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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7062
PACIFIC GLOBAL FUND INC. D/B/A PACIFIC ADVISORS FUND INC.
(Exact name of registrant as specified in charter)
206 NORTH JACKSON STREET, SUITE 301 GLENDALE, CALIFORNIA 91206
(Address of principal executive offices)
GEORGE A. HENNING 206 N. JACKSON ST., SUITE 301 GLENDALE, CA 91206
(Name and address of agent for service)
Registrant's telephone number, including area code: 818-242-6693
Date of fiscal year end: DECEMBER 31
Date of reporting period: JUNE 30, 2004
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Item 1. Report to Shareholders (filed herewith).
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[PACIFIC ADVISORS FUND INC. LOGO]
SEMI-ANNUAL REPORT
JUNE 30, 2004
[GRAPHIC]
GOVERNMENT SECURITIES FUND
INCOME AND EQUITY FUND
BALANCED FUND
GROWTH FUND
MULTI-CAP VALUE FUND
SMALL CAP FUND
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PACIFIC ADVISORS
TABLE OF CONTENTS
<Table>
MESSAGE FROM THE CHAIRMAN 1
GOVERNMENT SECURITIES FUND 3
INCOME AND EQUITY FUND 5
BALANCED FUND 7
GROWTH FUND 10
MULTI-CAP VALUE FUND 12
SMALL CAP FUND 14
SCHEDULE OF INVESTMENTS 18
STATEMENT OF ASSETS AND LIABILITIES 36
STATEMENT OF OPERATIONS 38
STATEMENT OF CHANGES IN NET ASSETS 40
NOTES TO FINANCIAL STATEMENTS 44
FINANCIAL HIGHLIGHTS 49
</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,
For many investors, the daily news and business reports have provided more
questions than answers during the past few months. Analysts continue to debate
such issues as the strength of the economy, job growth, interest rates, the
impact of rising energy prices on inflation, a bull vs. bear market, and the
Presidential election. Geopolitical events have also contributed to the
volatility in the fixed income and equity markets. While all of these issues are
significant and important, they often make it difficult to evaluate investment
opportunities.
During the first six months of the year, the economy continued to grow
above 3%. Corporate profits were substantially higher across most sectors
including basic materials such as lumber, cement, steel, oil and gas. This has
been the broadest based economic recovery in recent U.S. history.
Job creation has also grown with this economic recovery. Technology and
productivity improvements have enabled corporations to grow profits at an
impressive pace. There has been concern that profit growth will slow, but that
is not unexpected. Profit growth often slows in the second year of an economic
recovery, but many companies will still have healthy year-over-year growth rates
above 10%. The economic recovery is real and, with modest growth rates, it
should be sustainable for some time.
Interest rates and the equity indices have been trading range bound.
Historically, equity markets often stay in a trading range for several years
following a lengthy bull market such as the one that ended in 2000. It is
possible that the markets will experience a series of rallies and corrections
without the emergence of a real bull or bear market. As a result, the equity
market indices may remain relatively flat for the foreseeable future. During
this period, however, individual stocks may continue to perform quite well. A
successful investment strategy in these market conditions places a premium on
INDIVIDUAL STOCK SELECTION WITH A MORE LIMITED NUMBER OF PORTFOLIO HOLDINGS.
Despite the impact of energy prices, geopolitical events and interest rate
increases, we believe there will be good investment opportunities in the equity
markets. We anticipate that market volatility will continue to provide
opportunities to buy and sell stocks at attractive prices as the markets
overreact to positive and negative events.
We anticipate interest rates will continue to rise over the next year. As
the economy grows, the Federal Reserve will continue to raise rates to control
inflation. Long-term interest rates are currently at 4 1/2%. They will continue
to rise and are expected to peak between 5 1/2% and 6%. During this phase of
rising interest rates, we believe it is more important to protect principal than
seek higher yields. Our fixed income portfolios have employed a more defensive
investment strategy by holding shorter-term bonds that will be replaced with
higher yielding bonds once interest rates near their peak in this cycle. A
further explanation of our fixed income strategy is provided in the interviews
with the portfolio managers for each Fund.
The abundant availability of business news in the media has created a
tendency to micro-analyze individual events rather than focus on broader
economic trends. There is no question that the instantaneous availability of
news has created more volatility in the markets. Investment strategies must
remain disciplined and patient but adapt to changing market conditions. This is
the investment strategy employed by Pacific Advisors Funds and we believe it has
enabled our Funds to perform well through different market cycles. We are
pleased to report that our Growth and Small Cap Funds performed at the top of
their peer groups and outperformed market indices over the last year(1).
1
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[GRAPHIC]
We continue to believe that it is important for our shareholders to have an
asset allocation program tailored to their investment objectives. In any asset
allocation plan, there will be certain investments that will outperform others
at a given point in the market cycle. There is a tendency among investors to
become impatient and abandon their diversification strategy when certain
investments are not performing as well as others. Some investors seek safety in
cash while others may concentrate their investments in the current best
performing sectors. This investment approach often leaves investors behind. When
markets shift, they are unable to adapt quickly to changing market conditions.
An effective asset allocation plan helps investors manage through difficult
markets while creating opportunities for solid long-term performance.
We encourage you to consult with your financial advisor on a regular basis
to review your investment program. Your advisor can assist you in determining if
your current investment program is appropriate for your financial goals.
/s/ George A. Henning
George A. Henning
Chairman of the Board and President
(1) Lipper ranked Pacific Advisors Small Cap Fund (A) as the number #1 small
cap core fund out of 533 funds based on its one-year return of 78.19% as of June
30, 2004. The Fund ranked 84 out of 303 funds based on its five-year return; and
70 out of 87 funds based on its ten-year return. The Fund's benchmark, the
Russell 2000, had a one-year return of 33.37% as of June 30, 2004. Small cap
companies typically have fewer financial resources and may carry higher
investment risks and experience greater stock price volatility than larger cap
stocks.
Morningstar ranked Pacific Advisors Growth Fund (A) in the top 11% of large cap
growth funds based on its one-year return of 22.04% as of June 30, 2004. The
Fund ranked 140 out of 1,331 fund based on its one-year return; and 595 out of
960 funds based on its five-year return. The Fund's benchmarks, the S&P 500 and
the Russell 1000, had one-year returns of 19.11% and 19.48%, respectively, as of
June 30, 2004.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Current performance may be
lower or higher than performance data quoted. 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.
For information on current performance, call (800) 989-6693.
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 SIX MONTHS ENDED JUNE 30, 2004, THE FUND HAD A TOTAL RETURN OF - 1.16%
FOR CLASS A SHARES, AND - 1.55% FOR CLASS C SHARES(1). THE FUND'S BENCHMARK, THE
LEHMAN INTERMEDIATE TREASURY BOND INDEX(2), RETURNED - 0.15% DURING THE SAME
PERIOD.
Q HOW DID THE INTEREST RATE ENVIRONMENT CHANGE IN THE FIRST HALF OF THE YEAR?
A In early 2004, the Federal Reserve gave clear signals that it intended to
begin raising short-term interest rates. With the economy growing at a stable
and healthy rate, the Fed believed it necessary to raise rates in order control
inflation. At the same time, the Fed assured the market it would raise rates at
a "measured" pace to avoid disrupting economic growth. The Fed raised rates by
0.25% in June and followed with another 0.25% increase later in the summer.
Rising rates, coupled with uncertainty surrounding the timing and scope of the
Fed's actions, made for a volatile bond market in the first half of the year.
To understand the bond market in the first half of the year, it important
to understand the nature of interest rate movements. On a large scale, interest
rates move in cycles from peak to trough and back to another peak. The severity
of the increase or decrease in a cycle depends primarily on the state of the
economy and activity by the Fed. While the length of each cycle varies, it
generally takes 3 to 4 years for interest rates to come full circle. For
example, short-term rates last peaked in September 2000 at approximately 6 1/2%.
It was mid-2004 before rates bottomed at 1% and began to rise. It will likely
take at least 12 to 18 months before short-term rates reach another peak.
Rate increases and decreases rarely occur in a steady fashion. In the midst
of the larger cycle, rates tend to move in short-term waves over a period of
weeks or months. For example, in a rising rate environment, rates typically
advance, then pullback and advance again. With each advance, rates reach a new
high until they reach a peak. These waves occur as a result of the market
reacting to economic data and related news. As we saw in the first half of 2004,
while rates trended higher, the rise was punctuated by several shorter-term
pullbacks.
Q WHAT WAS THE FUND'S INVESTMENT STRATEGY IN RESPONSE TO THESE DEVELOPMENTS?
A The Fund aims to optimize total return by adapting to interest rate
movements. Unlike many "laddered" bond fund portfolios that seek yield and do
little to manage risk, our total return approach actively manages risk while
seeking to achieve performance from income and capital appreciation
opportunities. As interest rates rise, bond prices decline. Given the long-term
trend of rising rates, the Fund remained focused on minimizing volatility and
protecting principal by holding short-term government securities. We managed
risk and took advantage of opportunities to capture higher yields and capital
appreciation by adapting to shorter-term interest rate movements.
At the end of 2003, rates reached a short-term peak and began to pullback.
To capitalize on higher yields and capital appreciation potential at that time,
we invested a portion of the portfolio in intermediate-term securities extending
the portfolio's average maturity to approximately 4 years. Subsequently, in
2004, rates reached the lower end of their trading range and began to rise. In
response, we realized some capital appreciation by
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(1) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Current performance
may be lower or higher than performance data quoted. 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.
For information on current performance, call (800) 989-6693.
(2) The Lehman Treasury Bond Index is an unmanaged index of intermediate term
government bonds since 12/31/80.
3
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selling these intermediate-term bonds and shortening the average maturity to
approximately 2 1/2 years.
We also continued to maintain a portion of the portfolio in equities for
added income and capital appreciation potential. We concentrated the Fund's
equity holdings in preferred stocks which offered higher yields than common
stocks. These positions allowed the Fund to benefit from strength in the equity
market which helped compensate for weaker performance in the bond market.
Q THE MAJORITY OF U.S. TREASURIES ARE FOREIGN-OWNED. DOES THIS CREATE A
RISK FOR THE GOVERNMENT BOND MARKET?
A U.S. government securities consistently remain in high demand because of
their relative safety and stability. Foreign governments and institutions own
approximately 60% of all outstanding U.S. Treasury securities with the majority
owned by Asian investors. While a major sell-off by these investors could create
a problem for the bond market, it is unlikely to happen for several reasons.
U.S. treasuries are considered some of the safest investments in the world.
It would take a catastrophic change in the state of the country to reduce the
appeal of U.S. government securities. Perhaps more importantly, these foreign
investors have a substantial vested interest in helping maintain stability in
the U.S. bond market. A significant sell-off would upset trade balances with the
U.S. and negatively impact their own economies.
Q WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF THE YEAR?
A Economic data remains relatively positive and we expect the economy will
continue to expand at a healthy rate in the last half of the year. As the
economy continues to grow, we expect to see a steady rise in interest rates.
Even after two rate increases, the fed funds rate remains low at 1.50%. We
expect the Fed will look to raise that rate to a more historical norm of 3% over
the next 18 months.
We also expect a continued rise in long-term rates, although movement
should be less dramatic on that end of the yield curve. At present, we
anticipate long-term rates will peak between 5 1/2% and 6% during the next 18
months. This rise will likely occur in a stair-step fashion producing narrow
trading channels. We expect rates will rise and then pullback before moving
higher as the market responds to economic data and rate increases by the Fed.
