND 2.29%, RESPECTIVELY.
Q HOW DID THE FUND CAPITALIZE ON GROWTH IN THE EQUITY MARKET DURING 2003?
A The Fund entered 2003 in a more defensive equity position to manage
continued volatility in the equity market. In early April, confirmation of a
sustained recovery in the market and economy led us to modestly increase the
Fund's equity exposure to approximately 50%. We added to existing positions and
took advantage of new opportunities to acquire quality companies at reasonable
or discounted prices such as H&R BLOCK, MYLAN LABORATORIES, and WASHINGTON
MUTUAL. In addition, we looked for investments in sectors which we believed
would perform well in the current economic environment. In the energy sector
this included, PRIMA ENERGY, BRITISH PETROLEUM, and in the commodities sector,
RIO TINTO.
We also found attractive opportunities in companies out of favor in the
market as a result of short-term setbacks. This included FIRST ENERGY, one of
the nation's largest power providers, which experienced temporary disfavor after
receiving credit for the East Coast blackout. The Fund also added MARSH &
McLENNAN, a leading financial services company that experienced a setback when
one of its smaller divisions became embroiled in the mutual fund scandals.
By adapting to a more defensive position in 2002, we were able to minimize
risk and position the Fund to capitalize on improved market performance. This
strategy combined with our focus on maintaining a well diversified portfolio in
high-quality stocks helped the Fund benefit from the market recovery and achieve
strong performance in 2003.
Q HOW DID THE FUND MANAGE TO THE CORPORATE BOND MARKET IN 2003?
A Lingering concerns over the strength of the economy created heightened
volatility in the corporate bond market during 2003. In the beginning of the
year, we experienced a slight decline in interest rates as investors questioned
early signs of improving economic growth. In the third quarter, new data
confirming a longer-term recovery in the economy and corporate earnings led to a
sharp rise in interest rates. Despite continued economic growth, investors
remained concerned about the potential impact of a number of situations
including the weaker dollar, weak job growth, and the emergence of new
geopolitical threats. As a result, bond market volatility persisted as interest
rates fluctuated in a narrow trading range throughout the remainder of the year.
In response to this volatile environment, the Fund maintained a shorter
average maturity in its bond portfolio. The absolute low level of interest rates
made yield opportunities harder to find in 2003. Many of the best opportunities
for higher yields came from improving credit stories in companies in turnaround
situations. We took advantage of some of these situations through bond positions
in TYCO INTERNATIONAL and MALLINCKRODT. Utility companies also offered more
attractive yields and we added or increased positions in companies such as
NIAGARA MOHAWK POWER and PUBLIC SERVICE ELECTRIC & GAS. With this defensive
position, the Fund achieved decent bond performance while managing risk.
Q WHAT ARE YOUR EXPECTATIONS FOR THE CORPORATE BOND MARKET IN 2004?
A Even with stronger economic growth in 2003, inflation remained low, giving
the Federal Reserve the flexibility to take its time raising short-term interest
rates. We anticipate the Fed will begin raising rates by the end of 2004 if the
economy continues to grow at a healthy pace. We expect elevated volatility in
the bond market during 2004 as investors attempt to gauge the strength of the
economy and anticipate any action by the Fed.
Throughout the course of the year, we expect to see a slight increase in
yields. Given these conditions, the Fund will continue to maintain its shorter
duration. This will help manage risk while
9
<Page>
providing the Fund with capital to take advantage of new opportunities as yields
improve.
Q CAN THE EQUITY MARKET SUSTAIN ITS GROWTH IN 2004?
A While the economic outlook remains good for 2004, it will be critical to
see some improvement in a number of areas in order to maintain long-term growth.
Stronger job growth will be needed to support consumer confidence and spending.
In addition, the federal government will need to control spending to address the
growing budget deficit.
Sustained U.S. economic growth will also depend on stronger economic growth
in Europe and Asia. Stronger growth overseas would provide some support for U.S.
economic growth by improving the value of the dollar and helping to stem the
growing trade deficit. On the downside, stronger growth in the global economy
could also increase inflation offsetting the impact of these benefits. At
present, Europe and Asia appear to be moving toward strong growth. Sustained
improvement will depend upon their ability and willingness to implement
accommodative fiscal and monetary policies.
Continued improvement in the equity market will depend largely on the
strength of the U.S. economy. Current market valuations already reflect high
economic and earnings expectations. With a more benign outlook for economic
growth in 2004, we would expect a return to more historical equity market growth
rather than a continuation of the rapid advance experienced in 2003. We also
expect to see less consensus on the economic outlook which would produce
somewhat greater volatility in the market. We anticipate the Fund will maintain
its larger equity position in 2004 while continuing to focus on holding and
acquiring high-quality companies at reasonable prices.
[CHART]
INVESTMENT MIX as of 12/31/03
<Table>
1. EQUITIES 50.79%
2. CORPORATE BONDS 44.68%
3. CASH 3.79%
4. U.S. GOVERNMENT SECURITIES 0.74%
</Table>
(1) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Fund returns do not
take into account the maximum 5.75% sales charge on Class A shares. Returns
would be lower if the sales charge was included. Performance figures represent
the change in value over the stated period assuming reinvestment of dividends
and capital gains at net asset value and after expense reimbursements. Returns
do not consider individual taxes which may reduce actual returns when shares are
sold.
(2) The Standard & Poor's 500 Index is an unmanaged, market capitalization
weighted measure of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and The Nasdaq Stock Market. The Index returns
assume reinvestment of dividends, but, unlike the Fund's returns, do not reflect
the effects of management fees or expenses.
(3) The Lehman Treasury Bond Index is an unmanaged index of intermediate term
government bonds since 12/31/80.
10
<Page>
CHANGE IN VALUE OF $10,000 INVESTMENT(1)
This chart shows the growth of a $10,000 investment made in Pacific Advisors
Balanced Fund, Class A shares, on February 8, 1993 compared to the growth of the
S&P 5002 and Lehman Intermediate T-Bond(3) Indices.
[CHART]
BALANCED FUND
<Table>
<Caption>
BALANCED FUND S&P 500 INDEX LEHMAN T-BOND INDEX
2/8/93 $ 9,425 $ 10,000 $ 10,000
12/31/93 $ 9,423 $ 10,706 $ 10,826
12/31/94 $ 9,195 $ 10,541 $ 10,604
12/31/95 $ 9,996 $ 14,137 $ 12,140
12/31/96 $ 11,587 $ 17,348 $ 12,622
12/31/97 $ 13,353 $ 22,728 $ 13,590
12/31/98 $ 14,379 $ 28,789 $ 14,764
12/31/99 $ 16,206 $ 34,412 $ 14,829
12/31/2000 $ 17,825 $ 30,922 $ 16,339
12/31/2001 $ 16,978 $ 26,890 $ 17,643
12/31/2002 $ 16,120 $ 20,606 $ 19,282
12/31/2003 $ 19,124 $ 26,042 $ 19,708
</Table>
Average Annual Compounded Return for period ending December 31, 2003 (Class A
shares)
<Table>
One Year 11.77%
Five Year 4.62%
Ten Year 6.70%
</Table>
- ----------
(1) Performance figures represent the change in value of an investment over the
periods shown, and have been restated to include the maximum 5.75% initial sales
charge, assuming reinvestment of dividends and capital gains at net asset value
and after expense reimbursements. Past performance does not guarantee future
results. Share price and returns fluctuate, so that your shares, when redeemed,
may be worth more or less than their original cost.
(2) The Standard & Poor's 500 Index is an unmanaged, market capitalization
weighted measure of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and The Nasdaq Stock Market. The Index returns
assume reinvestment of dividends, but, unlike the Fund's returns, do not reflect
the effects of management fees or expenses.
(3) The Lehman Treasury Bond Index is an unmanaged index of intermediate
government bonds since 12/31/80.
11
<Page>
PACIFIC ADVISORS
GROWTH FUND
INVESTS PRIMARILY IN COMPANIES THAT ARE A PART OF THE S&P 500 COMPOSITE INDEX(1)
OR THE NASDAQ 100 INDEX(2).
INTERVIEW WITH PORTFOLIO MANAGER
THOMAS H. HANSON
FOR THE YEAR ENDED DECEMBER 31, 2003, THE FUND RETURNED 30.29% FOR CLASS A
SHARES, AND 28.14% FOR CLASS C SHARES(3). THE FUND'S BENCHMARKS, THE S&P 500 AND
THE NASDAQ 100, INCREASED 28.69% AND 49.10%, RESPECTIVELY, DURING THE SAME
PERIOD.
Q WHY DID EQUITY MARKET PERFORMANCE IMPROVE DRAMATICALLY IN 2003?
A The first quarter of 2003 brought little change in the equity market.
Investors were concerned about the sustainability of the economic recovery, as
well as the outcome and impact of tensions in Iraq. By the end of the first
quarter, investors saw substantial evidence to suggest the economy and corporate
earnings were on track for sustained growth. An end to the uncertainty in Iraq
in early April opened the door for capital to come back into the market.
The market recovery took place in two phases. Early in the year, the
technology sector finally reached an end to its post-Y2K drought. Tech stocks
began to recover as companies stepped up spending to replace outdated equipment.
Capital moved aggressively into this area of the market as evidenced by the
dramatic rise in the Nasdaq 100 Index. Capital also moved quickly and more
abundantly into small and mid cap companies, which were some of the first to
benefit from renewed economic growth.
Strong performance in these areas of the market served as a catalyst for a
recovery in larger cap stocks during the latter part of the year. Performance in
this area of the market improved, but lagged behind that of small and mid cap
stocks. As a result, the performance of the S&P 500 was roughly half of the
Nasdaq 100.
Q WHAT WAS THE FUND'S INVESTMENT STRATEGY LAST YEAR?
A The Fund entered 2003 in a defensive posture. To manage market volatility
and risk in 2002, we weighted the Fund's portfolio toward more stable growth
stocks. We concentrated the Fund's holdings in areas which typically perform
better in a slower growing economy, such as consumer products and services and
healthcare. We also maintained a larger cash position to give the Fund the
ability to take advantage of new opportunities in a recovering market.
As the market recovery took hold in 2003, we shifted to a more assertive
investment strategy. We reduced or sold some of the Fund's more defensive
positions. We weighted the portfolio toward more traditional growth stocks
producing higher earnings and revenue growth in sectors that tend to perform
well in a recovering economy. For example, we added a number of new positions in
the commodities and basic materials sector, including LOUISIANA PACIFIC, GEORGIA
PACIFIC, ANGLOGOLD and HERCULES, INC.
The Fund largely avoided technology stocks in 2003. While this sector
offered the strongest growth and the highest returns, it also carried the
greatest risk. We avoided assuming unnecessary risk and made only a few select
investments in more stable tech stocks, such as ANDREW CORPORATION and SYMBOL
TECHNOLOGIES. This adaptive and more conservative investment strategy allowed
the Fund to manage risk while achieving strong performance in 2003. While the
portfolio holdings improved across the board, some of the Fund's top performers
included ST. JUDE MEDICAL and ZIMMER HOLDINGS in the healthcare field, telecom
positions such as NEXTEL COMMUNICATIONS and QUALCOMM, and SYMBOL TECHNOLOGIES.
Q HOW DO YOU MANAGE RISK IN THE GROWTH MARKET?
A Risk management begins with the Fund's commitment to seek LONG-TERM capital
appreciation. We do not attempt to chase market performance or make speculative,
short-term bets. Instead, we look to invest in reasonably priced stocks that we
believe will provide stable, long-term growth. In our stock selection process,
we use a blend of technical and fundamental analysis to examine potential
investments. Our technical analysis helps us track market momentum and identify
the leading sectors and industries in the market. Our fundamental analysis helps
us identify the stocks in those sectors and
12
<Page>
industries that we believe represent the best opportunities for stable,
long-term growth.
Furthermore, the Fund employs an adaptive investment strategy to help
manage risk. In volatile markets, we seek to minimize risk by weighting the
Fund's portfolio toward more conservative growth investments. We will also hold
a larger cash position to manage volatility and position the Fund to capitalize
on new investment opportunities when the market begins to recover. In advancing
markets, the Fund manages risk by focusing on more traditional growth stocks
while avoiding highly volatile and speculative areas of the market.
Q WHAT OPPORTUNITIES AND RISKS DO YOU ANTICIPATE IN THE MARKET DURING 2004?
A We anticipate good performance from the equity market in 2004, but we do
not expect it will match the exceptionally high returns achieved in 2003.
Current data suggest the economy and corporate earnings will continue to grow at
a modest pace. While we anticipate a slight rise in interest rates, they should
remain relatively low making equities more attractive in comparison to other
investments. Our optimistic outlook is tempered by the understanding that
several factors could present challenges to growth including new geopolitical
threats, lagging economic growth in Europe and Asia, continued weakness in the
dollar, and the presidential election.
Even with the abundant market growth in 2003, a significant amount of
capital remains on the sidelines for investment. Given good economic growth,
increasing corporate earnings, and a stable geopolitical environment, this
should provide enough fuel for continued market growth. Growth in 2004 will
likely be more evenly spread across the market as opposed to the segmented
growth experienced in 2003. We expect large cap stocks will lead in market
performance during 2004 while small and mid cap stocks should continue to
perform well.
We anticipate maintaining our more assertive investment strategy in 2004.
We will continue to keep the Fund more fully invested and weighted toward growth
stocks with higher revenue and earnings growth. As the market recovery advances,
we will look to keep the Fund concentrated in the better performing sectors and
companies within those sectors.
[CHART]
INVESTMENT MIX as of 12/31/03
<Table>
1. EQUITIES 94.96%
2. CASH 5.04%
</Table>
(1) The Standard & Poor's 500 Index is an unmanaged, market capitalization
weighted measure of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and The Nasdaq Stock Market. The Index returns
assume reinvestment of dividends but, unlike the Fund's returns, do not reflect
the effects of management fees or expenses.
(2) The Nasdaq 100 Stock Index is an unmanaged, weighted measure of the 100
largest non-financial domestic and international common stocks listed on The
Nasdaq Stock Market. The Index returns assume reinvestment of dividends, but,
unlike the Fund, do not reflect management fees or expenses.
(3) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Fund returns do not
take into account the maximum 5.75% sales charge on Class A shares. Returns
would be lower if the sales charge was included. Performance figures represent
the change in value over the stated period assuming reinvestment of dividends
and capital gains at net asset value and after expense reimbursements. Returns
do not consider individual taxes which may reduce actual returns when shares are
sold.
13
<Page>
CHANGE IN VALUE OF $10,000 INVESTMENT(1)
This chart shows the growth of a $10,000 investment made in Pacific Advisors
Growth Fund, Class A shares, on May 1, 1999 compared to the growth of the S&P
500(2) and Nasdaq 100(3) Indices.