Given the general trend for rising rates, we will remain focused on
protecting principal by holding shorter-term government securities during this
period of higher risk. At the same time, we will seek to adapt to shorter-term
interest rate movements. When we experience a temporary pullback in rates, the
Fund will move into longer-term treasuries to capture higher yields and the
potential for capital appreciation.
[CHART]
INVESTMENT MIX as of 06/30/04
<Table>
1. U.S. TREASURY BILLS 52.78%
2. U.S. GOVERNMENT AGENCIES 29.37%
3. PREFERRED STOCK 15.55%
4. EQUITIES 2.02%
5. CASH 0.28%
</Table>
4
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PACIFIC ADVISORS
INCOME AND EQUITY FUND
INVESTS PRIMARILY IN INVESTMENT-GRADE FIXED-INCOME SECURITIES. THE FUND MAY ALSO
INVEST IN STOCKS FOR LONG-TERM CAPITAL APPRECIATION.
INTERVIEW WITH PORTFOLIO MANAGERS
THOMAS H. HANSON
STEPHEN K. BACHE, CFA
FOR THE PERIOD ENDED JUNE 30, 2004, THE FUND HAD A TOTAL RETURN OF 0.33% FOR
CLASS A SHARES, AND 0.08% FOR CLASS C SHARES(1). THE FUND'S BENCHMARKS, THE
LEHMAN INTERMEDIATE CORPORATE BOND INDEX(2) AND THE S&P 500 INDEX(3), RETURNED -
0.04% AND 3.44%, RESPECTIVELY, DURING THE SAME PERIOD.
Q HOW DID CORPORATE BONDS PERFORM IN THE FIRST HALF OF THE YEAR?
A The corporate bond market remained challenging in 2004 as a result of
continued interest rate uncertainty. In early 2004, speculation focused on WHEN
the Federal Reserve would begin raising short-term interest rates. After the Fed
began raising rates in June, speculation surrounded the uncertain PACE and
EXTENT of future rate increases. Rising rates and persistent uncertainty made
for a volatile bond market.
Despite the recent rise in rates, attractive yields on quality bonds
remained limited. Over the last year, many companies refinanced their debt to
take advantage of low interest rates removing some higher yielding bonds from
the market. In addition, many companies also built up significant cash reserves
which reduced their need to issue new bonds to finance expansion.
In this environment, the Fund's primary goal has been to protect principal.
We continued to concentrate in shorter duration bonds to minimize price
depreciation and interest rate risk. When possible, we took profits in some
positions and acquired new bonds in companies such as LIBERTY MEDIA,
ANHEUSER-BUSCH and JOHNSON AND JOHNSON. We also looked for opportunities to
capture higher yields. These opportunities included investments in government
agencies, floating rate notes and companies with improving credit situations.
Q WHAT ROLE DID THE FUND'S EQUITY INVESTMENTS PLAY DURING THE FIRST SIX
MONTHS?
A The equity market also proved fairly challenging in the first half of the
year. In spite of good economic news and earnings growth, the market remained
event driven and increasingly unpredictable in response to geopolitical
concerns, rising energy prices and anticipated higher interest rates. While
overall equity market performance was uninspiring, there was opportunity to
achieve growth and income in individual stocks.
To capitalize on these performance opportunities, the Fund maintained a
higher percentage of its holdings in high-quality, dividend paying common and
preferred stocks. To manage risk and provide stability, we continued to focus on
larger-cap companies with more stable and predictable income and growth. We made
relatively few changes to the equity portfolio over this period. We maintained a
diverse mix of stocks with an emphasis on the leading sectors in the market
including energy, basic materials and financial services. The equity component
of the portfolio was instrumental in the first half of the year to help
compensate for lagging performance in the bond market.
Q HOW WILL HIGHER INTEREST RATES IMPACT THE CORPORATE BOND MARKET?
A With two increases, the Fed has raised short-term rates by 0.50% bringing
the fed funds rate to 1.50%. We may see one or two more quarter-point increases
this year but we believe the Fed will likely wait to take further action until
after the Presidential election. We anticipate the
- ----------
(1) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Current performance
may be higher or lower than performance data quoted. 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.
For information on current performance, call (800) 989-6693.
(2) The Lehman Intermediate Corporate Bond Index is an unmanaged index of
intermediate term U.S. corporate bonds since 01/01/73.
(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.
5
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Fed will work to bring rates back to a historical norm of 3% to 4% over the next
12 to 18 months. As the Fed has repeatedly stated, however, it will take a
"measured" approach to raising rates in order to avoid stunting economic growth.
Rising rates will continue to exert downward pressure on the bond market.
We expect rates will rise in fits and starts as the market responds to economic
news and further activity by the Fed. In a rising rate environment, the major
challenges will be managing volatility and minimizing price depreciation.
Q HOW WILL THE FUND IMPLEMENT ITS INVESTMENT STRATEGY DURING THE REMAINDER
OF THE YEAR?
A We expect the equity market will remain challenging in the latter half of
the year. While the economy is on track for continued growth, concerns about
terrorism, inflation and the growing trade and Federal budget deficits will
likely prevent a positive breakthrough in market performance. Even so, the
equity market will continue to provide the best opportunities for income and
growth. As in the first half of the year, careful stock selection will be the
key to managing risk and capitalizing on performance opportunities.
In light of ongoing volatility, the Fund will maintain a more conservative
bond strategy. We will continue to focus on high-quality, shorter-term bonds and
take advantage of higher-yielding opportunities whenever possible. This strategy
will not only help manage risk but will position the Fund to lock in higher
yields on longer-term bonds when rates eventually peak. At the same time, we
anticipate maintaining the Fund's higher equity exposure to benefit from
stronger performance in that area of the market.
[CHART]
INVESTMENT MIX as of 06/30/04
<Table>
1. CORPORATE BONDS 61.85%
2. EQUITIES 18.24%
3. PREFERRED STOCK 10.93%
4. U.S. GOVERNMENT SECURITIES 4.73%
5. CASH 4.25%
</Table>
6
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PACIFIC ADVISORS
BALANCED FUND
INVESTS PRIMARILY IN LARGE AND MEDIUM CAP COMMON STOCKS WITH AT LEAST 25% OF THE
ASSETS INVESTED IN FIXED-INCOME SECURITIES.
INTERVIEW WITH PORTFOLIO MANAGER
STEPHEN K. BACHE, CFA
FOR THE SIX MONTHS ENDED JUNE 30, 2004, THE FUND RETURNED - 0.69% FOR CLASS A
SHARES, AND - 1.10% FOR CLASS C SHARES(1). DURING THE SAME PERIOD, THE FUND'S
BENCHMARKS, THE S&P 500 INDEX(2) AND THE LEHMAN INTERMEDIATE CORPORATE BOND
INDEX(3), RETURNED 3.44% AND - 0.04%, RESPECTIVELY.
Q HOW DID YOU MANAGE THE MIX BETWEEN CORPORATE BONDS AND EQUITIES IN THE
FIRST HALF OF THE YEAR?
A Continued interest rate uncertainty kept the corporate bond market
volatile in the first six months. Even after the Federal Reserve began raising
short-term interest rates in the second quarter, the market remained uneasy
about the potential pace and extent of the Fed's increases. While the equity
market achieved stronger performance in the first half of the year, it remained
volatile and unpredictable. Positive momentum from solid economic data and
strong earnings growth were largely offset by concerns about terrorism,
inflation and rising interest rates.
During the first half of the year, the Fund maintained greater equity
exposure to capitalize on the strength in the equity market and reduce its risk
exposure in the bond market. We continued to concentrate equity holdings in
larger, more stable companies with reliable earnings and growth. Market
conditions gave us opportunities to add to existing positions in such companies
as MICROSOFT, PFIZER, CABOT MICROELECTRONICS, and COOPER CAMERON. We also
focused on acquiring new positions and adding to existing holdings in sectors
receiving the greatest benefit from the economic recovery. This included BRITISH
PETROLEUM, ALLETE and SUNCOR in the energy field; communications companies
AUTOMATIC DATA PROCESSING AND NOKIA; and raw materials suppliers such as RIO
TINTO.
To manage higher volatility and interest rate risk, we reduced the Fund's
bond holdings to approximately 40%. We continued to concentrate holdings in
high-quality, shorter duration bonds with less sensitivity to interest rate
fluctuations. New bond positions were also centered in economically advantageous
sectors such as energy with FLORIDA POWER & LIGHT 6.00% 06/01/08, insurance
through OLD REPUBLIC 7.00% 06/15/07, and REYNOLDS METALS 9.20% 04/24/06 in the
raw materials sector.
Q WHY IS RISK MANAGEMENT SUCH AN IMPORTANT PART OF THE FUND'S INVESTMENT
STRATEGY?
A Balanced funds come in all shapes and sizes. While all balanced funds
contain a blend of equities and fixed income securities, their investment
strategies vary greatly. Our Fund is designed to serve as a core holding or as
an anchor in an investment portfolio. The Fund specifically seeks to provide
investors with a relatively stable portfolio that provides diversification and
solid performance.
In order to achieve these goals, we take a more conservative approach than
many other balanced funds. We begin by avoiding aggressive trading strategies or
speculative investments. On the equity side, we look for solid, typically larger
cap, companies with reliable growth and earnings. In our fixed income
securities, we stick to investment grade bonds and actively manage our maturity
exposure to minimize interest rate risk. We also control risk by actively
managing the blend between equities and bonds to capitalize on the strongest
performing area of the market and minimize exposure to weaker or more volatile
areas of the market. In 2004, this approach meant increasing the Fund's equity
position to capitalize on strength in the equity market while reducing the
- ----------
(1) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Current performance
may be lower or higher than performance data quoted. 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.
For information on current performance, call (800) 989-6693.
(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 Corporate Bond Index is an unmanaged index of intermediate
term U.S. corporate bonds since 01/01/73.
7
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Fund's bond exposure to minimize the risk and volatility associated with rising
interest rates.
As a result of its more conservative investment strategy, the Fund may
perform differently than its peers. For example, the Fund often lags its peers
in performance in up-trending markets. While we seek to participate in market
growth, we avoid being overly aggressing and assuming unnecessary risk.
Conversely, the Fund's focus on risk management may help it outperform its peers
in declining markets.
Q HOW WILL RISING INTEREST RATES IMPACT THE CORPORATE BOND AND EQUITY
MARKETS?
A In early 2004, the Fed indicated that it intended to begin raising
short-term interest rates to control inflation. Beginning in late June, the Fed
made two quarter-point increases to bring the fed funds rate up to 1.50%. We may
still see one more quarter-point increase before year-end, but the Fed will
likely avoid further action until after the Presidential election.
Based on current economic data, we anticipate the Fed will look to raise
rates to approximately 2 1/2% over the next 18 months. The Fed has indicated
that it will move cautiously and raise rates at a "measured" pace to avoid short
circuiting U.S. economic growth. The pace of the increases will depend on a
number of factors including economic growth, the strength of the dollar and the
extent of the trade and Federal budget deficits.
Rising rates will put moderate downward pressure on the equity market. The
equity market is most concerned with the impact of rising rates on consumer
spending and corporate profitability. While this uncertainty will bring some
volatility to the market, we expect the benefits of a strong economy will
largely offset the negative effects of higher interest rates.
Higher rates will put stronger downward pressure on the corporate bond
market. We expect the bond market to remain relatively volatile until the full
impact and extent of the Fed's actions become more certain. Even with a rise in
rates, we expect attractive yields on high-quality bonds will continue to be
harder to find. Many corporations have refinanced their debt to take advantage
of historically low interest rates. In addition, many firms have accumulated
large cash reserves making them less inclined to borrow money to finance
expansion.
Q WHAT OTHER FACTORS WILL IMPACT MARKET PERFORMANCE IN THE REMAINDER OF THE
YEAR?
A The economy and corporate profitability will remain major factors in
market performance. At present, the outlook is good on both fronts. The economy
continues to grow at a healthy pace and will likely achieve a growth rate of
about 3 1/2% for the year. Earnings should also continue to grow at a healthy
rate as most corporations have positioned themselves well by managing debt
levels, improving productivity and accumulating cash reserves.
The market, however, will remain concerned with a number of issues that
could hurt long-term economic growth and corporate earnings. The impact of
higher interest rates and rising energy costs on consumer spending is at the top
of the list. If consumer spending slows, there is concern that capital spending
by businesses will not accelerate enough to sustain economic growth. There are
also growing concerns over the potential strain on the economy from the
expanding trade and Federal budget deficits. Finally, geopolitical instability
and the threat of terrorist attacks remain a constant concern.
Q HOW WILL THE FUND MANAGE THESE MARKET CONDITIONS?
A Even with good economic and earnings growth, we expect we will continue
to see elevated volatility in the equity market as a result of these
uncertainties. Nonetheless, we believe the equity market represents the best
opportunity for growth in the second half of the year. While overall market
performance may remain lackluster, numerous opportunities for strong performance
should exist in individual stocks. The Fund will maintain a greater weighting in
equities to capitalize on these opportunities. At the same time, we will
continue to employ careful stock selection to manage ongoing risk.
8
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As we mentioned earlier, interest rate uncertainty will continue to produce
a more volatile corporate bond market. In addition, in a rising interest rate
environment, bond price depreciation will become a growing concern. To minimize
price depreciation and interest rate risk, the Fund will continue to focus on
shorter duration investment grade bonds. When rates eventually reach a peak, the
Fund will be well positioned to take advantage of opportunities to lock in
longer-term bonds with higher yields and the potential for capital appreciation.
[CHART]
INVESTMENT MIX as of 06/30/04
<Table>
1. EQUITIES 55.87%
2. CORPORATE BONDS 41.18%
3. CASH 2.32%
4. U.S. GOVERNMENT SECURITIES 0.63%
</Table>
9
<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 SIX MONTHS ENDED JUNE 30, 2004, THE FUND RETURNED 5.46% FOR CLASS A
SHARES, AND 4.98% FOR CLASS C SHARES(3). THE FUND'S BENCHMARKS, THE S&P 500 AND
THE RUSSELL 1000(4), ROSE 3.44% AND 3.33%, RESPECTIVELY, DURING THE SAME PERIOD.
Q HOW DID THE FUND ACHIEVE ITS PERFORMANCE IN THE FIRST HALF OF THE YEAR?
A A consistent investment strategy and diligent risk management yielded
positive results for the Fund in the first six months. In 2004, we continued to
concentrate the portfolio in larger cap stocks in sectors and industries
benefiting from the economic recovery. This included companies supplying basic
materials such as GEORGIA PACIFIC, LOUISIANA PACIFIC, and PHELPS DODGE; energy
companies such as APACHE and EXXON MOBIL; industrial holdings such as ITT
INDUSTRIES; and select technology positions.
We balanced these investments with core holdings in companies less
sensitive to market and economic changes. These core holdings offer more stable,
predictable earnings growth which helps manage risk and volatility while
enhancing performance opportunities. Core holdings were primarily concentrated
in healthcare equipment and supplies through companies such as JOHNSON &
JOHNSON, ZIMMER HOLDINGS, and ST. JUDE MEDICAL.
Portfolio activity was relatively modest in the first half of the year.
Sector rotation within the market was limited resulting in few changes to the
Fund's portfolio. The Fund strategically built a strong portfolio in late 2003
and early 2004 and benefited from these positions as the economic recovery
progressed.
Q WHY DID THE FUND CHANGE ITS BENCHMARK FROM THE NASDAQ 100 TO THE RUSSELL
1000?
A Benchmark indices are intended to provide a basis for comparison to help
assess a fund's performance. To be an accurate gauge, the benchmark index should
reflect the composition of a fund's portfolio as closely as possible. With only
100 stocks, the Nasdaq 100 is a relatively small representation of large cap
stocks. In addition, due to the Index's small size and calculation methodology,
its performance is largely driven by the top 12 stocks which are concentrated in
the technology sector. As a result, the Nasdaq 100 only represents the
performance of a narrow segment of the large cap market. In contrast, the
Russell 1000 contains a broader representation of large cap stocks and provides
a more accurate measure of overall large cap performance. Based on the Fund's
investment strategy, the most accurate performance comparison would be a blend
of its two benchmarks, the S&P 500 and the Russell 1000 Indices.
Q HOW DOES THE FUND IDENTIFY AND SELECT INVESTMENTS?
A The Fund focuses on investing in stocks that offer
"growth-at-a-reasonable-price." To meet the Fund's "growth" criteria, a company
must demonstrate accelerating revenue growth, above average earnings, and
positive share price momentum. In order to be considered for investment in the
Fund, these companies must be reasonably priced based on their current and
future earnings projections, the economic environment and valuations within
their peer group and the overall market.
- ----------
(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. Current performance
may be lower or higher than performance data quoted. 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.
For information on current performance, call (800) 989-6693.
(4) The Russell 1000 Stock Index is an unmanaged, market capitalization
weighted measure of stock market performance. It contains the stocks of the
1,000 largest publicly traded companies within the Russell 3000 Index. The Index
does not take capital gains into consideration. Index returns assume the
reinvestment of dividends, but, unlike the Fund's returns, do not reflect the
effects of management fees or expenses.
10
<Page>
We identify these stocks using a top-down approach that combines technical
and fundamental analysis. We begin by assessing macroeconomic conditions to
identify the sectors and industries that will thrive in the current economic and
market environment. Next, we take a more in-depth look at the favorable sectors
and industries to determine which are likely to be market leaders. Then we
identify and invest in the strongest performing stocks within those sectors and
industries. This process involves a significant amount of technical research
looking at factors such as earnings projections, PE ratios, moving averages and
volatility measures. We also use fundamental research and look at a company's
financials, management and overall business strategy to complete our stock
selection process.
The Growth Fund's investment strategy complements the Multi-Cap Value Fund
which takes an opposite approach that strictly uses fundamental research to
identify undervalued companies. As a result, these two Funds can work well
together in an investor's portfolio to provide diversified exposure to different
investment strategies and areas of the market.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE COMING MONTHS?
A The good news for the market lies in the economy and corporate earnings.
Economic fundamentals remain strong in the U.S., Asia and Europe. Current data
suggest domestic and global economic growth will continue at a reasonably
healthy pace throughout the year. Corporate earnings made a dramatic recovery in
2003 by growing over 20% as a result of sound fiscal management, productivity
increases and strong consumer spending. While the pace has slowed, corporate
earnings growth should also remain strong through year-end.
In the second half of the year, however, we expect the market will be
focused on growing concerns in a number of areas. Of primary concern will be
continued geopolitical instability in the Middle East, the growing threat of
additional terrorist attacks and uncertainty over the outcome of the
Presidential election. In addition, the market is also growing increasingly
concerned with modest jobs growth, rising energy costs, higher interest rates
and their potential impact on U.S. economic growth.
These uncertainties will likely keep the market in a trading range at least
through year-end. Such conditions will likely produce the same type of
reactionary and event-driven market that we saw in the first half of the year.
Despite these conditions in the overall market, we expect strong performance
from select sectors and individual stocks which should yield positive returns in
the major market indices by year-end.
Q HOW WILL GROWTH STOCKS PERFORM IN THIS MARKET?
A While market conditions may remain difficult in the near-term, they
should create a number of opportunities for the Fund. As corporate earnings slow
to a more historical and sustainable growth rate, we expect to find new
opportunities to acquire attractive growth stocks at reasonable prices.
Moreover, as the economy moves from recovery to expansion, we expect to see
section rotation with market leadership moving away from defensive sectors such
as consumer staples to more aggressive sectors like technology. We expect there
will be some rotation in the Fund's portfolio as we seek to keep the portfolio
concentrated in the leading sectors and industries of the market.
At the same time, we will also continue to keep a portion of the Fund's
portfolio in more defensive positions. These core holdings should provide added
stability for the Fund and help manage risk in a volatile market environment. As
it was in the first half of the year, prudent stock selection will remain the
key to managing risk while achieving performance. We believe the Fund's
disciplined investment approach is well suited to manage the challenges and
capitalize on opportunities in the market for the long-term growth investor.
[CHART]
INVESTMENT MIX as of 06/30/04
<Table>
1. EQUITIES 85.52%
2. CASH 14.48%
</Table>
11
<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 SIX MONTHS ENDED JUNE 30, 2004, CLASS A SHARES RETURNED - 0.44% AND
CLASS C SHARES RETURNED - 0.79%(1). DURING THE SAME PERIOD, THE FUND'S
BENCHMARK, THE S&P 500(2), RETURNED 3.44%.
Q HOW DID YOU IMPLEMENT THE FUND'S INVESTMENT STRATEGY IN THE FIRST HALF OF
THE YEAR?
A The first half of the year brought a somewhat volatile and unpredictable
market. In these conditions, investors are often tempted to adjust their
investment strategy as they chase returns in better performing investments.
Maintaining a disciplined investment strategy, however, offers the best
opportunity for long-term growth.
During the first half of the year, the Fund continued to concentrate on
maintaining a well rounded portfolio of solid, undervalued companies. We focused
primarily on two types of companies. First, we looked for companies that would
benefit from a strengthening economy. This included ARROW ELECTRONICS, the
largest distributor of electronic parts to businesses; PHELPS DODGE, a large
supplier of raw materials; and high-quality technology companies with strong
long-term growth prospects such as MICROSOFT and INTEL. These companies
performed well in the first six months as they benefited from an improving
economy and an increase in capital spending by businesses.
Given the market's volatility, we complemented these holdings with
positions in more defensive companies. We looked for companies that would be
more resistant to economic changes such as oil and gas producer WILLIAMS
COMPANIES, telecom provider BELLSOUTH, and specialty healthcare companies
CLOSURE MEDICAL and ENDO PHARMACEUTICALS. These positions helped the Fund manage
risk while providing additional opportunities for growth.
Q WHAT FACTORS HAD THE GREATEST IMPACT ON PERFORMANCE?
A The unpredictable nature of the market presented the greatest challenge
in the first half of the year. Despite good economic and earnings growth, the
market remained reactionary and event-driven as a result of geopolitical and
other uncertainties. In this climate, the market often overreacted to real and
perceived disappointing news from individual companies. Maintaining discipline
and patience was critical to helping the Fund achieve long-term results. The
Fund's diversified investment strategy helped manage increased market risk and
achieve strong performances from a number of holdings in a variety of industries
including ACTIVISION, ENDO PHARMACEUTICALS, and LUCENT TECHNOLOGIES.
Market volatility affected some stocks more than others. Some of the Fund's
positions suffered temporary setbacks causing short-term Fund performance to lag
the market. After examining the company's news and re-evaluating the value of
the company, we determined that the majority of these positions remained
valuable long-term holdings for the Fund. For example, in April the Chairman of
METROLOGIC INSTRUMENTS sold a sizeable portion of his holdings in the company.