[CHART]
GROWTH FUND
<Table>
<Caption>
GROWTH FUND S&P 500 INDEX NASDAQ 100 INDEX
5/1/99 $ 9,425 $ 10,000 $ 10,000
12/31/99 $ 11,875 $ 11,953 $ 20,109
12/31/2000 $ 10,002 $ 10,741 $ 12,701
12/31/2001 $ 7,163 $ 9,340 $ 8,554
12/31/2002 $ 5,576 $ 7,158 $ 5,339
12/31/2003 $ 7,265 $ 9,046 $ 7,962
</Table>
Average Annual Compounded Return for period ending December 31, 2003 (Class A
shares)
<Table>
One Year 22.89%
Inception -8.14%
</Table>
- ----------
(1) Performance figures represent the change in value of an investment over the
periods shown, and have been restated to include the maximum 5.75% initial sales
charge, assuming reinvestment of dividends and capital gains at net asset value
and after expense reimbursements. Past performance does not guarantee future
results. Share price and returns fluctuate, so that your shares, when redeemed,
may be worth more or less than their original cost.
(2) The Standard & Poor's 500 Index is an unmanaged, market capitalization
weighted measure of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and The Nasdaq Stock Market. The Index returns
assume reinvestment of dividends, but, unlike the Fund's returns, do not reflect
the effects of management fees or expenses.
(3) The Nasdaq 100 Stock Index is an unmanaged, weighted measure of the 100
largest non-financial domestic and international common stocks listed on The
Nasdaq Stock Market. The Index returns assume reinvestment of dividends, but,
unlike the Fund, do not reflect management fees or expenses.
14
<Page>
PACIFIC ADVISORS
MULTI-CAP VALUE FUND
INVESTS IN A DIVERSIFIED PORTFOLIO OF LARGE TO SMALL CAPITALIZATION COMPANIES
USING AN ACTIVELY MANAGED, VALUE-BASED INVESTMENT APPROACH.
INTERVIEW WITH PORTFOLIO MANAGER
SHELLY J. MEYERS
FOR THE YEAR ENDED DECEMBER 31, 2003, CLASS A SHARES RETURNED 44.15% AND CLASS C
SHARES RETURNED 43.24%(1). DURING THE SAME PERIOD, THE FUND'S BENCHMARK, THE S&P
500(2), RETURNED 28.69%. BASED ON ITS 1-YEAR TOTAL RETURN AS OF DECEMBER 31ST,
THE MULTI-CAP VALUE FUND (A) RANKED IN THE TOP 2% OF THE 579 MULTI-CAP CORE
FUNDS TRACKED BY LIPPER(3).
Q WHAT DROVE EQUITY MARKET PERFORMANCE IN 2003?
A By the beginning of 2003, the stage was set for recovery in the equity
market. The fallout from the worst three years in the market since The Great
Depression left the market significantly undervalued. In addition, historically
low interest rates made alternative investments unattractive when compared to
equities. Finally, economic and monetary stimuli in the form of tax cuts and low
interest rates created substantial capital for investment.
During the first quarter, however, market performance continued to lag.
Investors remained cautious and tentative as they awaited confirmation of a
sustained recovery in the economy and corporate earnings, as well as a
resolution to the geopolitical tension in Iraq. By early April, investors gained
a better read on the situation in Iraq and the long-term prospects for the
economy giving them the confidence to re-enter the market. When the market
finally began to advance, investors moved quickly to put their money to work to
avoid missing out on improved performance. Further economic improvement, and the
large amount of money available for investment, continued to fuel market growth
through the remainder of the year.
Q HOW DID THE FUND CAPITALIZE ON IMPROVED MARKET PERFORMANCE?
A The Fund benefited from the market recovery as a result of its patient and
disciplined investment strategy. The market downturn provided numerous
investment opportunities for the Fund in 2002. The Fund used its strong cash
position to take advantage of these opportunities and build a diversified
portfolio of solid but undervalued companies. Despite continued market
volatility throughout 2002 and early 2003, the Fund held to its investment
strategy and maintained these positions. The Fund's patience paid off when the
market recovery finally took hold in 2003 and the Fund benefited across the
board from its holdings. Some of the Fund's top performers included LUCENT
TECHNOLOGIES, GAP, CENDANT, and WATSON PHARMACEUTICALS.
Q WHAT NEW INVESTMENTS DID THE FUND MAKE IN 2003?
A With the market advance in 2003, undervalued companies were more difficult
to find. A number of investment opportunities resulted from companies
experiencing a decline in their stock price as a result of short-term setbacks.
We believed these companies were undervalued by the market based on their strong
fundamentals and long-term business prospects. For example, the Fund acquired
SCHERING-PLOUGH, a leading pharmaceutical company, when temporary regulatory
concerns drove the stock's price lower. The Fund also took advantage of similar
situations and purchased ENDO PHARMACEUTICALS and FREDDIE MAC.
While 2003 remained, for the most part, a "stock picker's market, we did
find a number of investment opportunities in the oil and financial services
sector. Concerns over the sustainability of oil prices kept most oil companies
out of favor with the market. Given the number of factors in place to help
support oil prices, including the weak dollar and reconstruction in Iraq, we
believed many of these companies were undervalued by the market. This led the
Fund to add companies such as CHEVRONTEXACO and MARATHON OIL to its portfolio.
In the financial services industry, the Fund acquired companies such as
NATIONWIDE FINANCIAL SERVICES and LINCOLN NATIONAL. By the end of 2003, the Fund
had already begun to benefit from these new investments.
Q HOW DOES THE FUND MANAGE RISK?
A The Fund manages risk through careful stock selection and diversification.
We use a strict set of criteria to evaluate potential investments. In addition
to being undervalued by the market, companies must possess strong fundamentals
and a price catalyst that will cause them to receive greater market recognition.
We do extensive
15
<Page>
fundamental research and actively review the Fund's holdings to watch for
changes in any of these dynamics. When a company no longer meets the Fund's
investment criteria, the position is sold. We also maintain a diversified
portfolio by investing in companies in a variety of sectors across all market
capitalizations. We closely monitor and limit the percentage the Fund owns in
any one sector or company to help minimize risk.
Q WILL THE MARKET BE ABLE TO SUSTAIN ITS ROBUST GROWTH IN 2004?
A Market performance in 2004 will depend primarily on the strength of the
economy. All signs indicate economic growth will be healthy, but not
spectacular, in the coming year. While inflation remains low and consumer and
business spending continues to increase, a number of factors will prevent a
breakthrough in economic growth.
We expect the Fed will take some action to raise interest rates before
year-end, which should begin to temper spending growth. Job growth remains
lackluster and probably will not improve as much as desired. Many jobs have been
permanently lost to cheaper labor markets overseas or eliminated due to advances
in technology and productivity. The growing federal budget deficit and the
weaker dollar may also present challenges to economic growth.
Market returns in 2003 were well above historical averages and it is
unlikely that the market will achieve as strong of a performance in 2004.
Nevertheless, a significant amount of capital remains on the sidelines waiting
to be invested which should provide continued fuel for the market. Barring any
geopolitical surprises, and assuming the economy continues to grow as expected,
we anticipate good market growth and performance in the coming year.
[CHART]
INVESTMENT MIX as of 12/31/03
<Table>
1. EQUITIES 90.31%
2. CASH 9.69%
</Table>
(1) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Fund returns do not
take into account the maximum 5.75% sales charge on Class A shares. Returns
would be lower if the sales charge was included. Performance figures represent
the change in value over the stated period assuming reinvestment of dividends
and capital gains at net asset value and after expense reimbursements. Returns
do not consider individual taxes which may reduce actual returns when shares are
sold.
(2) The Standard & Poor's 500 Index is an unmanaged, market capitalization
weighted measure of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and The Nasdaq Stock Market. The Index returns
assume reinvestment of dividends, but, unlike the Fund's returns, do not reflect
the effects of management fees or expenses.
(3) The Fund ranked number 11 based on a 1-year total return of 45.56% as
calculated by Lipper.
16
<Page>
CHANGE IN VALUE OF $10,000 INVESTMENT(1)
This chart shows the growth of a $10,000 investment made in Pacific Advisors
Multi-Cap Value Fund, Class A shares, on April 1, 2002 compared to the growth of
the S&P 500(2).
[CHART]
MULTI-CAP VALUE FUND
<Table>
<Caption>
MULTI-CAP VALUE FUND S&P 500 INDEX
4/1/2002 $ 9,425 $ 10,000
12/31/2002 $ 7,493 $ 7,663
12/31/2003 $ 10,801 $ 9,684
</Table>
Average Annual Compounded Return for period ending December 31, 2003 (Class A
shares)
<Table>
One Year 35.78%
Inception 4.50%
</Table>
- ----------
(1) Performance figures represent the change in value of an investment over the
periods shown, and have been restated to include the maximum 5.75% initial sales
charge, assuming reinvestment of dividends and capital gains at net asset value
and after expense reimbursements. Past performance does not guarantee future
results. Share price and returns fluctuate, so that your shares, when redeemed,
may be worth more or less than their original cost.
(2) The Standard & Poor's 500 Index is an unmanaged, market capitalization
weighted measure of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and The Nasdaq Stock Market. The Index returns
assume reinvestment of dividends, but, unlike the Fund's returns, do not reflect
the effects of management fees or expenses.
17
<Page>
PACIFIC ADVISORS
SMALL CAP FUND
INVESTS PRIMARILY IN SMALL COMPANY STOCKS(1) WITH A MARKET CAP BELOW $500M USING
A VALUE INVESTMENT APPROACH. THE FUND FOCUSES ON COMPANIES WITH STRONG EARNINGS
AND GROWTH POTENTIAL.
INTERVIEW WITH PORTFOLIO MANAGERS
GEORGE A. HENNING
THOMAS H. HANSON
FOR THE YEAR ENDED DECEMBER 31, 2003, THE FUND RETURNED 83.21% FOR CLASS A
SHARES, AND 81.83% FOR CLASS C SHARES(2). THE FUND'S BENCHMARK, THE RUSSELL 2000
STOCK INDEX(3), RETURNED 47.25% FOR THE SAME PERIOD. THE SMALL CAP FUND (A)
RANKED #10 OUT OF 517 SMALL CAP CORE FUNDS TRACKED BY LIPPER BASED ON ITS 1-YEAR
PERFORMANCE AS OF DECEMBER 31ST.(4)
Q WHY DID SMALL CAP STOCKS OUTPERFORM THE MARKET IN 2003?
A Small cap stocks, in particular, were hit hard during the recent bear
market and became significantly undervalued in comparison to the rest of the
market. The impact of corporate accounting irregularities, the recession and
geopolitical instability contributed to the significant deterioration in small
cap valuations during 2002. As market volatility persisted throughout 2002 and
into first part of 2003, investors moved a significant amount of capital to the
sidelines waiting for improved market performance.
Historically, small cap stocks have provided market leadership in the early
stages of an economic recovery. Small cap companies were some of the first to
benefit the economic recovery in late 2002 and early 2003 with stronger earnings
and revenue growth. In early 2003, as geopolitical tensions stabilized and
economic conditions improved, investors began moving capital back into the
equity market. They focused on small cap stocks which offered some of the best
investment opportunities because of their attractive valuations and strong
growth prospects. Financial, energy, technology, and manufacturing stocks were
some of the early market leaders. Momentum in the equity market continued during
the second half of the year as investors feverishly put capital to work to avoid
missing out on the strong growth in the equity market. Small cap stocks
continued to benefit as investors moved additional capital from the real estate
and bond markets to the equity market.
Q WHY DID THE FUND PERFORM SO WELL IN COMPARISON TO THE RUSSELL 2000 INDEX?
A Strategic positioning in 2002 allowed the Fund to achieve superior
performance in 2003. During 2002, we weighted the Fund's portfolio toward
sectors expected to benefit early on in an economic and market recovery such as
financial services, energy and select technology holdings. We patiently
maintained this investment strategy throughout 2002 and, when the market began
to recover in 2003, the Fund experienced improved performance across the board
in its holdings. Some of the Fund's top performers included financial companies
such as EAST WEST BANK, NARA BANK, and FIRST CASH FINANCIAL SERVICES.
INTERVOICE, ELKCORP, CHESAPEAKE ENERGY, TYLER TECHNOLOGIES, and CARREKER
CORPORATION also experienced significant growth during the year.
As valuations improved, we reduced the Fund's exposure in certain positions
and took profits to reinvest in emerging investment opportunities. We
concentrated the Fund's newer holdings in sectors and industries expected to
lead market performance in a recovering economy. In the transportation sector,
this included SCS TRANSPORTATION, a spin-off of one of the nation's largest
trucking company. With its extensive nationwide network, we believed SCS stood
to benefit substantially from an emerging recovery in the transportation
industry. In anticipation of improvement in the manufacturing sector, the Fund
added positions in TITAN INTERNATIONAL, maker of parts for John Deere and
Caterpillar equipment, and AVIALL, a leader in parts distribution for general
and military aircraft. With the demand for oil and natural gas continuing to
rise, we also added to the Fund's holdings in the energy sector with positions
in HARVEST NATURAL RESOURCES and DENBURY RESOURCES.
Q WHAT MAKES THE FUND'S INVESTMENT STRATEGY SO EFFECTIVE?
A Rather than attempting to chase short-term market performance, we focus on
investing in undervalued companies with strong prospects for
18
<Page>
sustained, long-term growth. We perform fundamental research to surface
companies which are leaders in their industries and possess a strategic business
plan to maintain long-term growth. We often follow up this research by meeting
personally with management to gain a greater understanding of a company's
business. This approach allows us to identify many hidden investment
opportunities.
As an example, in 2002, several of the Fund's positions fell out of favor
with the market as a result of financial setbacks. These companies included
INTERVOICE, which is a leader in voice recognition technology, and AMERICAN
SERVICE GROUP, the largest provider of medical services to correctional
facilities. Through our research, we knew these companies well enough to
understand these problems were temporary and would lead to structural changes to
strengthen their businesses. Instead of selling these companies, we took
advantage of their price declines and added to the Fund's positions. The Fund
benefited significantly as these companies resolved their problems and gained
greater market recognition.
It is impossible to predict short-term market performance or exactly when a
particular company will gain greater market recognition. When the Fund takes a
position in a company, we understand it may take some time for the Fund to
realize the full benefit of its investment. Our knowledge of these companies,
and our confidence in their long-term prospects, gives us the comfort and the
ability to patiently hold these positions to help the Fund achieve its long-term
growth objective.
Q WHAT IS YOUR ECONOMIC OUTLOOK FOR 2004?
A Market growth in 2004 will depend primarily on geopolitical stability and
continued economic and earnings growth. Technical indicators suggest the economy
is on pace for decent, but not spectacular, growth in the coming year. Low
levels of inflation and interest rates should remain, keeping consumer and
business spending growing at a healthy rate.
While a number of concerns exist, we do not believe they present
significant threats to the economy at this time. Job growth may be weaker than
desired, but the unemployment rate remains below the historical average of 6%,
which should provide enough support for modest economic growth. Despite rapid
growth in the federal budget deficit to stimulate the economy and provide for
national defense, it too remains relatively low by historical standards. As the
economy improves, growing tax receipts should help alleviate the deficit. The
federal government, however, will also need to manage spending increases to
avoid jeopardizing long-term economic growth. Finally, we would anticipate some
recovery in the U.S. dollar as the economy recovers and interest rates become
attract more foreign investors.
Q CAN SMALL CAP STOCKS MAINTAIN THEIR STRONG PERFORMANCE IN 2004?
A Given the tempered outlook for economic growth in 2004, we expect to see
continued growth in the equity market, but at a much slower pace than in 2003.
With the significant rise in valuations during 2003, we anticipate a modest
market correction sometime in the first half of 2004. We would view such a
correction as a positive event which would remove market excess and provide the
Fund with new investment opportunities.
Even with the strong growth they experienced in 2003, many small cap stocks
remain largely undervalued. In addition, small cap companies have greater
flexibility to adapt to changing market conditions and are generally more
resistant to fluctuations in the economy. We believe this area of the market is
well positioned for continued growth in 2004. We believe the Fund is well
positioned to capitalize on this growth and take advantage of new opportunities
created by changes in the market landscape.
19
<Page>
[CHART]
INVESTMENT MIX as of 12/31/03
<Table>
1. EQUITIES 96.98%
2. CASH 3.02%
</Table>
(1) Small cap companies typically have fewer financial resources and may carry
higher investment risks and experience greater stock price volatility than
larger cap stocks.
(2) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Fund returns do not
take into account the maximum 5.75% sales charge on Class A shares. Returns
would be lower if the sales charge was included. Performance figures represent
the change in value over the stated period assuming reinvestment of dividends
and capital gains at net asset value and after expense reimbursements. Returns
do not consider individual taxes which may reduce actual returns when shares are
sold.
(3) The Russell 2000 Stock Index is an unmanaged, market-weighted measure of
stock market performance. It contains stocks of the 2,000 smallest publicly
traded companies of the Russell 3000 Index. The Russell 2000 Stock Index does
not take capital gains into consideration, and, unlike the Fund, does not
reflect the effects of management fees or expenses.
(4) The Fund's ranking is based on 1-year total return of 83.53% as calculated
by Lipper. As of December 31, 2003, the Small Cap Fund (A) ranked 207th based on
its 5-year average annual return out of 279 small cap core funds; and 67th based
on its 10-year average annual return out of 70 small cap core funds.
20
<Page>
CHANGE IN VALUE OF $10,000 INVESTMENT(1)
This chart shows the growth of a $10,000 investment made in Pacific Advisors
Small Cap Fund, Class A shares, on February 8, 1993 compared to the growth of
the Russell 2000 Index(2).
[CHART]
SMALL CAP FUND
<Table>
<Caption>
SMALL CAP FUND RUSSELL 2000 INDEX
2/8/93 $ 9,425 $ 10,000
12/31/93 $ 11,319 $ 11,700
12/31/94 $ 10,870 $ 11,328
12/31/95 $ 12,771 $ 14,297
12/31/96 $ 18,352 $ 16,407
12/31/97 $ 19,628 $ 19,774
12/31/98 $ 16,379 $ 19,092
12/31/99 $ 13,800 $ 22,837
12/31/2000 $ 15,570 $ 21,878
12/31/2001 $ 18,720 $ 22,103
12/31/2002 $ 12,692 $ 17,334
12/31/2003 $ 23,253 $ 25,198
</Table>
Average Annual Compounded Return for period ending December 31, 2003 (Class A
shares)
<Table>
One Year 72.67%
Five Year 6.00%
Ten Year 6.82%
</Table>
- ----------
(1) Performance figures represent the change in value of an investment over the
periods shown, and have been restated to include the maximum 5.75% initial sales
charge, assuming reinvestment of dividends and capital gains at net asset value
and after expense reimbursements. Past performance does not guarantee future
results. Share price and returns fluctuate, so that your shares, when redeemed,
may be worth more or less than their original cost.
(2) The Russell 2000 Stock Index is an unmanaged, market weighted measure of
stock market performance. It contains stocks of the 2,000 smallest publicly
traded companies of the Russell 3000 Index. The Russell 2000 Stock Index does
not take capital gains into consideration, and, unlike the Fund, does not
reflect the effects of management fees or expenses.
21
<Page>
PACIFIC ADVISORS FUND INC.
FINANCIAL STATEMENTS
22
<Page>
PACIFIC ADVISORS GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------
US GOVERNMENT SECURITIES - 90.64%
US Treasury Bills
US Treasury Bill 01/02/04 $ 3,000,000 $ 2,999,970
US Treasury Note
US Treasury Note 4.25% 11/15/13 1,000,000 998,906
US Government Agencies
Fannie Mae 3.00% 12/15/06 750,000 750,212
Fannie Mae 3.10% 07/28/08 1,000,000 973,515
Fannie Mae 4.00% 08/25/08 1,000,000 1,003,734
Federal Home Loan Bank 2.00% 12/23/05 750,000 755,561
Federal Home Loan Bank 2.50% 11/26/07 750,000 756,343
Federal Home Loan Bank 2.50% 12/12/06 750,000 747,464
Federal Home Loan Bank 2.75% 12/28/05 2,000,000 2,002,258
Federal Home Loan Bank 3.25% 12/10/08 750,000 751,476
Federal Home Loan Bank 4.525% 05/14/10 500,000 501,497
Freddie Mac 2.00% 11/17/06 850,000 854,849
9,096,909
TOTAL US GOVERNMENT SECURITIES
(Cost: $13,069,655) 13,095,785
--------------
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK - 4.83%
Energy
PPL Corporation 5,000 218,750
Pipelines
Kinder Morgan Energy Partners 3,000 147,810
Utilities - Water
Philadelphia Suburban Corporation 15,000 331,500
TOTAL COMMON STOCK
(Cost: $587,061) 698,060
--------------
PREFERRED STOCK - 4.58%
Banks - Regional
Abbey National PLC 7.375% Preferred B 4,000 110,840
Chase Capital V 7.03% 10,000 251,500
Citigroup Capital IX 6.00% 5,000 126,900
Citigroup Capital VII 7.125% 07/31/31 5,000 133,600
622,840
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
PREFERRED STOCK CONTINUED
Insurance - Life
Phoenix Companies, Inc. 7.45% 01/15/32 1,500 $ 38,775
TOTAL PREFERRED STOCK
(Cost: $661,520) 661,615
--------------
TOTAL INVESTMENT SECURITIES - 100.05%
(Cost: $14,318,236) $ 14,455,460
--------------
OTHER ASSETS LESS LIABILITIES - (0.05)% (7,770)
--------------
TOTAL NET ASSETS - 100% $ 14,447,690
====================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
24
<Page>
PACIFIC ADVISORS INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------
CORPORATE BONDS - 65.06%
Banks - Regional
Bank of America Corporation 6.00% 03/15/06 $ 20,000 $ 21,427
Bank One Corporation 7.25% 08/15/04 30,000 31,067
52,494
Beverages
Anheuser Busch 7.125% 07/01/17 125,000 142,214
Communications
Citizens Communications 7.45% 01/15/04 80,000 80,097
Computer & Related Equipment
International Business Machines 5.625%
04/12/04 55,000 55,646
Cosmetic/Personal Care
Scott Paper Company 10.00% 03/15/05 60,000 65,629
Electrical
Northwestern Corporation 7.10% 08/01/05 125,000 127,031
Entertainment
Time Warner, Inc. 8.11% 08/15/06 100,000 113,203
Financial Services
Associates Corporation N.A. 8.55% 07/15/09 80,000 97,281
Ford Motor Credit Corporation 7.375% 10/28/09 50,000 54,908
General Motors Acceptance Corporation 8.75%
07/15/05 95,000 102,584
254,773
Financial Services - Diversified
General Electric Capital Floating Rate Note
01/01/49 75,000 74,144
General Electric Capital 8.50% 07/24/08 46,000 55,298
General Electric Capital 8.65% 05/15/09 40,000 48,860
General Electric Capital 8.875% 05/15/09 175,000 215,646
393,948
Food Retailers
Safeway, Inc. 9.875% 03/15/07 270,000 321,204
Gas
Piedmont National Gas Company 7.80% 09/29/10 150,000 180,448
Heavy Machinery
Deere & Company 8.95% 06/15/19 76,000 93,762
Home Furnishings
Whirlpool Corporation 9.10% 03/15/04 70,000 70,964
Industrial
Caterpillar, Inc. 9.375% 08/15/11 94,000 123,688
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
25
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------
CORPORATE BONDS CONTINUED
Insurance - Full Line
Cigna Corporation 8.25% 01/01/07 $ 30,000 $ 33,722
Transamerica Corporation 9.375% 03/01/08 112,000 133,122
166,844
Insurance - Life
American General Finance Corporation 5.875%
12/15/05 100,000 107,010
American General Finance Corporation 8.125%
08/15/09 91,000 108,802
215,812
Insurance - Specialty
MBIA, Inc. 9.375% 02/15/11 14,000 18,246
Oil - Integrated Majors
Enron Oil and Gas 6.50% 09/15/04 225,000 232,418
Texaco Capital 8.625% 06/30/10 170,000 213,804
446,222
Retailers - Broadline
Wal-Mart Stores 8.00% 09/15/06 50,000 57,007
Semiconductor & Related
Gerber Products 9.00% 10/15/06 100,000 115,322
Telephone Systems
Bellsouth Capital Funding Corporation 6.04%
11/15/26 85,000 92,744
Bellsouth Capital Funding Corporation 6.30%
12/15/15 258,496 283,350
GTE Hawaiian Telecom 6.75% 02/15/05 122,000 128,540
SBC Communications 6.59% 09/29/08 185,000 204,708
Wisconsin Bell 6.35% 12/01/26 50,000 54,980
764,322
Transportation
Norfolk Southern Corporation 7.875% 02/15/04 164,000 165,065
Utilities - Electric
Niagara Mohawk Power 9.75% 11/01/05 20,000 22,586
Pennsylvania Power & Light 6.55% 03/01/06 75,000 81,002
Potomac Electric Power 6.25% 10/15/07 75,000 82,578
Potomac Electric Power 6.50% 09/15/05 115,000 123,103
Public Service Electric & Gas 6.75% 03/01/06 275,000 299,398
Public Service Oklahoma 6.50% 06/01/05 50,000 53,185
Public Service Oklahoma 7.375% 12/01/04 30,000 31,629
693,481
TOTAL CORPORATE BONDS
(Cost: $4,589,514) 4,717,422
--------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
26
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------
FOREIGN BONDS - 0.99%
Foreign Government
Ontario Province Canada 7.625% 06/22/04 $ 70,000 $ 72,112
TOTAL FOREIGN BONDS
(Cost: $71,319) 72,112
--------------
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK - 17.40%
Automobile Parts
Genuine Parts Company 2,000 66,400
Aluminum
Alcoa, Inc. 1,000 38,000
Banks - Money Center
Bank of America 1,000 80,430
Banks - Regional
Willmington Trust Company 1,000 36,000
Chemicals - Specialty
International Flavors and Fragrances 2,000 69,840
Diversified Companies
General Electric 2,000 61,960
Electric
Dominion Resources 1,000 63,830
Financial Services - Specialty
Freddie Mac 2,000 116,640
Healthcare Provider
HCA, Inc. 1,000 42,960
Industrial Diversified
Tyco International, Ltd. 2,000 53,000
Insurance - Property
American International Group, Inc. 1,000 66,280
Chubb Corporation 500 34,050
100,330
Medical & Biotechnology
Johnson & Johnson 3,000 154,980
Pharmaceuticals
Pfizer, Inc. 2,500 88,325
Pipelines
El Paso Energy Corporation 1,000 8,190
Real Estate Investment Trusts
Hospitality Properties 5,000 206,400
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
27
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Utilities
American Electric Power Company, Inc. 1,000 $ 30,510
Public Service Enterprise Group, Inc. 1,000 43,800
74,310
TOTAL COMMON STOCK
(Cost: $1,295,294) 1,261,595
--------------
PREFERRED STOCK - 10.55%
Financial Services
Chase Capital V 7.03% 2,000 50,300
Citigroup Capital VII 7.125% 07/31/31 2,000 53,440
Citigroup Capital IX 6.0% 4,000 101,520
First Bancorp Puerto Rico 7.40% Preferred C 2,000 53,300
258,560
Insurance - Full Line
ING Capital Funding Trust II 2,500 68,850
Insurance - Life
American General Preferred C 7.875% 1,000 26,080
Phoenix Companies, Inc. 7.45% 01/15/32 3,500 90,475
Westpac Capital Trust I 8.00% 3,000 77,010
193,565
Real Estate Investment Trusts
Price Legacy Corporation Preferred A 8.75% 5,000 243,750
TOTAL PREFERRED STOCK
(Cost: $735,805) 764,725
--------------
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------
US GOVERNMENT SECURITIES - 0.69%
US Government Agencies
Federal Farm Credit Bank 4.74% 02/06/06 $ 50,000 $ 50,170
TOTAL US GOVERNMENT SECURITIES
(Cost: $50,137) 50,170
--------------
TOTAL INVESTMENT SECURITIES - 94.69%
(Cost: $6,742,069) $ 6,866,024
--------------
SHORT-TERM INVESTMENTS - 6.26%
United Missouri Bank Money Market Fiduciary
Account 453,937
OTHER ASSETS LESS LIABILITIES - (0.95)% (68,530)
--------------
TOTAL NET ASSETS - 100% $ 7,251,431
====================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
28
<Page>
PACIFIC ADVISORS BALANCED FUND
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK - 48.96%
Advertising
Interpublic Group* 20,000 $ 312,000
Banks
Banco Latinamericano De Exportaciones* 35,000 673,050
Washington Mutual 6,000 240,720
913,770
Biotechnology
Cambrex Corporation 16,000 404,160
Mylan 10,000 252,600
656,760
Chemicals - Specialty
Cabot Micro Electronics, Inc.* 2,000 98,000
Communications
Nokia Corporation ADR 15,000 255,000
Diversified Companies
General Electric 15,000 464,700
Electric
Duke Energy Corporation 17,500 357,875
First Energy Corporation 8,000 281,600
Sony Corporation* 6,000 208,020
847,495
Entertainment
AT&T - Liberty Media Group Class A* 20,000 237,800
Viacom, Inc. 5,000 221,900
459,700
Financial Services
H&R Block 10,000 553,700
Financial Services - Diversified
Convergys Corporation* 9,000 157,140
Financial Services - Specialty
Freddie Mac 6,000 349,920
Food
Cadbury Schweppes 9,000 269,010
JM Smucker Company 5,000 226,450
495,460
Forest Products
Rayonier, Inc. 10,683 443,451
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
29
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Gas - Integrated
Bristish Petroleum 6,000 $ 296,100