The market assumed this activity indicated trouble within the company causing a
decline in the company's stock price. Upon closer examination, however, it was
clear that this was a routine transaction unrelated to the company's operations.
The Fund used this decline as an opportunity to increase its position in a
company with valuable long-term prospects.
- ----------
(1) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Current performance
may be lower or higher than performance data quoted. 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.
For information on current performance, call (800) 989-6693.
(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.
12
<Page>
Q HOW DO YOU SELECT INVESTMENTS FOR THE FUND?
A We identify equity opportunities and select investments for the Fund
using a fundamental, bottoms-up approach. Using proprietary research and
analytical systems, we look for solid, undervalued companies that meet three
primary investment criteria. We look for STRONG FUNDAMENTALS by analyzing a
company's financial statements, business plan and management. Second, we look at
a company's VALUE to determine if it is selling at a discount based on the
underlying value of the business and its assets. Finally, we look for a PRICE
CATALYST, an internal or external factor that will ignite and sustain a positive
movement in the company's stock price. We continuously monitor each of the
Fund's holdings to watch for changes in any of these areas that might prompt us
to reduce or sell the Fund's position.
Under normal market conditions, we seek to maintain a fully invested
portfolio diversified across all market capitalizations and a variety of
sectors. The Fund typically holds between 35 and 50 positions. At this size, the
Fund remains diversified while allowing us to have a thorough understanding of
each investment.
Q WHAT CHALLENGES DOES THE MARKET FACE IN THE COMING MONTHS?
A The greatest challenge to the market is ongoing geopolitical uncertainty.
The market remains acutely concerned about instability in the Middle East as
well as the potential for additional terrorist attacks in the U.S. and abroad.
In particular, the market is concerned that terrorists may attack the U.S. in
the coming months in an effort to influence the outcome of the Presidential
election. While the threat of further attacks will remain even after the
election, market concerns should subside if the election passes without event.
The rising cost of oil will also continue to weigh on the market. The
tension between supply and demand is shaping up to be a long-term problem.
Demand, particularly in the U.S. and China, is expected to continue to increase
significantly over the next several years. While supply remains adequate,
instability in many of the major oil producing countries raises concerns about
future shortages.
Economic growth will also remain a top concern. Current economic data
remain solid and forecasts suggest the economy will continue to grow at a
healthy pace throughout 2004. Nonetheless, the market remains concerned that
rising interest rates, higher oil prices and uncertain job growth will slow
consumer spending and stunt economic growth.
Q HOW WILL THE FUND MANAGE THESE CHALLENGES?
A In light of these uncertainties and concerns, we expect the market will
remain in a holding pattern during the coming months. The market will likely
remain reactionary and volatile as it attempts to assess the magnitude of these
risks. In the absence of a major positive catalyst, we do not anticipate a major
upward breakthrough in market performance before the end of the year.
These conditions will continue to require patience and discipline. We will
continue our careful stock selection and remain focused on managing risk through
a well diversified portfolio of sound, undervalued companies. The current
portfolio consists of companies that provide the Fund with the opportunity for
long-term growth. In addition, we believe this market environment will provide
the Fund with opportunities to acquire new positions at attractive discounts.
[CHART]
INVESTMENT MIX as of 06/30/04
<Table>
1. EQUITIES 97.71%
2. CASH 2.29%
</Table>
13
<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 MANAGER
GEORGE A. HENNING
FOR THE SIX MONTHS ENDED JUNE 30, 2004, THE FUND RETURNED 18.75% FOR CLASS A
SHARES, AND 18.38% FOR CLASS C SHARES(2). THE FUND'S BENCHMARK, THE RUSSELL 2000
STOCK INDEX(3), RETURNED 6.76% FOR THE SAME PERIOD.
LIPPER RANKED PACIFIC ADVISORS SMALL CAP FUND (A) AS THE NUMBER #1 SMALL CAP
CORE FUND OUT OF 533 FUNDS BASED ON ITS ONE-YEAR RETURN OF 78.19% AS OF JUNE 30,
2004(2). THE FUND RANKED 84 OUT OF 303 FUNDS BASED ON ITS FIVE-YEAR RETURN; AND
70 OUT OF 87 FUNDS BASED ON ITS TEN-YEAR RETURN.
Q THE FUND LED ITS CATEGORY IN PERFORMANCE OVER THE LAST YEAR. WHAT ARE THE
KEYS TO THE FUND'S SUCCESS?
A The Fund's superior performance is the result of disciplined stock
selection and risk management. When we select investments, we begin by looking
for solid companies with strong potential for improved performance over the next
several years. These companies are typically leaders in their industry or shadow
stocks to larger companies within their industry. For example, one of the Fund's
long-term holdings, INTERVOICE, is a leader in voice recognition technology. In
2003, Intervoice entered into a partnership with Microsoft to provide voice
recognition technology for its software products. This added business
opportunity should further enhance Intervoice's growth prospects. The Fund also
benefited from shadow stocks such as DENBURY RESOURCES and HARVEST NATURAL
RESOURCES. In 2004, these companies profited from rising energy prices and
mirrored the success of larger oil and gas companies.
We also look for industry sectors and companies that will benefit from the
prevailing economic environment. In 2003 and 2004, this meant increasing our
exposure to transportation, energy, manufacturing and consumer goods and
services companies that would benefit from an economic rebound. As a part of
this focus, the Fund acquired SCS TRANSPORTATION and US XPRESS ENTERPRISES in
transportation, energy companies MITCHAM INDUSTRIES and MISSION RESOURCES, TITAN
INTERNATIONAL and COMMERCIAL METALS in manufacturing, and consumer goods and
services provider DAVE & BUSTERS. As the economy strengthened, these holdings
boosted the Fund's performance.
Risk management plays a key role in our stock selection process and the
Fund's success. While looking for companies with economic advantages, we seek to
minimize risk by avoiding areas of speculative growth. When it's in the Fund's
interest to be in more volatile sectors, we invest in more stable, mainstream
companies. For example, in the current rebounding economy, we believed the
technology sector would yield valuable growth opportunities. We wanted the Fund
to benefit from growth in the technology sector without taking on the high
volatility and risk associated with many technology companies. The Fund held
positions in BELL MICROPRODUCTS, which provides data storage, semi conductor and
computer products, and CAMTEK LIMITED, which produces optical inspection systems
for circuit boards. The demand for their products and services should continue
to increase with growth in the technology industry.
We also manage risk by investing a portion of our diversified portfolio in
more defensive companies. In 2004, we increased the number of portfolio holdings
by approximately 25% to help
- ----------
(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. Current performance
may be lower or higher than performance data quoted. 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.
For information on current performance, call (800) 989-6693.
(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.
14
<Page>
minimize the Fund's downside risk. In addition, throughout 2003 and 2004, we
kept a portion of the portfolio relatively defensive by investing in companies
more resistant to economic changes. These investments represent core holdings
for the Fund and provide the opportunity for good growth in any type of economy.
These core holdings include healthcare, financial services, manufacturing and
energy companies such as AMERICA SERVICE GROUP, FIRST CASH FINANCIAL SERVICES,
EASTWEST BANK, KEYSTONE AUTOMOTIVE, and REMINGTON OIL. All of these elements
combined helped the Fund achieve strong, broad-based performance from its
holdings over the last year.
Q HOW DO YOU SELECT STOCKS FOR THE PORTFOLIO?
A We seek to balance the Fund's portfolio between companies with economic
advantages and companies which will perform well in any environment. When we
look for investments, we look to invest in the underlying companies rather than
the stocks. We engage in extensive analysis to gain a thorough understanding of
each company we consider for investment. We research all aspects of a company
going beyond its financial statements to examine its business plan and
management's ability to execute the plan and achieve growth.
This process typically requires hands-on research which often includes
talking with management or visiting the company. In addition to evaluating a
company's fundamentals, we use technical indicators to aid in the screening and
decision making process. We may review and monitor a company for as long as 12
to 18 months before we make an investment.
A crucial, but often overlooked, component of stock selection is knowing
WHEN to sell a holding. Maintaining a solid sell discipline is critical for the
Fund to benefit from current holdings and take advantage of new investment
opportunities. We closely monitor each investment to determine when to sell part
or all of a position. If an opportunity to sell arises and we believe the
company still has long-term growth potential, we may simply take profits and
trim the Fund's position. With the Fund's strong performance in 2004, we
employed this strategy with a number of positions to help maintain a diversified
portfolio and raise funds for new investment opportunities. We scaled back the
Fund's holdings in companies such as FIRST CASH FINANCIAL SERVICES, EAST WEST
BANK, INTERVOICE, and ELKCORP. In the future, we may increase the Fund's
positions in these companies if we can purchase them at an attractive price as
we recently did with First Cash Financial Services and ElkCorp.
Q WHAT WILL BE THE KEY FACTORS AFFECTING MARKET PERFORMANCE IN THE REMAINDER
OF THE YEAR?
A The state of the economy always plays a key role in market performance.
Low inflation coupled with modest job and spending growth paint a positive
economic forecast for the remainder of the year. While the economy should
continue to grow at a healthy pace, we expect other uncertainties will temper
the effects of positive economic growth.
Geopolitical concerns remain one of the biggest obstacles to a positive
breakthrough in market performance. Continued instability in the Middle East as
well as in certain parts of Africa and Latin America remains a primary concern.
These concerns and the continued threat of terrorism will likely keep the market
event-driven in the final half of the year.
Rising energy prices will also continue to have a significant impact on the
market. Long-term forecasts indicate demand, particularly in the U.S. and China,
will continue to grow. At present, supply remains sufficient but instability in
a number of major oil producing countries has given the market cause for
concern. In addition, while higher energy prices are manageable at current
levels, there is a growing concern that a further rise will begin to slow
economic growth in the U.S. and around the world. Rising interest rates, the
growing U.S. budget and trade deficits, along with uncertainty surrounding the
outcome of the Presidential election, will likely increase market volatility in
the coming months.
Q WHAT OPPORTUNITIES EXIST FOR THE FUND IN THE CURRENT MARKET ENVIRONMENT?
A Given these concerns and the absence of a major positive catalyst, we
expect the market will remain event-driven in the remainder of the year. As a
result, we expect to remain in a "stock
15
<Page>
picker's" market where performance will be driven more by individual stocks than
sectors. Stock selection will remain crucial to achieving good performance and
managing risk.
Despite their strong market performance in the last year, we believe small
and mid cap stocks still have good growth potential. Most of these companies
have managed debt and cash effectively to allow for sustained growth. In
addition, their smaller size and leadership in niche industries gives them
greater flexibility and market advantages in this economy.
We believe the Fund is well positioned to build on the performance it
achieved in the first half of the year. Even with solid growth in the last year,
the stocks in the Fund's portfolio still possess good growth potential. We do
not anticipate significant turnover in the Fund in the final half of the year,
but we will continue to take profits and use market volatility to add to
existing positions. We believe current market conditions will continue to
provide opportunities to acquire companies with long-term growth potential at
attractive prices. Given the expectation of heightened volatility, we will also
continue to manage risk by maintaining a portion of the portfolio in more
defensive positions.
[CHART]
INVESTMENT MIX as of 06/30/04
<Table>
1. EQUITIES 100.00%
</Table>
16
<Page>
PACIFIC ADVISORS FUND INC.