Prima Energy 8,000 281,280
577,380
Health Care Provider
Tenet Healthcare Corporation 15,000 240,750
Industrial - Diversified
Cubic Corporation* 10,000 230,000
Tyco International, Ltd. 15,000 397,500
627,500
Industrial & Commercial Services
GATX Corporation 15,000 419,700
Reliance Steel 8,000 265,680
685,380
Insurance - Full Line
Marsh & McLennan 5,000 239,450
Berkshire Hathaway, Inc. - Class A* 4 337,000
576,450
Insurance - Life
MetLife, Inc. 7,500 252,525
Oilfield Equipment Services
Cooper Cameron 4,000 186,400
Media
Time Warner 18,000 323,820
Medical & Biotechnology
Bristol Myers Squibb Company 15,000 429,000
Inverness Medical Innovations, Inc.* 11,800 257,004
Johnson & Johnson 5,000 258,300
Wyeth 6,000 254,700
1,199,004
Medical Equipment
Perkin Elmer 8,000 136,560
Mining - Diversified
Rio Tinto PLC 3,000 333,930
Pharmaceuticals
Pfizer, Inc. 7,500 264,975
Pharmaceutical Resources, Inc.* 4,000 260,600
525,575
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Pipelines
Williams Companies, Inc. 25,000 $ 245,500
Publishing
Moodys Corporation 5,000 302,750
R H Donnelley Corporation* 5,000 199,200
Scholastic Corporation 3,000 102,120
604,070
Real Estate
Catellus Development Corporation* 13,946 336,378
Retailers - Specialty
Costco Wholesale 8,000 297,440
Michaels Stores, Inc. 6,000 265,200
562,640
Software & Computer Processing Equipment
Reynolds & Reynolds 8,000 232,400
Technology
Lucent Technologies* 35,000 99,400
TOTAL COMMON STOCK
(Cost: $9,359,909) 13,752,758
--------------
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------
CORPORATE BONDS - 44.59%
Banks - Regional
Bank of America Corporation 6.00% 03/15/06 $ 100,000 107,133
Bank One Corporation 7.25% 08/15/04 78,000 80,775
187,908
Computers & Related Equipment
Sun Microsystems 7.35% 08/15/04 250,000 258,164
Financial Services
Beneficial Corporation 8.40% 05/15/08 105,000 121,596
Citicorp, Inc. 5.80% 03/15/04 40,000 40,356
General Electric Capital Floating Rate Note
09/01/48 275,000 271,881
General Electric Capital 8.125% 05/15/02 250,000 302,683
General Electric Capital 8.30% 09/20/09 170,000 207,567
General Motors Acceptance Corporation
Floating Rate Note 11/15/49 100,000 98,038
General Motors Acceptance Corporation 8.75%
07/15/05 613,000 647,519
1,689,639
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
31
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------
CORPORATE BONDS CONTINUED
Food Retailers
Safeway, Inc. 9.30% 02/01/07 $ 309,000 $ 361,479
Safeway, Inc. 9.65% 01/15/04 74,000 74,117
Safeway, Inc. 9.875% 03/15/07 773,000 919,596
1,355,192
Home Furnishings
Whirlpool Corporation 9.10% 03/15/04 70,000 70,964
Industrial
Tenneco Packaging PTV 8.00% 04/15/07 60,000 67,776
Tyco International Group 5.875% 11/01/04 350,000 359,625
427,401
Insurance - Full Line
Cigna Corporation 7.40% 05/15/07 195,000 216,427
Cigna Corporation 8.25% 01/01/07 321,000 360,825
Transamerica Corporation 9.375% 03/01/08 100,000 118,859
696,111
Media
Seagrams & Sons 7.00% 04/15/08 310,000 331,229
Medical Equipment
Mallinckrodt 6.50% 11/15/07 400,000 423,000
Oil - Integrated Majors
Atlantic Richfield 10.875% 07/15/05 289,000 328,070
Enron Oil & Gas 6.50% 09/15/04 575,000 593,958
Enron Oil & Gas 6.70% 11/15/06 107,000 118,873
1,040,901
Recreational
International Game Technology 7.875% 05/15/04 344,000 351,166
Semiconductor & Related Products
Gerber Products 9.00% 10/15/06 359,000 414,006
Telephone Systems
Bellsouth Telecommunications 6.30% 12/15/15 553,920 607,178
Citizens Communications 7.45% 01/15/04 35,000 35,042
GTE Corporation 8.75% 11/01/21 689,000 848,421
GTE South, Inc. 6.125% 06/15/07 100,000 108,894
New England Telephone & Telecommunications
6.875% 10/01/23 135,000 137,607
NYNEX Capital Fund 8.23% 10/15/09 475,000 568,847
2,305,989
Transportation
Norfolk Southern Corporation 7.875% 02/15/04 175,000 176,136
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
32
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------
CORPORATE BONDS CONTINUED
Utilities - Electric
Niagara Mohawk Power 8.00% 06/01/04 $ 80,000 $ 82,074
Niagara Mohawk Power 9.75% 11/01/05 535,000 604,179
Northwestern Corporation 7.00% 08/15/23 250,000 246,563
Northwestern Corporation 7.10% 08/01/05 305,000 309,956
Pacific Gas & Electric 8.25% 11/01/22 55,000 56,925
Potomac Electric Power 6.50% 03/15/08 92,000 101,872
Public Service Electric & Gas 6.25% 01/01/07 84,000 91,712
Public Service Electric & Gas 6.75% 03/01/06 250,000 272,180
Public Service Electric & Gas 7.375% 03/01/14 420,000 432,196
Public Service Electric & Gas 9.125% 07/01/05 385,000 423,527
Reliant Energy Mid Atlantic 9.237% 07/02/17 49,281 50,330
Toledo Edison Company 7.875% 08/01/04 124,000 128,027
2,799,543
TOTAL CORPORATE BONDS
(Cost: $12,268,996) 12,527,349
--------------
US GOVERNMENT SECURITIES - 0.74%
US Government Agencies
Federal Home Loan Bank 6.75% 08/10/16 200,000 206,396
TOTAL US GOVERNMENT SECURITIES
(Cost: $205,088) 206,396
--------------
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
PREFERRED STOCK - 1.74%
Real Estate Investment Trusts
Price Legacy Corporation Preferred A 8.75% 30,000 487,500
TOTAL PREFERRED STOCK
(Cost: $420,629) 487,500
--------------
TOTAL INVESTMENT SECURITIES - 96.02%
(Cost: $22,254,622) $ 26,974,003
--------------
SHORT-TERM INVESTMENTS - 3.78%
United Missouri Bank Money Market Fiduciary
Account 1,062,189
OTHER ASSETS LESS LIABILITIES - 0.20% 55,977
--------------
TOTAL NET ASSETS - 100% $ 28,092,170
=====================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
33
<Page>
PACIFIC ADVISORS GROWTH FUND
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK - 94.37%
Biotechnology
Cambrex Corporation 500 $ 12,630
Chemical Specialty
Hercules, Inc. 1,000 12,200
Commercial Services
Tetra Technologies, Inc.* 1,250 31,075
Communications
HSBC Holding PLC 160 12,611
Computers & Related Equipment
International Business Machines 200 18,536
Containers/Packaging
Pactiv Corporation 500 11,950
Diversified Companies
General Electric 1,000 30,980
Educational Services
Career Education Corporation 1,000 40,070
Electrical
Qualcomm, Inc. 500 26,965
Forest Products
Louisiana Pacific Corporation 1,000 17,880
Health Care Provider
America Service Group 1,501 46,394
Home Furnishings
Furniture Brands International, Inc. 500 14,665
Industrial - Diversified
Tyco International, Ltd. 1,000 26,500
Insurance - Specialty
Advance PCS* 1,000 52,660
Medical & Biotechnology
Johnson & Johnson 800 41,328
McKesson Corporation HBOC, Inc. 500 16,080
Quest Diagnostics, Inc.* 300 21,933
79,341
Medical Equipment, Devices & Supplies
Becton, Dickinson and Company 500 20,570
St. Jude Medical, Inc.* 1,000 61,350
Zimmer Holdings, Inc.* 500 35,200
117,120
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
34
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Media
Cox Communications* 1,000 $ 34,450
Mining - Diversified
Anglogold, Ltd. 1,000 46,700
Oil - Integrated Majors
Apache Corporation 500 40,550
Exxon Mobil Corporation 400 16,400
56,950
Paper Products
Georgia Pacific Corporation 1,000 30,670
Pharmaceuticals
Pfizer, Inc. 1,200 42,396
Restaurants
AppleBee's International 750 29,453
Retailers - Specialty
Linens 'n Things, Inc.* 1,000 30,080
Software & Computer Processing Equipment
Oracle Corporation* 800 10,560
Siebel Systems, Inc.* 500 6,935
17,495
Technology
Andrew Corporation 1,000 11,510
Symbol Technologies, Inc. 1,000 16,890
28,400
TOTAL COMMON STOCK
(Cost: $790,107) 868,171
--------------
TOTAL INVESTMENT SECURITIES - 94.37%
(Cost: $790,107) $ 868,171
--------------
SHORT-TERM INVESTMENTS - 5.01%
United Missouri Bank Money Market Fiduciary Account 46,113
OTHER ASSETS LESS LIABILITIES - 0.61% 5,642
--------------
TOTAL NET ASSETS - 100% $ 919,926
====================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
35
<Page>
PACIFIC ADVISORS MULTI-CAP VALUE FUND
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK - 89.85%
Banks - Regional
JP Morgan 3,000 $ 110,190
Building Materials
Home Depot, Inc. 4,000 141,960
Communications
AT&T Corporation 8,000 162,400
Comcast Corporation* 2,955 97,131
259,531
Computers & Related Equipment
Cisco Systems, Inc.* 5,000 121,450
Unisys Corporation* 5,000 74,250
195,700
Consumer Services
Cendant Corporation* 5,000 111,350
Electrical Components & Equipment
Arrow Electronics, Inc.* 4,000 92,560
Qualcomm, Inc. 1,500 80,895
173,455
Energy
Chevron Texaco Corporation 1,500 129,585
Marathon Oil Corporation 3,500 115,815
245,400
Entertainment
Activision, Inc. 5,000 91,000
Vivendi Universal* 5,000 121,400
212,400
Financial Services
Nationwide Financial Services, Inc. 3,000 99,180
Healthcare Provider
Tenet Healthcare Corporation 10,000 160,500
Industrial
Metrologic Instruments 5,500 148,500
Insurance - Full Line
Lincoln National Corporation 3,500 141,295
Investment Companies
Goldman Sachs Group, Inc. 1,000 98,730
Media
Time Warner 8,000 143,920
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
36
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Medical & Biotechnology
Bristol Myers Squibb Company 5,000 $ 143,000
Serlogicals Corporation* 8,000 148,800
Watson Pharmaceuticals 1,500 69,000
360,800
Oilfield Equipment Services
Schlumberger 2,500 136,800
Pharmaceuticals
Endo Pharmaceuticals 6,500 125,190
Pfizer, Inc. 5,000 176,650
Schering-Plough Corporation 6,000 104,340
406,180
Retailers - Broadline
Duane Reade, Inc.* 10,000 169,200
Pier 1 Imports, Inc. 3,000 65,580
Target Corporation 2,000 76,800
311,580
Retailers - Drug Based
Sola International, Inc.* 5,000 94,000
Retailers - Specialty
Gap, Inc. 3,000 69,630
Radio Shack 2,500 76,700
146,330
Semiconductor & Related
Intel Corporation 3,000 96,600
Software & Computer Processing Equipment
Microsoft 4,000 110,160
US Government Agency
Freddie Mac 2,000 116,640
Technology
Lucent Technologies* 30,000 85,200
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
37
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Telephone Systems
AT&T Wireless Services, Inc.* 10,000 $ 79,900
SBC Communications 2,000 52,140
132,040
TOTAL COMMON STOCK
(Cost: $3,446,978) 4,238,441
--------------
TOTAL INVESTMENT SECURITIES - 89.85%
(Cost: $3,446,978) $ 4,238,441
--------------
SHORT-TERM INVESTMENTS - 9.64%
United Missouri Bank Money Market Fiduciary
Account 454,864
OTHER ASSETS LESS LIABILITIES - 0.51% 23,938
--------------
TOTAL NET ASSETS - 100% $ 4,717,243
====================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
38
<Page>
PACIFIC ADVISORS SMALL CAP FUND
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK - 98.13%
Apparel
Ashworth, Inc.* 34,000 $ 274,380
Aerospace & Defense
Aviall, Inc. 10,000 155,100
Auto Parts
Keystone Automotive Industries, Inc.* 8,000 202,880
Titan International, Inc. 55,000 168,300
371,180
Banks - Regional
East West Bancorp, Inc. 6,000 322,080
Nara Bank National Association 10,000 273,000
595,080
Building Materials
Carlisle Holdings LT 37,000 227,550
ElkCorp 10,000 267,000
494,550
Commercial Services
Team, Inc.* 15,500 159,030
Communications
Bell Microproducts, Inc.* 26,000 235,560
Computers & Related Equipment
Intervoice, Inc.* 101,000 1,198,870
Tyler Technologies* 40,000 385,200
1,584,070
Consumer Services
Service Corporation International* 40,000 215,600
Containers/Packaging
Mobile Mini, Inc.* 20,000 394,400
Financial Services
First Cash Financial Services, Inc.* 10,000 256,410
Food
Monterey Pasta Company* 36,000 134,280
Footwear
Genesco, Inc.* 12,000 181,560
Gas - Integrated
Denbury Resources, Inc.* 24,000 333,840
Golfing Equipment
Callaway Golf Company 20,000 337,000
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
39
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Healthcare Provider
America Service Group* 22,000 $ 679,998
United American Health Care* 32,000 109,120
789,118
Insurance - Full Line
Gainsco, Inc.* 20,000 4,500
Oil - Integrated Majors
Chesapeake Energy Corporation 12,000 162,960
Remington Oil & Gas Corporation* 10,000 196,900
359,860
Oilfield Equipment & Services
Harvest Natural Resources 4,200 41,790
Railroads
Railamerica, Inc.* 70,000 826,000
Retail - Auto Sales/Parts
Sonic Automotive, Inc.* 23,000 527,160
Semiconductor & Related
Camtek Limited* 70,000 203,000
Software & Processing
Carreker Corporation* 28,000 392,280
Transportation
Frozen Food Express Industries, Inc. 35,000 232,400
SCS Transportation* 27,000 474,660
US Xpress Enterprises* 15,001 183,762
890,822
Telephone Systems
Talk America Holding, Inc. 25,000 288,000
TOTAL COMMON STOCK
(Cost: $5,984,473) 10,044,570
--------------
TOTAL INVESTMENT SECURITIES - 98.13%
(Cost: $5,984,473) $ 10,044,570
--------------
SHORT-TERM INVESTMENTS - 3.06%
United Missouri Bank Money Market Fiduciary Account 313,171
OTHER ASSETS LESS LIABILITIES - (1.19%) (122,086)
--------------
TOTAL NET ASSETS - 100% $ 10,235,655
====================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
40
<Page>
(This page has been left blank intentionally.)
41
<Page>
PACIFIC ADVISORS FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
<Caption>
INCOME
GOVERNMENT AND
SECURITIES EQUITY
FUND FUND
------------- ------------
ASSETS
Investment Securities
At cost $ 14,318,236 $ 6,742,069
============= ============
At market value $ 14,455,460 $ 6,866,024
Short-term investments, at cost, which is equal to market - 453,937
Accrued income receivable 47,757 93,665
Receivable from investment manager (Note 3) 27,534 13,124
Receivable for investments sold - -
Receivable for capital shares sold 3,821 94,566
Other assets 2 -
------------- ------------
Total assets 14,534,574 7,521,316
------------- ------------
LIABILITIES
Bank Overdraft 27,960 -
Payable for investments purchased - 250,015
Payable for fund shares redeemed 17,721 -
Accounts payable 33,561 14,945
Accounts payable to related parties (Note 3) 7,642 4,925
Payable to Investment Manager (Note 3) - -
------------- ------------
Total liabilities 86,884 269,885
------------- ------------
NET ASSETS $ 14,447,690 $ 7,251,431
============= ============
SUMMARY OF SHAREHOLDERS' EQUITY
Paid in capital 15,162,835 7,173,283
Accumulated undistributed net investment income 3,342 3,128
Accumulated undistributed net realized gain (losses) on security
transactions (855,711) (48,935)
Net unrealized appreciation (depreciation) of investments 137,224 123,955
------------- ------------
Net assets at December 31, 2003 $ 14,447,690 $ 7,251,431
============= ============
CLASS A:
Net assets $ 3,025,167 $ 1,835,276
============= ============
Shares authorized 50,000,000 50,000,000
Shares outstanding 312,474 177,709
Net asset value and redemption price per share $ 9.68 $ 10.33
============= ============
Maximum offering price per share $ 10.16 $ 10.85
Sales load 4.75% 4.75%
CLASS C: 9.68 10.33
Net assets $ 11,422,523 $ 5,416,154
============= ============
Shares authorized 50,000,000 50,000,000
Shares outstanding 1,210,893 546,934
Net asset value and redemption price per share $ 9.43 $ 9.90
============= ============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
42
<Page>
<Table>
<Caption>
MULTI-CAP SMALL
BALANCED GROWTH VALUE CAP
FUND FUND FUND FUND
------------- ------------ ------------ ------------
ASSETS
Investment Securities
At cost $ 22,254,622 $ 790,107 $ 3,446,978 $ 5,984,473
============= ============ ============ ============
At market value $ 26,974,003 $ 868,171 $ 4,238,441 $ 10,044,570
Short-term investments, at cost, which is equal to market 1,062,189 46,113 454,864 313,171
Accrued income receivable 269,349 796 4,343 3,521
Receivable from investment manager (Note 3) - 2,839 2,106 -
Receivable for investments sold - - - -
Receivable for capital shares sold 265,463 5,171 36,739 149
Other assets - - - -
------------- ------------ ------------ ------------
Total assets 28,571,004 923,090 4,736,493 10,361,411
------------- ------------ ------------ ------------
LIABILITIES
Bank Overdraft - - - -
Payable for investments purchased 371,875 - - 82,354
Payable for fund shares redeemed 15,868 - 6,310 11,960
Accounts payable 61,431 1,877 8,951 18,437
Accounts payable to related parties (Note 3) 12,332 1,287 3,989 6,730
Payable to Investment Manager (Note 3) 17,328 - - 6,275
------------- ------------ ------------ ------------
Total liabilities 478,834 3,164 19,250 125,756
------------- ------------ ------------ ------------
NET ASSETS $ 28,092,170 $ 919,926 $ 4,717,243 $ 10,235,655
============= ============ ============ ============
SUMMARY OF SHAREHOLDERS' EQUITY
Paid in capital 23,378,225 1,547,012 3,934,967 6,175,812
Accumulated undistributed net investment income 7,721 - - -
Accumulated undistributed net realized gain (losses) on security
transactions (13,157) (705,150) (9,187) (254)
Net unrealized appreciation (depreciation) of investments 4,719,381 78,064 791,463 4,060,097
------------- ------------ ------------ ------------
Net assets at December 31, 2003 $ 28,092,170 $ 919,926 $ 4,717,243 $ 10,235,655
============= ============ ============ ============
CLASS A:
Net assets $ 4,739,447 $ 669,142 $ 1,179,760 $ 8,961,295
============= ============ ============ ============
Shares authorized 50,000,000 50,000,000 50,000,000 50,000,000
Shares outstanding 298,407 93,666 102,977 477,512
Net asset value and redemption price per share $ 15.88 $ 7.14 $ 11.46 $ 18.77
============= ============ ============ ============
Maximum offering price per share $ 16.85 $ 7.58 $ 12.16 $ 19.92
Sales load 5.75% 5.75% 5.75% 5.75%
CLASS C: 15.88 7.14 11.46 18.77
Net assets $ 23,352,723 $ 250,784 $ 3,537,483 $ 1,274,360
============= ============ ============ ============
Shares authorized 50,000,000 50,000,000 50,000,000 50,000,000
Shares outstanding 1,507,773 36,733 312,342 73,179
Net asset value and redemption price per share $ 15.49 $ 6.83 $ 11.33 $ 17.41
============= ============ ============ ============
</Table>
43
<Page>
PACIFIC ADVISORS FUND INC.
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
<Caption>
INCOME
GOVERNMENT AND
SECURITIES EQUITY
FUND FUND
------------ ----------
INVESTMENT INCOME
Dividends $ 37,940 $ 88,814
Interest 713,987 184,539
Misc Income - -
------------ ----------
Total Income 751,927 273,353
------------ ----------
EXPENSES
Investment Management Fees 102,154 43,389
Transfer Agent Fees 31,745 30,717
Fund Accounting Fees 82,899 31,797
Legal Fees 33,089 13,837
Audit Fees 31,236 11,260
Registration Fees 8,184 4,714
Printing 7,217 5,423
Custody Fees 10,624 8,453
Director Fees/Meetings 2,290 935
Distribution Fees (Note 3) 134,888 43,216
Other Expenses 11,286 4,348
------------ ----------
Total Expenses, before reimbursements 455,612 198,089
Less fees waived and expenses reimbursed (Note 3) 91,041 62,159
------------ ----------
Net Expenses 364,571 135,930
------------ ----------
NET INVESTMENT INCOME (LOSS) 387,356 137,423
============ ==========
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized gain (loss) on investments (855,704) 114,704
Net Unrealized appreciation (depreciation) of investments (63,143) 108,554
------------ ----------
(918,847) 223,258
------------ ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (531,491) $ 360,681
============ ==========
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
44
<Page>
<Table>
<Caption>
MULTI-CAP SMALL
BALANCED GROWTH VALUE CAP
FUND FUND FUND FUND
------------ ---------- ---------- ------------
INVESTMENT INCOME
Dividends $ 299,246 $ 5,603 $ 20,387 $ 22,480
Interest 647,902 292 894 111
Misc Income - - - -
------------ ---------- ---------- ------------
Total Income 947,148 5,895 21,281 22,591
------------ ---------- ---------- ------------
EXPENSES
Investment Management Fees 164,550 5,615 25,554 49,275
Transfer Agent Fees 68,490 27,287 29,204 67,271
Fund Accounting Fees 123,080 15,929 18,570 39,417
Legal Fees 68,343 1,287 4,675 29,446
Audit Fees 44,140 975 4,385 10,534
Registration Fees 31,679 56 575 19,508
Printing 47,074 1,232 3,220 37,903
Custody Fees 12,464 6,949 7,240 15,329
Director Fees/Meetings 4,453 74 271 1,325
Distribution Fees (Note 3) 186,455 3,247 20,307 21,032
Other Expenses 17,787 620 1,772 6,774
------------ ---------- ---------- ------------
Total Expenses, before reimbursements 768,515 63,271 115,773 297,814
Less fees waived and expenses reimbursed (Note 3) - 43,104 38,037 -
------------ ---------- ---------- ------------
Net Expenses 768,515 20,167 77,736 297,814
------------ ---------- ---------- ------------
NET INVESTMENT INCOME (LOSS) 178,633 (14,272) (56,455) (275,223)
============ ========== ========== ============
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized gain (loss) on investments 380,296 12,511 104,871 218,847
Net Unrealized appreciation (depreciation) of investments 3,197,438 205,022 929,030 4,336,572
------------ ---------- ---------- ------------
3,577,734 217,533 1,033,901 4,555,419
------------ ---------- ---------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 3,756,367 $ 203,261 $ 977,446 $ 4,280,196
============ ========== ========== ============
</Table>
45
<Page>
PACIFIC ADVISORS FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
GOVERNMENT SECURITIES FUND
-------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
-------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 387,356 $ 246,914
Net realized gain (loss) on investments (855,704) 20,145
Change in net unrealized appreciation (depreciation) of investments (63,143) 39,088
-------------------------------------
Increase (decrease) in net assets resulting from operations (531,491) 306,147
-------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income (100,356) (102,475)
Net capital gains - (5,601)
Class C:
Net investment income (298,286) (132,819)
Net capital gains - (14,669)
-------------------------------------
Decrease in net assets resulting from distributions (398,642) (255,564)
-------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 4,113,910 7,573,729
Proceeds from shares purchased by reinvestment of dividends 366,393 212,774
Cost of shares repurchased (4,085,472) (3,513,492)
-------------------------------------
Increase (decrease) in net assets derived from capital share
transactions 394,831 4,273,011
-------------------------------------
INCREASE (DECREASE) IN NET ASSETS (535,302) 4,323,594
NET ASSETS
Beginning of period 14,982,992 10,659,398
-------------------------------------
End of period $ 14,447,690 $ 14,982,992
=====================================
Accumulated undistributed net investment income 3,342 12,976
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
46
<Page>
<Table>
<Caption>
INCOME AND EQUITY FUND
---------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 137,423 $ 145,083
Net realized gain (loss) on investments 114,704 (92,116)
Change in net unrealized appreciation (depreciation) of investments 108,554 (88,820)
---------------------------------------
Increase (decrease) in net assets resulting from operations 360,681 (35,853)
---------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income (44,125) (67,712)
Net capital gains - -
Class C:
Net investment income (104,478) (66,254)
Net capital gains - -
---------------------------------------
Decrease in net assets resulting from distributions (148,603) (133,966)
---------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 2,266,334 2,399,131
Proceeds from shares purchased by reinvestment of dividends 138,180 113,190
Cost of shares repurchased (765,792) (1,014,874)
---------------------------------------
Increase (decrease) in net assets derived from capital share
transactions 1,638,722 1,497,447
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS 1,850,800 1,327,628
NET ASSETS
Beginning of period 5,400,631 4,073,003
---------------------------------------
End of period $ 7,251,431 $ 5,400,631
=======================================
Accumulated undistributed net investment income 3,128 13,868
<Caption>
BALANCED FUND
---------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 178,633 $ (1,817)
Net realized gain (loss) on investments 380,296 28,521
Change in net unrealized appreciation (depreciation) of investments 3,197,438 (716,764)
---------------------------------------
Increase (decrease) in net assets resulting from operations 3,756,367 (690,060)
---------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income (51,441) (289)
Net capital gains (53,467) -
Class C:
Net investment income (119,471) (1,031)
Net capital gains (266,940) -
---------------------------------------
Decrease in net assets resulting from distributions (491,319) (1,320)
---------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 8,182,699 8,404,741
Proceeds from shares purchased by reinvestment of dividends 474,828 1,320
Cost of shares repurchased (1,842,436) (2,119,375)
---------------------------------------
Increase (decrease) in net assets derived from capital share
transactions 6,815,091 6,286,686
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS 10,080,139 5,595,306
NET ASSETS
Beginning of period 18,012,031 12,416,725
---------------------------------------
End of period $ 28,092,170 $ 18,012,031
=======================================
Accumulated undistributed net investment income 7,721 -
</Table>
47
<Page>
<Table>
<Caption>
GROWTH FUND
----------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (14,272) $ (18,437)
Net realized gain (loss) on investments 12,511 (71,062)
Change in net unrealized appreciation (depreciation) of investments 205,022 (116,699)
----------------------------------------
Increase (decrease) in net assets resulting from operations 203,261 (206,198)
----------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income - -
Net capital gains - -
Class C:
Net investment income - -
Net capital gains - -
----------------------------------------
Decrease in net assets resulting from distributions - -
----------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 171,264 122,458
Proceeds from shares purchased by reinvestment of dividends - -
Cost of shares repurchased (108,518) (289,881)
----------------------------------------
Increase (decrease) in net assets derived from capital share transactions 62,746 (167,423)
----------------------------------------
INCREASE (DECREASE) IN NET ASSETS 266,007 (373,621)
NET ASSETS
Beginning of period 653,919 1,027,540
----------------------------------------
End of period $ 919,926 $ 653,919
========================================
Accumulated undistributed net investment income - -
</Table>
(c) Commencement of Operations
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
48
<Page>
<Table>
<Caption>
MULTI-CAP VALUE FUND
-------------------------------------
APRIL 1, 2002(c)
YEAR ENDED TO
DECEMBER 31, 2003 DECEMBER 31, 2002
-------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (56,455) $ (20,970)
Net realized gain (loss) on investments 104,871 (114,058)
Change in net unrealized appreciation (depreciation) of investments 929,030 (137,567)
-------------------------------------
Increase (decrease) in net assets resulting from operations 977,446 (272,595)
-------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income - -
Net capital gains - -
Class C:
Net investment income - -
Net capital gains - -
-------------------------------------
Decrease in net assets resulting from distributions - -
-------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 2,206,742 2,141,908
Proceeds from shares purchased by reinvestment of dividends - -
Cost of shares repurchased (216,637) (119,621)
--------------------------------------
Increase (decrease) in net assets derived from capital share transactions 1,990,105 2,022,287
-------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2,967,551 1,749,692
NET ASSETS
Beginning of period 1,749,692 -
-------------------------------------
End of period $ 4,717,243 $ 1,749,692
=====================================
Accumulated undistributed net investment income - -
<Caption>
SMALL CAP FUND
-------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
-------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (275,223) $ (295,608)
Net realized gain (loss) on investments 218,847 (712)
Change in net unrealized appreciation (depreciation) of investments 4,336,572 (2,490,446)
-------------------------------------
Increase (decrease) in net assets resulting from operations 4,280,196 (2,786,766)
-------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income - -
Net capital gains (63,642) (2,964)
Class C:
Net investment income - -
Net capital gains (9,702) (359)
-------------------------------------
Decrease in net assets resulting from distributions (73,344) (3,323)
-------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 1,940,306 1,054,134
Proceeds from shares purchased by reinvestment of dividends 58,553 3,323
Cost of shares repurchased (1,276,670) (1,561,561)
-------------------------------------
Increase (decrease) in net assets derived from capital share transactions 722,189 (504,104)
-------------------------------------
INCREASE (DECREASE) IN NET ASSETS 4,929,041 (3,294,193)
NET ASSETS
Beginning of period 5,306,614 8,600,807
-------------------------------------
End of period $ 10,235,655 $ 5,306,614
=====================================
Accumulated undistributed net investment income - -
</Table>
49
<Page>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1. ORGANIZATION
Pacific Advisors Fund Inc. (the "Company") is an open-end diversified
investment management company registered under the Investment Company Act of
1940, as amended. The Company currently offers six Funds: Government Securities
Fund, Income and Equity Fund, Balanced Fund, Growth Fund, Multi-Cap Value 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 Multi-Cap
Value Fund seeks long-term capital appreciation by investing in a diversified
portfolio of large to small 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 New York
Stock Exchange. 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. Premium or discount on debt securities are amortized.