FINANCIAL STATEMENTS
17
<Page>
PACIFIC ADVISORS GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
US GOVERNMENT SECURITIES - 82.31%
US Treasury Bills
US Treasury Bill 07/01/04 $ 5,700,000 $ 5,700,000
US Treasury Bill 12/23/04 300,000 297,578
- ---------------------------------------------------------------------------------------------------------------------
5,997,578
- ---------------------------------------------------------------------------------------------------------------------
US Government Agencies
Federal Home Loan Bank 5.09% 10/22/12 180,000 178,539
Federal Home Loan Bank 5.125% 09/02/10 195,000 195,546
Federal Home Loan Bank 5.35% 12/24/12 1,475,000 1,474,254
Federal Home Loan Mortgage Association 5.00% 01/17/12 750,000 745,330
Federal Home Loan Mortgage Association 5.00% 07/30/09 155,000 155,352
Federal National Mortgage Association 4.50% 08/20/10 500,000 498,477
Federal National Mortgage Association 5.125% 02/27/13 90,000 89,160
- ---------------------------------------------------------------------------------------------------------------------
3,336,658
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT SECURITIES
(Cost: $9,342,769) 9,334,236
==============
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK - 2.02%
Energy
PPL Corporation 5,000 229,500
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $210,549) 229,500
==============
PREFERRED STOCK - 15.57%
Banks - Regional
Abbey National PLC Preferred B 7.375% 4,000 104,600
Bank One Capital I 8.00% 09/15/29 5,000 127,300
Chase Capital V 7.03% 10,000 250,100
Citigroup Capital VI 5,000 123,600
Citigroup Capital VII 7.125% 07/31/31 5,000 127,100
First Bancorp Puerto Rico Preferred C 7.40% 20,000 515,000
- ---------------------------------------------------------------------------------------------------------------------
1,247,700
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Life
Phoenix Companies, Inc. 7.45% 01/15/32 1,500 37,125
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
18
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK CONTINUED
Real Estate Investment Trusts
Price Legacy Corporation Preferred A 8.75% 29,622 $ 481,358
- ---------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost: $1,797,277) 1,766,183
==============
TOTAL INVESTMENT SECURITIES - 99.90%
(Cost: $11,350,595) $ 11,329,919
==============
SHORT-TERM INVESTMENTS - 0.28%
United Missouri Bank Money Market Fiduciary Account 31,411
OTHER ASSETS LESS LIABILITIES - (0.18%) (20,990)
==============
TOTAL NET ASSETS - 100% $ 11,340,340
=====================================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
19
<Page>
PACIFIC ADVISORS INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 61.43%
Banks - Regional
Bank of America Corporation 6.00% 03/15/06 $ 20,000 $ 20,947
Bank One Corporation 7.25% 08/15/04 30,000 30,186
- ---------------------------------------------------------------------------------------------------------------------
51,133
- ---------------------------------------------------------------------------------------------------------------------
Beverages
Anheuser Busch 7.125% 07/01/17 165,000 182,117
Anheuser Busch 7.25% 09/15/15 188,000 200,957
- ---------------------------------------------------------------------------------------------------------------------
383,074
- ---------------------------------------------------------------------------------------------------------------------
Cosmetic/Personal Care
Scott Paper Company 10.00% 03/15/05 60,000 62,967
- ---------------------------------------------------------------------------------------------------------------------
Electrical
Northwestern Corporation 7.10% 08/01/05 125,000 125,000
- ---------------------------------------------------------------------------------------------------------------------
Entertainment
Time Warner, Inc. 8.11% 08/15/06 100,000 109,047
- ---------------------------------------------------------------------------------------------------------------------
Financial Services
Boeing Capital Corporation 7.375% 09/27/10 100,000 113,074
General Motors Acceptance Corporation 8.75% 07/15/05 95,000 100,166
- ---------------------------------------------------------------------------------------------------------------------
213,240
- ---------------------------------------------------------------------------------------------------------------------
Financial Services - Diversified
General Electric Capital Floating Rate Note 01/01/49 75,000 74,761
General Electric Capital 8.50% 07/24/08 46,000 53,323
General Electric Capital 8.65% 05/15/09 40,000 46,784
General Electric Capital 8.875% 05/15/09 50,000 59,322
- ---------------------------------------------------------------------------------------------------------------------
234,190
- ---------------------------------------------------------------------------------------------------------------------
Food Retailers
Safeway, Inc. 9.875% 03/15/07 311,000 356,125
- ---------------------------------------------------------------------------------------------------------------------
Gas
Piedmont National Gas Company 7.80% 09/29/10 250,000 293,088
- ---------------------------------------------------------------------------------------------------------------------
Heavy Machinery
Deere & Company 8.95% 06/15/19 183,000 215,911
- ---------------------------------------------------------------------------------------------------------------------
Industrial
Caterpillar, Inc. 9.375% 08/15/11 94,000 120,660
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Full Line
American General Financial 5.875% 12/15/05 100,000 104,552
American General Financial 8.125% 08/15/09 91,000 105,006
Transamerica Corporation 9.375% 03/01/08 85,000 98,665
- ---------------------------------------------------------------------------------------------------------------------
308,223
- ---------------------------------------------------------------------------------------------------------------------
Media
Liberty Media Corporation 7.75% 07/15/09 519,000 579,550
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
20
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS CONTINUED
Medical
Johnson & Johnson 8.72% 11/01/24 $ 140,000 $ 148,687
- ---------------------------------------------------------------------------------------------------------------------
Oil - Integrated Majors
Enron Oil and Gas 6.50% 09/15/04 225,000 227,077
Texaco Capital 8.625% 06/30/10 170,000 208,329
- ---------------------------------------------------------------------------------------------------------------------
435,406
- ---------------------------------------------------------------------------------------------------------------------
Retailers - Broadline
Wal-Mart Stores 8.00% 09/15/06 50,000 54,970
- ---------------------------------------------------------------------------------------------------------------------
Semiconductor & Related
Gerber Products 9.00% 10/15/06 120,000 133,303
- ---------------------------------------------------------------------------------------------------------------------
Telephone Systems
Bellsouth Capital Funding Corporation 6.04% 11/15/26 85,000 90,737
Bellsouth Telecommunications 6.30% 12/15/15 251,125 269,675
GTE Hawaiian Telecom 6.75% 02/15/05 100,000 101,650
SBC Communications 6.59% 09/29/08 35,000 37,566
SBC Communications 7.35% 05/24/10 275,000 311,618
SBC Communications 7.39% 05/24/10 155,000 173,843
Wisconsin Bell 6.35% 12/01/26 50,000 53,577
- ---------------------------------------------------------------------------------------------------------------------
1,038,666
- ---------------------------------------------------------------------------------------------------------------------
Transportation
Norfolk Southern Corporation 7.40% 09/15/06 135,000 146,521
- ---------------------------------------------------------------------------------------------------------------------
Utilities - Electric
Commonwealth Edison 8.00% 05/15/08 305,000 346,340
Pennsylvania Power & Light 6.55% 03/01/06 75,000 79,099
Potomac Electric Power 6.25% 10/15/07 165,000 176,833
Potomac Electric Power 6.50% 09/15/05 115,000 119,646
Public Service Electric & Gas 6.75% 03/01/06 375,000 397,316
Public Service Oklahoma 6.50% 06/01/05 95,000 98,264
- ---------------------------------------------------------------------------------------------------------------------
1,217,498
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost: $6,226,423) 6,227,259
==============
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK - 18.12%
Aluminum
Alcoa, Inc. 1,000 33,030
- ---------------------------------------------------------------------------------------------------------------------
Automobile Parts
Genuine Parts Company 2,000 79,360
- ---------------------------------------------------------------------------------------------------------------------
Banks - Money Center
Bank of America 1,000 84,620
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
21
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Banks - Regional
Wilmington Trust Company 1,000 $ 37,220
- ---------------------------------------------------------------------------------------------------------------------
Chemicals - Specialty
International Flavors and Fragrances 2,000 74,800
- ---------------------------------------------------------------------------------------------------------------------
Diversified Companies
General Electric 2,000 64,800
- ---------------------------------------------------------------------------------------------------------------------
Electric
Dominion Resources 1,000 63,080
- ---------------------------------------------------------------------------------------------------------------------
Financial Services - Specialty
Federal Home Loan Mortgage Association 2,000 126,600
- ---------------------------------------------------------------------------------------------------------------------
Gas
British Petroleum 1,000 53,570
- ---------------------------------------------------------------------------------------------------------------------
Healthcare Provider
HCA, Inc. 1,000 41,590
- ---------------------------------------------------------------------------------------------------------------------
Industrial Diversified
Tyco International Ltd. 2,000 66,280
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Property
American International Group, Inc. 1,000 71,280
Chubb Corporation 500 34,090
- ---------------------------------------------------------------------------------------------------------------------
105,370
- ---------------------------------------------------------------------------------------------------------------------
Medical & Biotechnology
Johnson & Johnson 3,000 167,100
- ---------------------------------------------------------------------------------------------------------------------
Mining - Diversified
Anglogold Ltd.* 1,000 32,160
Freeport Mcmoran* 1,000 33,150
- ---------------------------------------------------------------------------------------------------------------------
65,310
- ---------------------------------------------------------------------------------------------------------------------
Non-Ferrous Metals
Phelps Dodge Corporation* 1,000 77,510
- ---------------------------------------------------------------------------------------------------------------------
Paper Products
International Paper 1,000 44,700
- ---------------------------------------------------------------------------------------------------------------------
Pharmaceuticals
Pfizer, Inc. 2,500 85,700
- ---------------------------------------------------------------------------------------------------------------------
Pipelines
El Paso Energy Corporation 1,000 7,880
- ---------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts
Hospitality Properties 11,500 486,450
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
22
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Utilities
American Electric Power Company, Inc. 1,000 $ 32,000
Public Service Enterprise Group, Inc. 1,000 40,030
- ---------------------------------------------------------------------------------------------------------------------
72,030
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $1,816,824) 1,837,000
==============
PREFERRED STOCK - 10.86%
Banks - Regional
Bank One Capital I 8.00% 09/15/29 2,000 50,920
Chase Capital V 7.03% 2,000 50,020
Citigroup Capital VI 2,000 49,440
Citigroup Capital IX 6.00% 2,000 45,120
Citigroup Capital VII 7.125% 07/31/31 2,000 50,840
First Bancorp Puerto Rico Preferred C 7.40% 10,000 257,500
- ---------------------------------------------------------------------------------------------------------------------
503,840
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Full Line
ING Capital Funding Trust II 2,500 65,900
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Life
American General Preferred C 7.875% 1,000 25,130
Phoenix Companies, Inc. 7.45% 01/15/32 3,500 86,625
Westpac Capital Trust I 8.00% 3,000 75,420
- ---------------------------------------------------------------------------------------------------------------------
187,175
- ---------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts
Price Legacy Corporation Preferred A 8.75% 21,158 343,818
- ---------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost: $1,100,910) 1,100,733
==============
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
US GOVERNMENT SECURITIES - 4.70%
US Government Agencies
Federal Farm Credit Bank 5.05% 02/14/13 $ 230,000 227,570
Federal Home Loan Mortgage Association 3.25% 05/17/07 250,000 248,622
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT SECURITIES
(Cost: $481,312) 476,192
==============
TOTAL INVESTMENT SECURITIES - 95.11%
(Cost: $9,625,469) $ 9,641,184
==============
SHORT-TERM INVESTMENTS - 4.22%
United Missouri Bank Money Market Fiduciary Account 427,924
OTHER ASSETS LESS LIABILITIES - 0.67% 68,509
==============
TOTAL NET ASSETS - 100% $ 10,137,617
=====================================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
23
<Page>