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 Income and Equity Fund declare and distribute dividends of their net
investment income, if any, quarterly. The Balanced Fund, Growth Fund, Multi-Cap
Value 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 Fund.
D. FEDERAL INCOME TAX. The Funds intend to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of their taxable income to their shareholders.
Therefore, no federal income tax provision is required.
At December 31, 2003, components of distributable earnings/(deficit) on a
tax basis were as follows:
<Table>
<Caption>
GOVERNMENT INCOME AND MULTI-CAP
SECURITIES EQUITY BALANCED GROWTH VALUE SMALL CAP
FUND FUND FUND FUND FUND FUND
Undistributed ordinary income $ 3,342 $ 3,128 $ 12,438 $ - $ - $ -
Undistributed long-term gains - - 223 - - 27
Capital loss carryforward* (855,711) (48,618) - (705,150) (9,187) -
Net unrealized appreciation (depreciation) on
investments 137,224 123,638 4,701,284 78,064 791,463 4,059,816
---------- ---------- ----------- ---------- --------- -----------
Distributable earnings/(deficit) (715,145) 78,148 4,713,945 (627,086) 782,276 4,059,843
</Table>
Difference between book basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales.
* At December 31, 2003, the following had accumulated net realized losses
on investment transactions that represent capital loss carryforwards for federal
income tax purposes, which expire as follows:
<Table>
<Caption>
CAPITAL LOSSES EXPIRING IN:
--------------------------------------------
2009 2010 2011 TOTAL
Government Securities Fund $ - $ - $ 855,711 $ 855,711
Income and Equity Fund - 48,618 - 48,618
Growth Fund 613,416 91,734 - 705,150
Multi-Cap Value Fund - 9,187 - 9,187
</Table>
50
<Page>
E. USE OF ESTIMATES. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States 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.
F. RECLASSIFICATION OF CAPITAL ACCOUNTS. Distributions of net investment
income and realized gains are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are due to differing treatments for items such as wash sales,
net operating losses, capital loss carryfowards, excise tax and net realized
gain or loss on foreign currency transactions. Any permanent differences are
identified and appropriately reclassified under the Statement of Assets and
Liabilities.
Accordingly, for the Year ended December 31, 2003, reclassifications among
the components of net assets are as follows:
<Table>
<Caption>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED
NET INVESTMENT NET REALIZED PAID IN
INCOME GAIN CAPITAL
Government
Securities Fund $ 1,652 $ (1,365) $ (287)
Income and
Equity Fund 440 - (440)
Growth Fund 14,272 - (14,272)
Multi-Cap Value Fund 56,455 - (56,455)
Small Cap Fund 275,223 (142,950) (132,273)
</Table>
NOTE 3. INVESTMENT MANAGEMENT, DISTRIBUTOR AND OTHER RELATED PARTY TRANSACTIONS.
The Company and the Funds have entered into investment management
agreements ("Management Agreements") with Pacific Global Investment Management
Company, Inc. ("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, 0.75% of average net assets for the
Income and Equity, Balanced, Growth and Small Cap Funds and 1.00% of average net
assets for the Multi-Cap Value Fund. The Investment Manager has entered into a
sub-advisory agreement ("Sub-Advisory Agreement") with Bache Capital Management
("Advisor") for the Balanced Fund. It has also entered into a co-management
agreement ("Co-management Agreement") with Bache Capital Management ("Advisor")
for the Income and Equity Fund.
Through July 1, 2003, the Investment Manager was party to a sub-advisory
agreement for the Multi-Cap Value Fund with Meyers Capital Management, LLC
("Meyers Capital"). The Board of Directors of the Fund terminated the
sub-advisory agreement with Meyers Capital because the Investment Manager
purchased the assets of Meyers Capital on July 1, 2003 and Meyers Capital ceased
to operate as a registered investment adviser.
Through November 20, 2003, the Investment Manager was party to a
sub-advisory agreement for the Government Securities Fund with Spectrum Asset
Management, Inc. The Board of Directors of the Fund terminated the sub-advisory
agreement with Spectrum Asset Management on November 20, 2003.
The Investment Manager is solely responsible for the payment of these fees
to the Advisors.
In accordance with Expense Limitation agreements with the Company, the
Investment Manager is required to waive fees and/or reimburse expenses in
amounts necessary to keep the total Fund operating expenses of certain Funds (as
a percentage of average net assets) at or below the percentages shown below:
<Table>
<Caption>
CLASS A CLASS C
Government Securities Fund 1.65% 2.40%
Income and Equity Fund 1.85% 2.60%
Growth Fund 2.50% 3.25%
Multi-Cap Value Fund 2.50% 3.25%
</Table>
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, providing for the voluntary
waiver of fees and the assumption of expenses by the Investment Manager, and,
with respect to the Income and Equity Fund, the Co-Manager, the following
amounts were waived or reimbursed for the year ended December 31, 2003.
<Table>
<Caption>
MANAGEMENT EXPENSE
FEES WAIVED REIMBURSEMENTS
Government Securities Fund $ 91,041 $ -
Income and Equity Fund 43,389 18,770
Growth Fund 5,615 37,489
Multi-Cap Value Fund 25,554 12,483
</Table>
The Investment Manager and the Co-Manager terminated all of their rights
under the expense limitation agreements with respect to potential recoupment
from the Funds of all management fees previously waived and all expenses
previously reimbursed. In the future, the Investment Manager and Co-Manager will
not have any rights to recover fees they may waive or expenses they may
reimburse, with respect to any of the Funds.
51
<Page>
For the year ended December 31, 2003, 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
FEES COMMISSIONS
RETAINED PAID
Government Securities Fund $ 611 $ 3,307
Income and Equity Fund 428 2,256
Balanced Fund 2,246 10,636
Growth Fund 514 2,165
Multi-Cap Value Fund 1,438 6,738
Small Cap Fund 2,410 11,880
</Table>
PGFD is a wholly-owned subsidiary of the Investment Manager.
The Company and the Funds have entered into agreements with Pacific Global
Investor Services, Inc. ("PGIS") to provide fund accounting services at the
monthly fee of three basis points for the first one hundred million in net
assets or a minimum of $1,250. In addition, agreements to provide transfer agent
services has also been entered into at a rate of $18.00 per year per open
account and $2.00 per year per closed account with minimum charges of $1,250 per
month and $750 per month, respectively, for the A and C share accounts. As of
September 1, 2003, the per year per closed account charge is $3.00 and minimum
charge for the C share accounts is $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
period ended December 31, 2003, total service fees were:
<Table>
<Caption>
CLASS A CLASS C
Government Securities Fund $ 8,685 $ 126,203
Income and Equity Fund 4,878 38,338
Balanced Fund 9,436 177,019
Growth Fund 1,226 2,021
Multi-Cap Value Fund 1,749 18,558
Small Cap Fund 13,952 7,080
</Table>
NOTE 4. PURCHASE AND SALES AND TAX COST OF SECURITIES
The following summarizes purchases and sales of investment securities,
other than short-term investments, and aggregate gross unrealized appreciation
and depreciation and cost of securities on a tax basis by each Fund for the year
ended and as of December 31, 2003.
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2003 AS OF DECEMBER 31, 2003
GROSS GROSS NET UNREALIZED
COST OF PROCEEDS TAX COST UNREALIZED UNREALIZED APPRECIATION
PURCHASES FROM SALES OF SECURITIES APPRECIATION DEPRECIATION (DEPRECIATION)
Government Securities Fund $ 25,737,520 $ 49,195,443 $ 14,318,236 $ 147,783 $ 10,559 $ 137,224
Income and Equity Fund 4,400,808 3,489,149 6,742,386 255,152 131,514 123,638
Balanced Fund 15,148,658 11,518,509 22,272,719 4,746,619 45,335 4,701,284
Growth Fund 356,071 229,098 790,107 165,093 87,029 78,064
Multi-Cap Value Fund 2,070,539 460,148 3,446,978 802,147 10,684 791,463
Small Cap Fund 2,733,037 2,843,442 5,984,754 4,439,614 379,798 4,059,816
</Table>
52
<Page>
NOTE 5. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during 2003 and 2002 was as
follows:
<Table>
<Caption>
GOVERNMENT INCOME AND
SECURITIES EQUITY BALANCED SMALL CAP
FUND FUND FUND FUND
Year ended December 31, 2003
Distributions paid from:
Ordinary Income 397,277 148,603 457,888 -
Long-Term Capital Gain 1,365 - 33,431 73,344
---------- ---------- -------- ---------
398,642 148,603 491,319 73,344
Return of Capital - - - -
---------- ---------- -------- ---------
398,642 148,603 491,319 73,344
Year ended December 31, 2002
Distributions paid from:
Ordinary Income 235,294 133,966 1,320 -
Long-Term Capital Gain 20,270 - - 3,323
---------- ---------- -------- ---------
255,564 133,966 1,320 3,323
Return of Capital - - - -
---------- ---------- -------- ---------
255,564 133,966 1,320 3,323
</Table>
NOTE 6. CAPITAL SHARE TRANSACTIONS
Effective December 15, 2001, the Growth Fund and the Small Cap Fund
instituted a short-term redemption fee. Shares of these Funds purchased after
December 15, 2001 that are sold or exchanged within 90 days of the purchase are
assessed a redemption fee of 2% of the value of the shares sold or exchanged.
The redemption fees collected through December 31, 2003, are included as a
reduction to the shares repurchased in the table below. The amount of the
reduction is as follows:
<Table>
Small Cap Fund $ 2,016
</Table>
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------ --------------------------
GOVERNMENT SECURITIES FUND
CLASS A
Shares Sold 11,268 $ 116,219 34,514 $ 344,746
Reinvestment of Distributions 7,106 70,704 6,725 67,376
------------------------ --------------------------
18,374 186,923 41,239 412,122
Shares Repurchased (110,329) (1,105,771) (275,743) (2,761,975)
------------------------ --------------------------
Net Increase (decrease) (91,955) $ (918,848) (234,504) $ (2,349,853)
======================== ==========================
CLASS C
Shares Sold 403,006 $ 3,997,691 734,170 $ 7,228,983
Reinvestment of Distributions 30,489 295,689 14,769 145,398
------------------------ --------------------------
433,495 4,293,380 748,939 7,374,381
Shares Repurchased (314,266) (2,979,701) (76,231) (751,517)
------------------------ --------------------------
Net Increase 119,229 $ 1,313,679 672,708 $ 6,622,864
======================== ==========================
</Table>
53
<Page>
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------ --------------------------
INCOME AND EQUITY FUND
CLASS A
Shares Sold 13,196 $ 133,330 21,069 $ 212,796
Reinvestment of Distributions 3,629 36,033 4,889 48,737
------------------------ --------------------------
16,825 169,363 25,958 261,533
Shares Repurchased (52,707) (528,613) (75,086) (759,225)
------------------------ --------------------------
Net Increase (decrease) (35,882) $ (359,250) (49,128) $ (497,692)
======================== ==========================
CLASS C
Shares Sold 218,819 $ 2,133,004 225,675 $ 2,186,335
Reinvestment of Distributions 10,541 102,147 6,684 64,453
------------------------ --------------------------
229,360 2,235,151 232,359 2,250,788
Shares Repurchased (24,427) (237,179) (26,493) (255,649)
------------------------ --------------------------
Net Increase 204,933 $ 1,997,972 205,866 $ 1,995,139
======================== ==========================
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------ --------------------------
BALANCED FUND
CLASS A
Shares Sold 56,665 $ 833,411 26,018 $ 361,430
Reinvestment of Distributions 5,945 93,877 21 289
------------------------ --------------------------
62,610 927,288 26,039 361,719
Shares Repurchased (54,670) (795,169) (83,109) (1,156,538)
------------------------ --------------------------
Net Decrease 7,940 $ 132,119 (57,070) $ (794,819)
======================== ==========================
CLASS C
Shares Sold 509,081 $ 7,349,288 597,800 $ 8,043,311
Reinvestment of Distributions 24,737 380,951 77 1,031
------------------------ --------------------------
533,818 7,730,239 597,877 8,044,342
Shares Repurchased (73,497) (1,047,267) (72,607) (962,837)
------------------------ --------------------------
Net Increase 460,321 $ 6,682,972 525,270 $ 7,081,505
======================== ==========================
</Table>
54
<Page>
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------ --------------------------
GROWTH FUND
CLASS A
Shares Sold 21,675 $ 136,077 15,090 $ 93,215
Reinvestment of Distributions - - - -
------------------------ --------------------------
21,675 136,077 15,090 93,215
Shares Repurchased (12,617) (82,009) (14,076) (91,777)
------------------------ --------------------------
Net Increase (decrease) 9,058 $ 54,068 1,014 $ 1,438
======================== ==========================
CLASS C
Shares Sold 5,680 $ 35,187 4,662 $ 29,243
Reinvestment of Distributions - - - -
------------------------ --------------------------
5,680 35,187 4,662 29,243
Shares Repurchased (4,567) (26,509) (32,761) (198,104)
------------------------ --------------------------
Net Decrease 1,113 $ 8,678 (28,099) $ (168,861)
======================== ==========================
<Caption>
APRIL 1, 2002 (c)
YEAR ENDED TO
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------ --------------------------
MULTI-CAP VALUE FUND
CLASS A
Shares Sold 56,817 $ 567,721 66,523 $ 603,547
Reinvestment of Distributions - - - -
------------------------ --------------------------
56,817 567,721 66,523 603,547
Shares Repurchased (17,022) (162,229) (3,342) (27,691)
------------------------ --------------------------
Net Increase 39,795 $ 405,492 63,181 $ 575,856
======================== ==========================
CLASS C
Shares Sold 160,357 $ 1,639,021 169,379 $ 1,538,361
Reinvestment of Distributions - - - -
------------------------ --------------------------
160,357 1,639,021 169,379 1,538,361
Shares Repurchased (5,757) (54,408) (11,638) (91,930)
------------------------ --------------------------
Net Increase 154,600 $ 1,584,613 157,741 $ 1,446,431
======================== ==========================
</Table>
(c) Commencement of operations
55
<Page>
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------ --------------------------
SMALL CAP FUND
CLASS A
Shares Sold 94,743 $ 1,483,067 60,959 $ 843,468
Reinvestment of Distributions 2,703 49,619 283 2,964
------------------------ --------------------------
97,446 1,532,686 61,242 846,432
Shares Repurchased (81,663) (1,091,377) (105,947) (1,342,073)
------------------------ --------------------------
Net Increase (decrease) 15,783 $ 441,309 (44,705) $ (495,641)
======================== ==========================
CLASS C
Shares Sold 30,274 $ 457,239 16,170 $ 210,665
Reinvestment of Distributions 524 8,934 37 359
------------------------ --------------------------
30,798 466,173 16,207 211,024
Shares Repurchased (13,899) (187,910) (21,161) (219,488)
------------------------ --------------------------
Net Increase (decrease) 16,899 $ 278,263 (4,954) $ (8,464)
======================== ==========================
</Table>
56
<Page>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<Table>
<Caption>
GOVERNMENT SECURITIES FUND
------------------------------------------------------
CLASS A
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.20 $ 10.15 $ 10.88 $ 9.74 $ 10.59
--------- --------- -------- -------- --------
Income from investing operations
Net investment income 0.35 0.31 0.31 0.35 0.30
Net realized and unrealized gains (losses) on securities (0.57) (0.04) (0.37) 1.41 (0.84)
--------- --------- -------- -------- --------
Total from investment operations (0.22) 0.27 (0.06) 1.76 (0.54)
--------- --------- -------- -------- --------
Less distributions
From net investment income (0.30) (0.21) (0.29) (0.34) (0.29)
From net capital gains - (0.01) (0.38) (0.28) (0.02)
--------- --------- -------- -------- --------
Total distributions (0.30) (0.22) (0.67) (0.62) (0.31)
--------- --------- -------- -------- --------
Net asset value, end of period $ 9.68 $ 10.20 $ 10.15 $ 10.88 $ 9.74
========= ========= ======== ======== ========
TOTAL INVESTMENT RETURN (a) (2.20)% 2.78% (0.49)% 18.42% (5.04)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 3,025 $ 4,125 $ 6,487 $ 6,071 $ 5,220
Ratio of net investment income to average net assets
With expense reductions 2.88% 2.57% 3.01% 3.46% 2.99%
Without expense reductions 2.33% 1.42% 2.22% 2.08% 1.02%
Ratio of expenses to average net assets
With expense reductions 1.65% 1.65% 1.65% 1.65% 1.60%
Without expense reductions 2.20% 2.80% 2.43% 3.03% 3.57%
Fund portfolio turnover rate 206.55% 212.10% 75.81% 22.21% 147.01%
<Caption>
CLASS C
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.95 $ 9.96 $ 10.74 $ 9.63 $ 10.50
--------- --------- -------- -------- --------
Income from investing operations
Net investment income 0.21 0.23 0.25 0.29 0.27
Net realized and unrealized gains (losses) on securities (0.50) (0.04) (0.38) 1.38 (0.88)
--------- --------- -------- -------- --------
Total from investment operations (0.29) 0.19 (0.13) 1.67 (0.61)
--------- --------- -------- -------- --------
Less distributions
From net investment income (0.23) (0.19) (0.27) (0.28) (0.24)
From net capital gains - (0.01) (0.38) (0.28) (0.02)
--------- --------- -------- -------- --------
Total distributions (0.23) (0.20) (0.65) (0.56) (0.26)
--------- --------- -------- -------- --------
Net asset value, end of period $ 9.43 $ 9.95 $ 9.96 $ 10.74 $ 9.63
========= ========= ======== ======== ========
TOTAL INVESTMENT RETURN (2.98)% 1.98% (1.21)% 17.57% (5.77)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 11,423 $ 10,858 $ 4,172 $ 2,682 $ 1,923
Ratio of net investment income to average net assets
With expense reductions 2.23% 1.90% 2.25% 2.79% 2.18%
Without expense reductions 1.67% 0.81% 1.28% 1.23% 0.22%
Ratio of expenses to average net assets
With expense reductions 2.39% 2.40% 2.40% 2.36% 2.38%
Without expense reductions 2.95% 3.49% 3.37% 3.92% 4.34%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
57
<Page>
<Table>
<Caption>
INCOME AND EQUITY FUND
------------------------------------------------------
CLASS A
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.91 $ 10.31 $ 10.43 $ 10.39 $ 10.74
--------- --------- -------- -------- --------
Income from investing operations
Net investment Income 0.33 0.39 0.42 0.52 0.43
Net realized and unrealized gains (losses) on securities 0.31 (0.49) (0.14) 0.07 (0.39)
--------- --------- -------- -------- --------
Total from investment operations 0.64 (0.10) 0.28 0.59 0.04
--------- --------- -------- -------- --------
Less distributions
From net investment income (0.22) (0.30) (0.40) (0.55) (0.37)
From net capital gains - - - - (0.02)
--------- --------- -------- -------- --------
Total distributions (0.22) (0.30) (0.40) (0.55) (0.39)
--------- --------- -------- -------- --------
Net asset value, end of period $ 10.33 $ 9.91 $ 10.31 $ 10.43 $ 10.39
========= ========= ======== ======== ========
TOTAL INVESTMENT RETURN (a) 6.63% (0.92)% 2.63% 6.03% 0.19%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 1,835 $ 2,117 $ 2,708 $ 2,217 $ 2,664
Ratio of net investment income to average net assets
With expense reductions 2.92% 3.43% 4.28% 4.67% 4.08%
Without expense reductions 1.84% 1.75% 2.66% 2.76% 1.86%
Ratio of expenses to average net assets
With expense reductions 1.85% 1.85% 1.85% 1.83% 1.85%
Without expense reductions 2.94% 3.53% 3.47% 3.75% 4.06%
Fund portfolio turnover rate 71.02% 91.50% 43.38% 21.83% 37.34%
<Caption>
CLASS C
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.60 $ 10.03 $ 10.26 $ 10.15 $ 10.62
--------- --------- -------- -------- --------
Income from investing operations
Net investment Income 0.24 0.34 0.42 0.35 0.41
Net realized and unrealized gains (losses) on securities 0.32 (0.51) (0.22) 0.10 (0.43)
--------- --------- -------- -------- --------
Total from investment operations 0.56 (0.17) 0.20 0.45 (0.02)
--------- --------- -------- -------- --------
Less distributions
From net investment income (0.26) (0.26) (0.43) (0.34) (0.43)
From net capital gains - - - - (0.02)
--------- --------- -------- -------- --------
Total distributions (0.26) (0.26) (0.43) (0.34) (0.45)
--------- --------- -------- -------- --------
Net asset value, end of period $ 9.90 $ 9.60 $ 10.03 $ 10.26 $ 10.15
========= ========= ======== ======== ========
TOTAL INVESTMENT RETURN 5.88% (1.60)% 1.81% 4.32% (0.02)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 5,416 $ 3,284 $ 1,365 $ 815 $ 1,850
Ratio of net investment income to average net assets
With expense reductions 2.10% 2.95% 3.58% 3.90% 3.45%
Without expense reductions 1.03% 1.15% 1.65% 1.88% 1.65%
Ratio of expenses to average net assets
With expense reductions 2.60% 2.60% 2.60% 2.55% 2.51%
Without expense reductions 3.67% 4.39% 4.54% 4.57% 4.30%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
58
<Page>
<Table>
<Caption>
BALANCED FUND
------------------------------------------------------
CLASS A
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 13.69 $ 14.42 $ 15.22 $ 14.04 $ 12.69
--------- --------- -------- -------- --------
Income from investing operations
Net investment income 0.21 0.06 0.10 0.21 0.12
Net realized and unrealized gains (losses) on securities 2.34 (0.79) (0.81) 1.19 1.47
--------- --------- -------- -------- --------
Total from investment operations 2.55 (0.73) (0.71) 1.40 1.59
--------- --------- -------- -------- --------
Less distributions
From net investment income (0.18) - (0.09) (0.15) (0.12)
From net capital gains (0.18) - - (0.07) (0.12)
--------- --------- -------- -------- --------
Total distributions (0.36) - (0.09) (0.22) (0.24)
--------- --------- -------- -------- --------
Net asset value, end of period $ 15.88 $ 13.69 $ 14.42 $ 15.22 $ 14.04
========= ========= ======== ======== ========
TOTAL INVESTMENT RETURN (a) 18.63% (5.05)% (4.69)% 9.99% 12.61%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 4,739 $ 3,977 $ 5,013 $ 5,942 $ 7,008
Ratio of net investment income to average net assets
With expense reductions 1.44% 0.30% 0.55% 1.15% 0.91%
Without expense reductions 1.44% 0.30% 0.55% 0.74% 0.51%
Ratio of expenses to average net assets
With expense reductions 2.86% 3.47% 3.22% 2.88% 3.22%
Without expense reductions 2.86% 3.47% 3.22% 3.28% 3.62%
Fund portfolio turnover rate 58.73% 57.74% 42.20% 43.30% 52.47%
<Caption>
CLASS C
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 13.40 $ 14.18 $ 14.99 $ 13.91 $ 12.61
--------- --------- -------- -------- --------
Income from investing operations
Net investment income 0.09 0.01 0.01 0.07 0.03
Net realized and unrealized gains (losses) on securities 2.26 (0.79) (0.80) 1.17 1.42
--------- --------- -------- -------- --------
Total from investment operations 2.35 (0.78) (0.79) 1.24 1.45
--------- --------- -------- -------- --------
Less distributions
From net investment income (0.08) - (0.02) (0.09) (0.03)
From net capital gains (0.18) - - (0.07) (0.12)
--------- --------- -------- -------- --------
Total distributions (0.26) - (0.02) (0.16) (0.15)
--------- --------- -------- -------- --------
Net asset value, end of period $ 15.49 $ 13.40 $ 14.18 $ 14.99 $ 13.91
========= ========= ======== ======== ========
TOTAL INVESTMENT RETURN 17.58% (5.49)% (5.25)% 8.92% 11.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 23,353 $ 14,035 $ 7,404 $ 4,559 $ 1,552
Ratio of net investment income to average net assets
With expense reductions 0.67% (0.16)% (0.08)% 0.39% 0.01%
Without expense reductions 0.67% (0.16)% (0.08)% (0.01)% (0.39)%
Ratio of expenses to average net assets
With expense reductions 3.66% 4.15% 3.99% 3.63% 4.07%
Without expense reductions 3.66% 4.15% 3.99% 4.03% 4.47%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
59
<Page>
<Table>
<Caption>
GROWTH FUND
---------------------------------------------------------------
CLASS A
---------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, MAY 3, 1999(c)
------------------------------------------- to
2003 2002 2001 2000 DECEMBER 31, 1999
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 5.48 $ 7.04 $ 9.83 $ 11.67 $ 10.00
--------- --------- -------- -------- -----------------
Income from investing operations
Net investment expense (0.07) (0.12) (0.11) (0.01) (0.02)
Net realized and unrealized gains (losses)
on securities 1.73 (1.44) (2.68) (1.83) 1.69
--------- --------- -------- -------- -----------------
Total from investment operations 1.66 (1.56) (2.79) (1.84) 1.67
--------- --------- -------- -------- -----------------
Less distributions
From net investment income - - - - -
From net capital gains - - - - -
--------- --------- -------- -------- -----------------
Total distributions - - - - -
--------- --------- -------- -------- -----------------
Net asset value, end of period $ 7.14 $ 5.48 $ 7.04 $ 9.83 $ 11.67
========= ========= ======== ======== =================
TOTAL INVESTMENT RETURN (b) 30.29% (22.16)% (28.38)% (15.77)% 16.70%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 669 $ 464 $ 588 $ 825 $ 328
Ratio of net investment income to average net assets
With expense reductions (1.69)% (1.97)% (1.26)% (0.24)% (0.41)%(d)
Without expense reductions (7.44)% (8.25)% (5.44)% (3.98)% (12.62)%(d)
Ratio of expenses to average net assets
With expense reductions 2.48% 2.50% 2.44% 2.50% 2.45%(d)
Without expense reductions 8.23% 8.77% 6.62% 6.23% 14.65%(d)
Fund portfolio turnover rate 34.58% 78.06% 57.61% 16.00% 0.00%
<Caption>
CLASS C
---------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, MAY 3, 1999(c)
------------------------------------------- to
2003 2002 2001 2000 DECEMBER 31, 1999
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 5.33 $ 6.89 $ 9.70 $ 11.61 $ 10.00
--------- --------- -------- -------- -----------------
Income from investing operations
Net investment expense (0.16) (0.44) (0.22) (0.06) (0.04)
Net realized and unrealized gains (losses)
on securities 1.66 (1.12) (2.59) (1.85) 1.65
--------- --------- -------- -------- -----------------
Total from investment operations 1.50 (1.56) (2.81) (1.91) 1.61
--------- --------- -------- -------- -----------------
Less distributions
From net investment income - - - - -
From net capital gains - - - - -
--------- --------- -------- -------- -----------------
Total distributions - - - - -
--------- --------- -------- -------- -----------------
Net asset value, end of period $ 6.83 $ 5.33 $ 6.89 $ 9.70 $ 11.61
========= ========= ======== ======== =================
TOTAL INVESTMENT RETURN 28.14% (22.64)% (28.97)% (16.45)% 16.10%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 251 $ 190 $ 439 $ 728 $ 278
Ratio of net investment income to average net assets
With expense reductions (2.47)% (2.75)% (2.04)% (0.97)% (0.92)%(d)
Without expense reductions (8.18)% (8.67)% (5.59)% (4.04)% (13.13)%(d)
Ratio of expenses to average net assets
With expense reductions 3.25% 3.25% 3.23% 3.25% 3.24%(d)
Without expense reductions 8.96% 9.17% 6.77% 6.32% 15.44%(d)
</Table>
(a) Not annualized
(b) The Fund's maximum sales charge is not included in the total return
computation
(c) Commencement of operations
(d) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
60
<Page>
<Table>
<Caption>
MULTI-CAP VALUE FUND
-------------------------------------
CLASS A
-------------------------------------
FOR THE YEAR APRIL 1, 2002(c)
ENDED TO
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 7.95 $ 10.00
----------------- -----------------
Income from investing operations
Net investment expense (0.09) (0.07)
Net realized and unrealized gains (losses) on securities 3.60 (1.98)
----------------- -----------------
Total from investment operations 3.51 (2.05)
----------------- -----------------
Less distributions
From net investment income - -
From net capital gains - -
----------------- -----------------
Total distributions - -
----------------- -----------------
Net asset value, end of period $ 11.46 $ 7.95
----------------- -----------------
TOTAL INVESTMENT RETURN (b) 44.15% (20.50)%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 1,180 $ 503
Ratio of net investment income to average net assets
With expense reductions (1.67)% (1.44)%(d)
Without expense reductions (3.14)% (5.65)%(d)
Ratio of expenses to average net assets
With expense reductions 2.49% 2.49%(d)
Without expense reductions 3.96% 6.69%(d)
Fund portfolio turnover rate 20.16% 8.23%(d)
<Caption>
CLASS C
-------------------------------------
FOR THE YEAR APRIL 1, 2002(c)
ENDED TO
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 7.91 $ 10.00
----------------- -----------------
Income from investing operations
Net investment expense 0.32 (0.52)
Net realized and unrealized gains (losses) on securities 3.10 (1.57)
----------------- -----------------
Total from investment operations 3.42 (2.09)
----------------- -----------------
Less distributions
From net investment income - -
From net capital gains - -
----------------- -----------------
Total distributions - -
----------------- -----------------
Net asset value, end of period $ 11.33 $ 7.91
================= =================
TOTAL INVESTMENT RETURN 43.24% (20.90)%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 3,537 $ 1,247
Ratio of net investment income to average net assets
With expense reductions (2.41)% (2.20)%(d)
Without expense reductions (3.90)% (6.08)%(d)
Ratio of expenses to average net assets
With expense reductions 3.24% 3.23%(d)
Without expense reductions 4.74% 7.11%(d)
</Table>
(a) Not annualized
(b) The Fund's maximum sales charge is not included in the total return
computation
(c) Commencement of operations
(d) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
61
<Page>
<Table>
<Caption>
SMALL CAP FUND
------------------------------------------------------
CLASS A
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.32 $ 15.23 $ 13.42 $ 11.98 $ 14.23
--------- --------- -------- -------- --------
Income from investing operations
Net investment expense (0.37) (0.85) (0.42) (0.79) (0.61)
Net realized and unrealized gains (losses) on securities 8.95 (4.05) 3.11 2.32 (1.63)
--------- --------- -------- -------- --------
Total from investment operations 8.58 (4.90) 2.69 1.53 (2.24)
--------- --------- -------- -------- --------
Less distributions
From net investment income - - - - -
From net capital gains (0.13) (0.01) (0.88) (0.09) (0.01)
--------- --------- -------- -------- --------
Total distributions (0.13) (0.01) (0.88) (0.09) (0.01)
--------- --------- -------- -------- --------
Net asset value, end of period $ 18.77 $ 10.32 $ 15.23 $ 13.42 $ 11.98
========= ========= ======== ======== ========
TOTAL INVESTMENT RETURN (a) 83.21% (32.20)% 20.23% 12.83% (15.75)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 8,961 $ 4,763 $ 7,715 $ 6,541 $ 6,976
Ratio of net investment income to average net assets
With expense reductions (4.06)% (4.01)% (3.44)% (3.20)% (3.36)%
Without expense reductions (4.06)% (4.01)% (3.44)% (3.20)% (3.36)%
Ratio of expenses to average net assets
With expense reductions 4.44% 4.52% 3.74% 3.58% 3.92%
Without expense reductions 4.44% 4.52% 3.74% 3.58% 3.92%
Fund portfolio turnover rate 39.95% 23.39% 43.89% 44.82% 68.18%
<Caption>
CLASS C
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.65 $ 14.47 $ 13.04 $ 11.93 $ 14.24
--------- --------- -------- -------- --------
Income from investing operations
Net investment expense 0.04 (0.88) (0.08) (0.78) (0.18)
Net realized and unrealized gains (losses) on securities 7.85 (3.93) 2.39 1.98 (2.12)
--------- --------- -------- -------- --------
Total from investment operations 7.89 (4.81) 2.31 1.20 (2.30)
--------- --------- -------- -------- --------
Less distributions
From net investment income - - - - -
From net capital gains (0.13) (0.01) (0.88) (0.09) (0.01)
--------- --------- -------- -------- --------
Total distributions (0.13) (0.01) (0.88) (0.09) (0.01)
--------- --------- -------- -------- --------
Net asset value, end of period $ 17.41 $ 9.65 $ 14.47 $ 13.04 $ 11.93
========= ========= ======== ======== ========
TOTAL INVESTMENT RETURN 81.83% (33.27)% 17.91% 10.11% (16.16)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 1,274 $ 543 $ 886 $ 454 $ 459
Ratio of net investment income to average net assets
With expense reductions (4.88)% (5.47)% (5.48)% (5.52)% (3.78)%
Without expense reductions (4.88)% (5.47)% (5.48)% (5.52)% (3.78)%
Ratio of expenses to average net assets
With expense reductions 5.26% 5.97% 5.78% 5.90% 4.38%
Without expense reductions 5.26% 5.97% 5.78% 5.90% 4.38%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
62
<Page>
PACIFIC ADVISORS FUND INC.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Pacific Advisors Fund Inc.