PACIFIC ADVISORS BALANCED FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK - 52.98%
Advertising
Interpublic Group* 30,000 $ 411,900
- ---------------------------------------------------------------------------------------------------------------------
Aerospace & Defense
Boeing Company 7,500 383,175
- ---------------------------------------------------------------------------------------------------------------------
Banks
Banco Latinamericano De Exportaciones 35,000 548,800
Washington Mutual 7,500 289,800
- ---------------------------------------------------------------------------------------------------------------------
838,600
- ---------------------------------------------------------------------------------------------------------------------
Biotechnology
Cambrex Corporation 16,000 403,680
Mylan Labs 12,000 243,000
- ---------------------------------------------------------------------------------------------------------------------
646,680
- ---------------------------------------------------------------------------------------------------------------------
Chemicals - Specialty
Cabot Micro Electronics, Inc.* 13,000 397,930
- ---------------------------------------------------------------------------------------------------------------------
Communications
Automatic Data Processing 6,000 251,280
Nokia Corporation ADR 20,000 290,800
- ---------------------------------------------------------------------------------------------------------------------
542,080
- ---------------------------------------------------------------------------------------------------------------------
Diversified Companies
General Electric 15,000 486,000
SPX Corporation 8,000 371,520
- ---------------------------------------------------------------------------------------------------------------------
857,520
- ---------------------------------------------------------------------------------------------------------------------
Electric
Allete, Inc. 10,000 333,000
Duke Energy Corporation 17,500 355,075
First Energy Corporation 9,000 336,690
- ---------------------------------------------------------------------------------------------------------------------
1,024,765
- ---------------------------------------------------------------------------------------------------------------------
Energy
Suncor Energy, Inc. 12,000 307,320
- ---------------------------------------------------------------------------------------------------------------------
Entertainment
AT&T - Liberty Media Group Class A* 30,000 269,700
Disney* 10,000 254,900
Liberty Media International, Inc. 6,000 222,600
Viacom, Inc. 7,500 267,900
- ---------------------------------------------------------------------------------------------------------------------
1,015,100
- ---------------------------------------------------------------------------------------------------------------------
Financial Services
H&R Block 8,000 381,440
- ---------------------------------------------------------------------------------------------------------------------
Financial Services - Specialty
Federal Home Loan Mortgage Association 6,000 379,800
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Food
Cadbury Schweppes 9,000 $ 315,720
- ---------------------------------------------------------------------------------------------------------------------
Forest Products
Rayonier, Inc. 10,683 474,859
- ---------------------------------------------------------------------------------------------------------------------
Gas
Prima Energy 8,000 316,560
- ---------------------------------------------------------------------------------------------------------------------
Gas - Integrated
British Petroleum 7,500 401,775
- ---------------------------------------------------------------------------------------------------------------------
Industrial
Cubic Corporation 12,000 251,160
- ---------------------------------------------------------------------------------------------------------------------
Industrial - Diversified
Tyco International Ltd. 15,000 497,100
- ---------------------------------------------------------------------------------------------------------------------
Industrial & Commercial Services
GATX Corporation 15,000 408,000
Reliance Steel 8,000 322,560
- ---------------------------------------------------------------------------------------------------------------------
730,560
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Full Line
Berkshire Hathaway, Inc. - Class A* 4 355,800
Marsh & McLennan 6,000 272,280
- ---------------------------------------------------------------------------------------------------------------------
628,080
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Life
MetLife, Inc.* 7,500 268,875
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Property
Chubb Corporation 4,000 272,720
- ---------------------------------------------------------------------------------------------------------------------
Oilfield Equipment Services
Cooper Cameron* 6,000 292,200
- ---------------------------------------------------------------------------------------------------------------------
Media
Time Warner* 18,000 316,440
- ---------------------------------------------------------------------------------------------------------------------
Medical & Biotechnology
Bristol Myers Squibb Company 15,000 367,500
Inverness Medical Innovations, Inc.* 15,000 328,500
Johnson & Johnson 5,000 278,500
Wyeth 6,000 216,960
- ---------------------------------------------------------------------------------------------------------------------
1,191,460
- ---------------------------------------------------------------------------------------------------------------------
Medical Equipment
Perkin Elmer 12,000 240,480
- ---------------------------------------------------------------------------------------------------------------------
Mining - Diversified
Rio Tinto PLC 4,000 392,200
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
25
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Pharmaceuticals
Pfizer, Inc. 12,000 $ 411,360
Pharmaceutical Resources, Inc.* 6,000 211,260
- ---------------------------------------------------------------------------------------------------------------------
622,620
- ---------------------------------------------------------------------------------------------------------------------
Pipelines
Williams Companies, Inc. 30,000 357,000
- ---------------------------------------------------------------------------------------------------------------------
Publishing
Moodys Corporation 5,000 323,300
R H Donnelley Corporation* 5,000 218,700
- ---------------------------------------------------------------------------------------------------------------------
542,000
- ---------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts
Catellus Development Corporation 13,946 343,769
- ---------------------------------------------------------------------------------------------------------------------
Retailers - Specialty
Hot Topic, Inc. 10,000 204,900
Michaels Stores, Inc. 5,000 275,000
- ---------------------------------------------------------------------------------------------------------------------
479,900
- ---------------------------------------------------------------------------------------------------------------------
Software & Computer Processing Equipment
Microsoft* 15,000 428,400
Reynolds & Reynolds 10,000 231,300
- ---------------------------------------------------------------------------------------------------------------------
659,700
- ---------------------------------------------------------------------------------------------------------------------
Technology
Lucent Technologies* 35,000 132,300
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $12,955,565) 16,913,788
==============
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 40.96%
Aluminum
Reynolds Metals 9.20% 04/24/06 $ 200,000 220,310
- ---------------------------------------------------------------------------------------------------------------------
Banks - Regional
Bank of America Corporation 6.00% 03/15/06 100,000 104,733
Bank One Corporation 7.25% 08/15/04 78,000 78,485
- ---------------------------------------------------------------------------------------------------------------------
183,218
- ---------------------------------------------------------------------------------------------------------------------
Beverages
Anheuser Busch 7.25% 09/15/15 620,000 662,730
- ---------------------------------------------------------------------------------------------------------------------
Computers & Related Equipment
Sun Microsystems 7.35% 08/15/04 139,000 139,719
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
26
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS CONTINUED
Financial Services
Beneficial Corporation 8.40% 05/15/08 $ 155,000 $ 176,597
Boeing Capital Corporation 7.375% 09/27/10 300,000 339,221
General Electric Capital Floating Rate Note 09/01/48 275,000 274,029
General Electric Capital 8.125% 05/15/12 269,000 316,404
General Electric Capital 8.30% 09/20/09 270,000 316,309
General Motors Acceptance Corporation 8.75% 07/15/05 520,000 540,720
- ---------------------------------------------------------------------------------------------------------------------
1,963,280
- ---------------------------------------------------------------------------------------------------------------------
Food Retailers
Safeway, Inc. 6.85% 09/15/04 80,000 80,669
Safeway, Inc. 9.30% 02/01/07 499,000 561,255
Safeway, Inc. 9.875% 03/15/07 580,000 664,156
- ---------------------------------------------------------------------------------------------------------------------
1,306,080
- ---------------------------------------------------------------------------------------------------------------------
Heavy Machinery
Deere & Company 8.95% 06/15/19 173,000 204,113
- ---------------------------------------------------------------------------------------------------------------------
Industrial
Tyco International Group 5.875% 11/01/04 458,000 463,338
Tyco International Group 6.375% 06/15/05 369,000 380,418
- ---------------------------------------------------------------------------------------------------------------------
843,756
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Full Line
Cigna Corporation 7.40% 05/15/07 400,000 436,685
Old Republic International 7.00% 06/15/07 325,000 355,245
Transamerica Corporation 9.375% 03/01/08 300,000 348,230
- ---------------------------------------------------------------------------------------------------------------------
1,140,160
- ---------------------------------------------------------------------------------------------------------------------
Media
Seagrams & Sons 7.00% 04/15/08 310,000 325,064
- ---------------------------------------------------------------------------------------------------------------------
Medical Equipment
Mallinckrodt 6.50% 11/15/07 380,000 409,024
- ---------------------------------------------------------------------------------------------------------------------
Oil - Integrated Majors
Atlantic Richfield 9.125% 03/01/11 300,000 373,828
Enron Oil & Gas 6.50% 09/15/04 675,000 681,232
Enron Oil & Gas 6.70% 11/15/06 107,000 115,624
- ---------------------------------------------------------------------------------------------------------------------
1,170,684
- ---------------------------------------------------------------------------------------------------------------------
Recreational
International Game Technology 8.375% 05/15/09 315,000 370,578
- ---------------------------------------------------------------------------------------------------------------------
Semiconductor & Related Products
Gerber Products 9.00% 10/15/06 409,000 454,342
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
27
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS CONTINUED
Telephone Systems
AT&T Corporation 8.35% 01/15/25 $ 420,000 $ 425,113
Bellsouth Telecommunications 6.30% 12/15/15 538,125 577,875
GTE Corporation 8.75% 11/01/21 389,000 470,670
GTE South, Inc. 6.125% 06/15/07 100,000 106,657
New England Telephone & Telecommunications 6.875% 10/01/23 135,000 136,016
- ---------------------------------------------------------------------------------------------------------------------
1,716,331
- ---------------------------------------------------------------------------------------------------------------------
Utilities - Electric
Florida Power & Light 6.00% 06/01/08 175,000 187,008
Niagara Mohawk Power 9.75% 11/01/05 520,000 566,050
Northwestern Corporation 7.00% 08/15/23 250,000 231,250
Northwestern Corporation 7.10% 08/01/05 325,000 325,000
Potomac Electric Power 6.25% 10/15/07 200,000 214,343
Public Service Electric & Gas 6.75% 03/01/06 250,000 264,878
Reliant Energy Mid Atlantic 9.237% 07/02/17 49,281 52,934
Toledo Edison Company 7.875% 08/01/04 124,000 124,504
- ---------------------------------------------------------------------------------------------------------------------
1,965,967
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost: $13,065,270) 13,075,356
==============
US GOVERNMENT SECURITIES - 0.63%
US Government Agencies
Federal Home Loan Bank 6.75% 08/10/16 100,000 100,505
Federal Home Loan Mortgage Association 6.25% 08/15/16 100,000 100,486
- ---------------------------------------------------------------------------------------------------------------------
200,991
- ---------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT SECURITIES
(Cost: $200,950) 200,991
==============
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK - 2.58%
Real Estate Investment Trusts
Price Legacy Corporation Preferred A 8.75% 50,780 825,175
- ---------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost: $761,202) 825,175
==============
TOTAL INVESTMENT SECURITIES - 97.15%
(Cost: $26,982,987) $ 31,015,310
==============
SHORT-TERM INVESTMENTS - 2.31%
United Missouri Bank Money Market Fiduciary Account 737,709
OTHER ASSETS LESS LIABILITIES - 0.54% 173,017
==============
TOTAL NET ASSETS - 100% $ 31,926,036
=====================================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
28
<Page>
PACIFIC ADVISORS GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK - 87.64%
Banks - Regional
Sovereign Bancorp, Inc.* 1,000 $ 22,100
- ---------------------------------------------------------------------------------------------------------------------
Biotechnology
Cambrex Corporation 500 12,615
- ---------------------------------------------------------------------------------------------------------------------
Chemicals - Specialty
Hercules, Inc.* 1,000 12,190
- ---------------------------------------------------------------------------------------------------------------------
Commercial Services
Tetra Tech, Inc.* 1,250 20,400
- ---------------------------------------------------------------------------------------------------------------------
Communications
HSBC Holding PLC 160 11,986
- ---------------------------------------------------------------------------------------------------------------------
Computers & Related Equipment
International Business Machines 200 17,630
Intervoice, Inc. 2,000 22,940
- ---------------------------------------------------------------------------------------------------------------------
40,570
- ---------------------------------------------------------------------------------------------------------------------
Containers/Packaging
Pactiv Corporation* 500 12,470
- ---------------------------------------------------------------------------------------------------------------------
Diversified Companies
General Electric 1,000 32,400
ITT Industries 300 24,900
- ---------------------------------------------------------------------------------------------------------------------
57,300
- ---------------------------------------------------------------------------------------------------------------------
Electrical
Qualcomm, Inc. 500 36,490
- ---------------------------------------------------------------------------------------------------------------------
Forest Products
Louisiana Pacific Corporation 2,000 47,300
- ---------------------------------------------------------------------------------------------------------------------
Health Care Provider
America Service Group* 1,501 52,160
- ---------------------------------------------------------------------------------------------------------------------
Home Furnishings
Furniture Brands International, Inc. 500 12,525
- ---------------------------------------------------------------------------------------------------------------------
Industrial - Diversified
Tyco International, Ltd. 1,000 33,140
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Specialty
Caremark Rx, Inc. 1,935 63,739
- ---------------------------------------------------------------------------------------------------------------------
Medical & Biotechnology
Johnson & Johnson 800 44,560
McKesson Corporation HBOC, Inc. 500 17,165
Quest Diagnostics, Inc. 300 25,485
- ---------------------------------------------------------------------------------------------------------------------
87,210
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
29
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Medical Equipment, Devices & Supplies
Becton, Dickinson and Company 500 $ 25,900
St. Jude Medical, Inc.* 1,000 75,650
Zimmer Holdings, Inc.* 500 44,100
- ---------------------------------------------------------------------------------------------------------------------
145,650
- ---------------------------------------------------------------------------------------------------------------------
Media
Cox Communications* 1,000 27,790
- ---------------------------------------------------------------------------------------------------------------------
Mining - Diversified
Anglogold, Ltd. 1,000 32,160
Freeport Mcmoran* 500 16,575
- ---------------------------------------------------------------------------------------------------------------------
48,735
- ---------------------------------------------------------------------------------------------------------------------
Non-Ferrous Metals
Phelps Dodge Corporation* 500 38,755
- ---------------------------------------------------------------------------------------------------------------------
Oil - Integrated Majors
Apache Corporation 1,000 43,550
Exxon Mobil Corporation 400 17,764
- ---------------------------------------------------------------------------------------------------------------------
61,314
- ---------------------------------------------------------------------------------------------------------------------
Paper Products
Georgia Pacific Corporation 1,000 36,980
- ---------------------------------------------------------------------------------------------------------------------
Pharmaceuticals
Pfizer, Inc. 1,200 41,136
- ---------------------------------------------------------------------------------------------------------------------
Restaurants
AppleBee's International 1,125 25,897
- ---------------------------------------------------------------------------------------------------------------------
Retailers - Specialty
Linens 'n Things, Inc.* 1,000 29,310
- ---------------------------------------------------------------------------------------------------------------------
Software & Computer Processing Equipment
Oracle Corporation* 800 9,544
Siebel Systems, Inc.* 500 5,340
- ---------------------------------------------------------------------------------------------------------------------
14,884
- ---------------------------------------------------------------------------------------------------------------------
Technology
Andrew Corporation* 1,000 20,010
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $887,805) 1,012,656
==============
TOTAL INVESTMENT SECURITIES - 87.64%
(Cost: $887,805) $ 1,012,656
==============
SHORT-TERM INVESTMENTS - 14.84%
United Missouri Bank Money Market Fiduciary Account 171,430
OTHER ASSETS LESS LIABILITIES - (2.48%) (28,554)
==============
TOTAL NET ASSETS - 100% $ 1,155,532
=====================================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
30
<Page>
PACIFIC ADVISORS MULTI-CAP VALUE FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK - 98.00%
Banks - Regional
JP Morgan 5,000 $ 193,850
Washington Mutual 5,000 193,200
- ---------------------------------------------------------------------------------------------------------------------
387,050
- ---------------------------------------------------------------------------------------------------------------------
Building Materials
Home Depot, Inc. 6,000 211,200
- ---------------------------------------------------------------------------------------------------------------------
Communications
AT&T Corporation 8,000 117,040
Comcast Corporation* 5,955 166,919
- ---------------------------------------------------------------------------------------------------------------------
283,959
- ---------------------------------------------------------------------------------------------------------------------
Computers & Related Equipment
Cisco Systems, Inc.* 10,000 237,000
International Business Machines 2,000 176,300
Unisys Corporation* 13,000 180,440
- ---------------------------------------------------------------------------------------------------------------------
593,740
- ---------------------------------------------------------------------------------------------------------------------
Consumer Services
Cendant Corporation 5,000 122,400
- ---------------------------------------------------------------------------------------------------------------------
Electrical Components & Equipment
Arrow Electronics, Inc.* 8,000 214,560
- ---------------------------------------------------------------------------------------------------------------------
Energy
Chevron Texaco Corporation 1,500 141,165
Marathon Oil Corporation 6,000 227,040
- ---------------------------------------------------------------------------------------------------------------------
368,205
- ---------------------------------------------------------------------------------------------------------------------
Entertainment
Activision, Inc.* 7,500 119,250
- ---------------------------------------------------------------------------------------------------------------------
Financial Services
Federal Home Loan Mortgage Association 3,500 221,550
Nationwide Financial Services, Inc. 4,500 169,245
- ---------------------------------------------------------------------------------------------------------------------
390,795
- ---------------------------------------------------------------------------------------------------------------------
Golfing Equipment
Callaway Golf Company 8,000 90,720
- ---------------------------------------------------------------------------------------------------------------------
Industrial
Metrologic Instruments* 12,000 239,280
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Full Line
Lincoln National Corporation 3,500 165,375
- ---------------------------------------------------------------------------------------------------------------------
Investment Companies
Goldman Sachs Group, Inc. 1,000 94,160
- ---------------------------------------------------------------------------------------------------------------------
Medical & Biotechnology
Bristol Myers Squibb Company 5,000 122,500
Serlogicals Corporation* 11,500 229,885
- ---------------------------------------------------------------------------------------------------------------------
652,385
- ---------------------------------------------------------------------------------------------------------------------
Medical Equipment & Supplies
Closure Medical 7,000 175,770
- ---------------------------------------------------------------------------------------------------------------------
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
31
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Non-Ferrous Metals
Phelps Dodge Corporation* 3,200 $ 248,032
- ---------------------------------------------------------------------------------------------------------------------
Oilfield Equipment Services
Schlumberger 2,500 158,775
- ---------------------------------------------------------------------------------------------------------------------
Pharmaceuticals
Endo Pharmaceuticals* 10,000 234,500
Pfizer, Inc. 5,000 171,400
Schering-Plough Corporation 12,000 221,760
Watson Pharmaceuticals* 5,000 134,500
- ---------------------------------------------------------------------------------------------------------------------
762,160
- ---------------------------------------------------------------------------------------------------------------------
Pipelines
Williams Companies, Inc. 19,000 226,100
- ---------------------------------------------------------------------------------------------------------------------
Retailers - Broadline
Pier 1 Imports, Inc. 6,000 106,140
Target Corporation 4,500 191,115
- ---------------------------------------------------------------------------------------------------------------------
297,255
- ---------------------------------------------------------------------------------------------------------------------
Retailers - Drug Based
Sola International, Inc.* 13,000 223,990
- ---------------------------------------------------------------------------------------------------------------------
Retailers - Specialty
Radio Shack* 2,500 71,575
- ---------------------------------------------------------------------------------------------------------------------
Semiconductor & Related
Intel Corporation 6,000 165,600
- ---------------------------------------------------------------------------------------------------------------------
Software & Computer Processing Equipment
Microsoft* 7,000 199,920
- ---------------------------------------------------------------------------------------------------------------------
Technology
Lucent Technologies* 50,000 189,000
- ---------------------------------------------------------------------------------------------------------------------
Telephone Systems
Bellsouth* 6,500 170,430
SBC Communications 7,500 181,875
- ---------------------------------------------------------------------------------------------------------------------
352,305
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $6,064,893) 6,703,561
==============
TOTAL INVESTMENT SECURITIES - 98.00%
(Cost: $6,064,893) $ 6,703,561
==============
SHORT-TERM INVESTMENTS - 2.30%
United Missouri Bank Money Market Fiduciary Account 157,157
OTHER ASSETS LESS LIABILITIES - (0.30%) (20,237)
==============
TOTAL NET ASSETS - 100% $ 6,840,481
=====================================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
32
<Page>
PACIFIC ADVISORS SMALL CAP FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK - 103.52%
Aerospace & Defense
Aviall, Inc.* 22,500 $ 427,725
- ---------------------------------------------------------------------------------------------------------------------
Apparel
Ashworth, Inc.* 40,000 332,400
- ---------------------------------------------------------------------------------------------------------------------
Auto - Retail
Sonic Automotive, Inc. 23,000 509,450
- ---------------------------------------------------------------------------------------------------------------------
Auto Parts
Keystone Automotive Industries, Inc.* 14,000 390,460
Titan International, Inc. 68,500 704,865
- ---------------------------------------------------------------------------------------------------------------------
1,095,325
- ---------------------------------------------------------------------------------------------------------------------
Banks - Regional
East West Bancorp, Inc. 12,000 368,400
Nara Bank National Association 20,000 342,600
- ---------------------------------------------------------------------------------------------------------------------
711,000
- ---------------------------------------------------------------------------------------------------------------------
Building Materials
Carlisle Holdings Ltd.* 40,000 263,600
ElkCorp 21,000 502,740
- ---------------------------------------------------------------------------------------------------------------------