We have audited the statements of assets and liabilities, including the
schedules of investments, of Pacific Advisors Fund Inc. (comprising,
respectively, the Government Securities Fund, Income and Equity Fund, Balanced
Fund, Growth Fund, Multi-Cap Value Fund and Small Cap Fund) (the "Fund"), as of
December 31, 2003, the related statements of operations, the statements of
changes in net assets and the financial highlights for the respective periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 2003, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective funds constituting Pacific Advisors Fund Inc. as of
December 31, 2003, the results of their operations, the changes in their net
assets and their financial highlights for the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Los Angeles, California
January 23, 2004
63
<Page>
PACIFIC ADVISORS FUND INC.
DIRECTORS AND OFFICERS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITIONS(S) TERM OF OFFICES PRINCIPAL OCCUPATIONS FUND COMPLEX
HELD WITH THE AND LENGTH OF DURING OVERSEEN BY OTHER DIRECTORSHIPS
NAME, ADDRESS AND AGE COMPANY TIME SERVED PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------
Thomas M. Brinker (70) Director Since 1992 1970 - Present: 6 Pacific None
1 North Ormond Avenue Director Fringe Advisors
Havertown, PA 19083 Benefits, Mutual Funds
Inc./Financial
Foresight, Ltd.,
d/b/a The Brinker
Organization
(Financial Services
Companies)
1970 - 2003:
President Fringe
Benefits, Inc/
Financial Foresight,
Ltd., d/b/a The
Brinker Organization
(Financial Services
Companies)
Victoria Breen (52) Director Since 1992 1992 - Present: 6 Pacific None
603 West Ojai Avenue and Assistant Assistant Secretary Advisors
Ojai, CA 93023 Secretary and Director, Pacific Mutual Funds
Global Investment
Management Company,
Pacific Global
Investor Services,
Inc.
1994 - Present:
General Agent,
Transamerica Life
Companies and
Registered Principal,
Transamerica
Financial Resources,
Inc.
1986 - Present:
Branch Manager, Derby
& Derby Inc.
(Financial Services
Company)
Thomas H. Hanson (53) Vice President Since 1992 1992 - Present: 6 Pacific None
206 North Jackson Street and Secretary Executive Vice Advisors
Suite 301 President and Mutual Funds
Glendale, CA 91206 Director, Pacific
Global Investment
Management Company;
President and
Director, Pacific
Global Fund
Distributors, Inc.;
President and
Director, Pacific
Global Investor
Services, Inc.
1997 - 2001: Vice
President and
Director, Pacific
Global Investment
Fund Ltd.
1993 - Present:
Owner, Director,
Chairman, President
and CEO of TriVest
Capital Management,
Inc.
</Table>
64
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITIONS(S) TERM OF OFFICES PRINCIPAL OCCUPATIONS FUND COMPLEX
HELD WITH THE AND LENGTH OF DURING OVERSEEN BY OTHER DIRECTORSHIPS
NAME, ADDRESS AND AGE COMPANY TIME SERVED PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------
Catherine L. Henning (26) Assistant Since 2002 2002 - Present: 6 Pacific None
206 North Jackson Street Secretary Assistant Secretary, Advisors
Suite 301 Pacific Global Mutual Funds
Glendale, CA 91206 Investment Management
Company, Pacific
Global Fund
Distributors, Inc.
and Pacific Global
Investor Services,
Inc.
1999 - Present:
Marketing
Coordinator, Pacific
Global Investment
Management Company
George A. Henning (56) President and Since 1992 1991 - Present: 6 Pacific None
206 North Jackson Street Chairman Chairman, President, Advisors
Suite 301 and Director, Pacific Mutual Funds
Glendale, CA 91206 Global Investment
Management Company;
Chairman and
Director, Pacific
Global Fund
Distributors, Inc.;
Chairman and
Director, Pacific
Global Investor
Services, Inc.
1997 - 2001: Chairman
and Director, Pacific
Global Investment
Fund, Ltd.
Barbara A. Kelley (50) Treasurer Since 2001 2001 - Present: 6 Pacific None
206 North Jackson Street Executive Vice Advisors
Suite 301 President, Treasurer, Mutual Funds
Glendale, CA 91206 Pacific Global
Investment Management
Company; Treasurer
and Director, Pacific
Global Fund
Distributors, Inc.;
President and
Treasurer, Pacific
Global Investor
Services, Inc.
1999 - Present:
Director, Pacific
Global Investment
Management Company
1990 - 1999:
President,
Transamerica
Financial Resources
</Table>
65
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITIONS(S) TERM OF OFFICES PRINCIPAL OCCUPATIONS FUND COMPLEX
HELD WITH THE AND LENGTH OF DURING OVERSEEN BY OTHER DIRECTORSHIPS
NAME, ADDRESS AND AGE COMPANY TIME SERVED PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------
L. Michael Haller (60) Director Since 1992 2002 - Present: 6 Pacific None
5924 Colodny Executive Vice Advisors
Agoura, CA 91301 President, Sammy Mutual Funds
Studios, Inc.
(Entertainment
Company)
2001 - 2002: Vice
President and
Executive Producer,
Electronic Arts;
President,
International Media
Group, Inc.
(Entertainment
Company)
1978 - 2001:
Consultant, Asahi
Broadcasting Corp.
(Entertainment
Company)
Takashi Makinodan, Ph.D (78) Director Since 1995 1992 - Present: 6 Pacific None
107 S. Barrington Place Director, Medical Advisors
Los Angeles, CA 90049 Treatment Mutual Funds
Effectiveness Program
(MEDTEP), Center on
Asian and Pacific
Islanders
1991 - Present:
Associate Director of
Research, Geriatric
Research Education
Clinic Center, VA
Medical Center
Gerald E. Miller (73) Director Since 1992 1992 - Present: 6 Pacific None
5262 Bridgetown Place Retired Advisors
Westlake Village, CA 91362 Mutual Funds
Louise K. Taylor, Ph.D (57) Director Since 1992 1991 - Present: 6 Pacific None
325 East Huntington Dr. Superintendent, Advisors
Monrovia, CA 91016 Monrovia Unified Mutual Funds
School District
</Table>
Each director is elected to serve until the next annual shareholders meeting and
until his or her successor is elected or appointed. The Company does not hold
regular annual shareholders meetings to elect Directors. Vacancies on the Board
can be filled by the action of a majority of the Directors, provided that at
least two-thirds of the Directors have been elected by the shareholders. Certain
Directors are considered "interested persons" of the Company as defined in the
1940 Act. All directors oversee all six Funds of the Company.
66
<Page>
PACIFIC ADVISORS FUND INC.
NOTES
67
<Page>
PACIFIC ADVISORS FUND INC.
NOTES
68
<Page>
[GRAPHIC]
PACIFIC ADVISORS
FUND INC
DIRECTORS
GEORGE A. HENNING, CHAIRMAN
VICTORIA L. BREEN
THOMAS M. BRINKER
L. MICHAEL HALLER III
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
CATHERINE L. HENNING, ASSISTANT SECRETARY
BARBARA A. KELLEY, TREASURER
INVESTMENT MANAGER
PACIFIC GLOBAL INVESTMENT MANAGEMENT COMPANY
206 NORTH JACKSON STREET, SUITE 301
GLENDALE, CALIFORNIA 91206
BALANCED FUND ADVISER
BACHE CAPITAL MANAGEMENT, INC.
206 NORTH JACKSON STREET, SUITE 201
GLENDALE, CALIFORNIA 92106
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>
[LOGO] PRSRT STD
PACIFIC GLOBAL FUND DISTRIBUTORS, INC. U. S. POSTAGE
206 NORTH JACKSON STREET, SUITE 301 PAID
GLENDALE, CALIFORNIA 91206 GLENDALE, CA
PERMIT NO. 1090
pg101.898
<Page>
Item 2. Code of Ethics
The Registrant has adopted a Code of Ethics pursuant to Section
406 of the Sarbanes-Oxley Act of 2002 that applies to the
Registrant's principal executive officer, principal financial
officer, principal accounting officer or controller. A copy has
been attached as Exhibit 10a(1)(i).
Item 3. Audit Committee Financial Expert
Registrant's Audit Committee has three members. While these
members are "financially literate", the Board has determined that
none of the members of the Audit Committee meet the technical
definition of "audit committee financial expert". Registrant has
determined that an audit committee financial expert is not
necessary at this time because (i) the Audit Committee members are
financially literate; (ii) they have served on Registrant's Audit
Committee for several years; (iii) the accounting methodologies
applicable to registered investment companies and the types of
investment activities in which the Funds engage are well
established; and (iv) Registrant's financial statements do not
involve the types of complex accounting issues that other types of
public companies may have.
Item 4. Principal Accountant Fees and Services
(a)-(d)
Ernst & Young LLP ("E&Y") billed the Company aggregate fees for professional
services rendered for the fiscal years ending December 31, 2003, and December
31, 2002, as follows:
<Table>
<Caption>
AUDIT FEES AUDIT RELATED FEES TAX FEES ALL OTHER FEES
- --------------------------------------------------------------------
2003 $ 86,000 $ 9,990 $ 6,540 $ 0
2002 $ 72,000 $ 31,999 $ 8,663 $ 0
</Table>
(e)(1)
The Audit Committee is authorized to pre-approve non-audit services provided by
the Trust's auditors, if they find it appropriate in light of their fiduciary
duties and in the exercise of their good faith business judgment and compatible
with the auditors' independence. The Chairman of the Audit Committee is
authorized to approve audit and non-audit services for newly established funds
of the Trust on the same terms as the full Audit Committee previously had
approved for the then existing funds, and to approve non-audit services which
are permissible under applicable law, provided the estimated fee is not more
than $5,000 based on a good faith estimate provided by the auditor. The Chairman
shall report any such pre-approval to the Audit Committee at its next following
meeting.
(e)(2)
None.
<Page>
(f)
0%
(g)
None.
(h)
Not applicable.
Item 5. Not applicable.
Item 6. (Reserved)
Item 7. (Reserved)
Item 8. Not applicable.
Item 9. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure
controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940) as conducted within 90 days of the
filing date of this Form N-CSR, the registrant's principal
executive officer and principal financial officer have concluded
that those disclosure controls and procedures provide reasonable
assurance that the material information required to be disclosed
by the registrant on this report is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
(b) There have been no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of the most recent
evaluation as indicated, including no significant deficiencies or
material weaknesses that required corrective action.
Item 10. Exhibits
(a)(1) Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act of 2002.
(a)(2) Certifications required by Item 10(a) of Form N-CSR and
Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
(b) Certification required by Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Pacific Global Fund Inc. d/b/a Pacific Advisors Fund Inc.
By:
------------------------------------
George A. Henning
Chairman, Pacific Advisors Fund Inc.
Date: March 1, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:
------------------------------------
George A. Henning
Chief Executive Officer
Date: March 1, 2004
By:
------------------------------------
Barbara A. Kelley
Chief Financial Officer
Date: March 1, 2004