766,340
- ---------------------------------------------------------------------------------------------------------------------
Commercial Services
Darling International, Inc. 30,000 126,000
Team, Inc.* 20,000 323,800
Tetra Tech, Inc. 20,000 326,400
- ---------------------------------------------------------------------------------------------------------------------
776,200
- ---------------------------------------------------------------------------------------------------------------------
Computers & Related Equipment
Intervoice, Inc.* 85,410 979,653
Tyler Technologies* 46,000 435,160
- ---------------------------------------------------------------------------------------------------------------------
1,414,813
- ---------------------------------------------------------------------------------------------------------------------
Consumer Services
Service Corporation International* 40,000 294,800
- ---------------------------------------------------------------------------------------------------------------------
Containers/Packaging
Mobile Mini, Inc.* 20,000 568,200
- ---------------------------------------------------------------------------------------------------------------------
Electrical Components & Equipment
Bell Microproducts, Inc.* 35,000 283,150
- ---------------------------------------------------------------------------------------------------------------------
Food
Monterey Pasta Company * 25,000 91,000
- ---------------------------------------------------------------------------------------------------------------------
Footwear
Genesco, Inc.* 12,000 283,560
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
33
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Gas - Integrated
Denbury Resources, Inc.* 24,000 $ 502,800
- ---------------------------------------------------------------------------------------------------------------------
Golfing Equipment
Callaway Golf Company 22,000 249,480
- ---------------------------------------------------------------------------------------------------------------------
Healthcare Provider
America Service Group* 22,000 764,500
United American Health Care* 95,000 489,250
- ---------------------------------------------------------------------------------------------------------------------
1,253,750
- ---------------------------------------------------------------------------------------------------------------------
Insurance - Full Line
Gainsco, Inc.* 20,000 14,000
- ---------------------------------------------------------------------------------------------------------------------
Metal Processing
Commercial Metals Corporation* 13,000 421,850
- ---------------------------------------------------------------------------------------------------------------------
Office Equipment
Danka Business Systems 60,000 271,200
- ---------------------------------------------------------------------------------------------------------------------
Oil - Drilling
Harvest Natural Resources* 26,000 387,660
Mission Resources Corporation 60,000 342,000
- ---------------------------------------------------------------------------------------------------------------------
729,660
- ---------------------------------------------------------------------------------------------------------------------
Oil - Integrated Majors
Chesapeake Energy Corporation 17,000 250,240
Remington Oil & Gas Corporation* 11,000 259,600
- ---------------------------------------------------------------------------------------------------------------------
509,840
- ---------------------------------------------------------------------------------------------------------------------
Oilfield Equipment & Services
Mitcham Industries, Inc.* 70,000 359,800
- ---------------------------------------------------------------------------------------------------------------------
Railroads
Railamerica, Inc.* 70,000 1,022,000
- ---------------------------------------------------------------------------------------------------------------------
Restaurants
Dave and Busters, Inc. 14,000 263,060
- ---------------------------------------------------------------------------------------------------------------------
Retailers - Specialty
EZCorp, Inc. 32,000 317,440
First Cash Financial Services, Inc.* 21,000 446,880
- ---------------------------------------------------------------------------------------------------------------------
764,320
- ---------------------------------------------------------------------------------------------------------------------
Semiconductor & Related
Camtek Limited* 64,060 339,518
- ---------------------------------------------------------------------------------------------------------------------
Software & Processing
Carreker Corporation * 25,000 250,500
- ---------------------------------------------------------------------------------------------------------------------
Telephone Systems
Talk America Holdings, Inc.* 40,000 306,800
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
34
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Transportation
Frozen Food Express Industries, Inc.* 40,000 $ 274,400
SCS Transportation* 27,000 712,530
US Xpress Enterprises* 22,000 346,060
- ---------------------------------------------------------------------------------------------------------------------
1,332,990
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $10,005,253) 16,145,531
==============
TOTAL INVESTMENT SECURITIES - 103.52%
(Cost: $10,005,253) $ 16,145,531
==============
OTHER ASSETS LESS LIABILITIES - (3.52%) (548,368)
==============
TOTAL NET ASSETS - 100% $ 15,597,163
=====================================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
35
<Page>
PACIFIC ADVISORS FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
June 30, 2004
<Table>
<Caption>
INCOME
GOVERNMENT AND
SECURITIES EQUITY
FUND FUND
-------------- --------------
ASSETS
Investment Securities
At cost $ 11,350,596 $ 9,625,469
============== ==============
At market value $ 11,329,919 $ 9,641,184
Short-term investments, at cost, which is equal to market 31,411 427,924
Accrued income receivable 39,492 129,892
Receivable for investments sold - -
Receivable for capital shares sold 94 14,301
Other assets - -
-------------- --------------
Total assets 11,400,916 10,213,301
-------------- --------------
LIABILITIES
Bank Overdraft - -
Payable for investments purchased - 44,250
Payable for fund shares redeemed 24,980 -
Accounts payable 25,110 22,836
Accounts payable to related parties (Note 3) 4,945 5,876
Payable to Investment Manager (Note 3) 5,541 2,722
-------------- --------------
Total liabilities 60,576 75,684
-------------- --------------
NET ASSETS $ 11,340,340 $ 10,137,617
============== ==============
SUMMARY OF SHAREHOLDERS' EQUITY
Paid in capital 12,281,639 10,120,789
Accumulated undistributed net investment income 18,759 12,719
Accumulated undistributed net realized gain (losses) on security
transactions (939,380) (11,606)
Net unrealized appreciation (depreciation) of investments (20,678) 15,715
-------------- --------------
Net assets at June 30, 2004 $ 11,340,340 $ 10,137,617
============== ==============
CLASS A:
Net assets $ 2,640,458 $ 3,058,439
============== ==============
Shares authorized 50,000,000 50,000,000
Shares outstanding 277,965 297,170
Net asset value and redemption price per share $ 9.50 $ 10.29
============== ==============
Maximum offering price per share $ 9.97 $ 10.80
Sales load 4.75% 4.75%
CLASS C:
Net assets $ 8,699,882 $ 7,079,178
============== ==============
Shares authorized 50,000,000 50,000,000
Shares outstanding 940,228 717,437
Net asset value and redemption price per share $ 9.25 $ 9.87
============== ==============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
36
<Page>
<Table>
<Caption>
BALANCED GROWTH
FUND FUND
-------------- --------------
ASSETS
Investment Securities
At cost $ 26,982,988 $ 887,805
============== ==============
At market value $ 31,015,309 $ 1,012,656
Short-term investments, at cost, which is equal to market 737,709 171,430
Accrued income receivable 250,513 371
Receivable for investments sold - -
Receivable for capital shares sold - -
Other assets - -
-------------- --------------
Total assets 32,003,531 1,184,457
-------------- --------------
LIABILITIES
Bank Overdraft - -
Payable for investments purchased - 24,777
Payable for fund shares redeemed - -
Accounts payable 45,029 2,851
Accounts payable to related parties (Note 3) 13,093 1,297
Payable to Investment Manager (Note 3) 19,373 -
-------------- --------------
Total liabilities 77,495 28,925
-------------- --------------
NET ASSETS $ 31,926,036 $ 1,155,532
============== ==============
SUMMARY OF SHAREHOLDERS' EQUITY
Paid in capital 27,532,388 1,722,625
Accumulated undistributed net investment income 126,090 -
Accumulated undistributed net realized gain (losses) on security
transactions 235,237 (691,944)
Net unrealized appreciation (depreciation) of investments 4,032,321 124,851
-------------- --------------
Net assets at June 30, 2004 $ 31,926,036 $ 1,155,532
============== ==============
CLASS A:
Net assets $ 5,434,520 $ 878,230
============== ==============
Shares authorized 50,000,000 50,000,000
Shares outstanding 344,598 116,565
Net asset value and redemption price per share $ 15.77 $ 7.53
============== ==============
Maximum offering price per share $ 16.73 $ 7.99
Sales load 5.75% 5.75%
CLASS C:
Net assets $ 26,491,516 $ 277,302
============== ==============
Shares authorized 50,000,000 50,000,000
Shares outstanding 1,729,206 38,683
Net asset value and redemption price per share $ 15.32 $ 7.17
============== ==============
<Caption>
MULTI-CAP SMALL
VALUE CAP
FUND FUND
-------------- --------------
ASSETS
Investment Securities
At cost $ 6,064,893 $ 10,005,253
============== ==============
At market value $ 6,703,560 $ 16,145,531
Short-term investments, at cost, which is equal to market 157,157 -
Accrued income receivable 3,805 6,797
Receivable for investments sold - 12,928
Receivable for capital shares sold - 20,943
Other assets - -
-------------- --------------
Total assets 6,864,522 16,186,199
-------------- --------------
LIABILITIES
Bank Overdraft - 569,429
Payable for investments purchased - -
Payable for fund shares redeemed - -
Accounts payable 15,478 2,092
Accounts payable to related parties (Note 3) 4,732 8,390
Payable to Investment Manager (Note 3) 3,831 9,125
-------------- --------------
Total liabilities 24,041 589,036
-------------- --------------
NET ASSETS $ 6,840,481 $ 15,597,163
============== ==============
SUMMARY OF SHAREHOLDERS' EQUITY
Paid in capital 6,064,507 9,279,777
Accumulated undistributed net investment income - -
Accumulated undistributed net realized gain (losses) on security
transactions 137,306 177,108
Net unrealized appreciation (depreciation) of investments 638,668 6,140,278
-------------- --------------
Net assets at June 30, 2004 $ 6,840,481 $ 15,597,163
============== ==============
CLASS A:
Net assets $ 1,865,888 $ 13,362,677
============== ==============
Shares authorized 50,000,000 50,000,000
Shares outstanding 163,525 599,375
Net asset value and redemption price per share $ 11.41 $ 22.29
============== ==============
Maximum offering price per share $ 12.11 $ 23.65
Sales load 5.75% 5.75%
CLASS C:
Net assets $ 4,974,593 $ 2,234,486
============== ==============
Shares authorized 50,000,000 50,000,000
Shares outstanding 442,429 108,436
Net asset value and redemption price per share $ 11.24 $ 20.61
============== ==============
</Table>
37
<Page>
STATEMENT OF OPERATIONS (UNAUDITED)
For the period ended June 30, 2004
<Table>
<Caption>
INCOME
GOVERNMENT AND
SECURITIES EQUITY
FUND FUND
-------------- --------------
INVESTMENT INCOME
Dividends $ 56,989 $ 60,355
Interest 156,427 106,264
Misc Income - 80
-------------- --------------
Total Income 213,416 166,699
-------------- --------------
EXPENSES
Investment Management Fees 40,909 33,385
Transfer Agent Fees 18,032 20,105
Fund Accounting Fees 31,306 21,879
Legal Fees 14,005 9,298
Audit Fees 8,811 6,232
Registration Fees 3,075 3,338
Printing 2,838 3,092
Custody Fees 4,406 4,418
Director Fees/Meetings 1,038 717
Distribution Fees (Note 3) 52,191 35,314
Other Expenses 4,569 3,505
-------------- --------------
Total Expenses, before reimbursements 181,180 141,283
Less fees waived and expenses reimbursed (Note 3) 35,368 30,663
-------------- --------------
Net Expenses 145,812 110,620
-------------- --------------
NET INVESTMENT INCOME (LOSS) 67,604 56,079
============== ==============
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized gain (loss) on investments (83,669) 37,329
Net Unrealized appreciation (depreciation) of investments (157,902) (108,240)
-------------- --------------
(241,571) (70,911)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (173,967) $ (14,832)
============== ==============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
38
<Page>
<Table>
<Caption>
BALANCED GROWTH
FUND FUND
-------------- --------------
INVESTMENT INCOME
Dividends $ 170,767 $ 3,238
Interest 410,022 71
Misc Income - -
-------------- --------------
Total Income 580,789 3,309
-------------- --------------
EXPENSES
Investment Management Fees 113,159 3,906
Transfer Agent Fees 34,193 17,252
Fund Accounting Fees 76,948 8,017
Legal Fees 34,703 1,010
Audit Fees 21,123 729
Registration Fees 13,579 222
Printing 19,614 425
Custody Fees 6,035 3,277
Director Fees/Meetings 1,509 63
Distribution Fees (Note 3) 131,042 2,285
Other Expenses 10,515 379
-------------- --------------
Total Expenses, before reimbursements 462,420 37,565
Less fees waived and expenses reimbursed (Note 3) - 21,162
-------------- --------------
Net Expenses 462,420 16,403
-------------- --------------
NET INVESTMENT INCOME (LOSS) 118,369 (13,094)
============== ==============
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized gain (loss) on investments 248,394 13,206
Net Unrealized appreciation (depreciation) of investments (687,060) 46,787
-------------- --------------
(438,666) 59,993
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (320,297) $ 46,899
============== ==============
<Caption>
MULTI-CAP SMALL
VALUE CAP
FUND FUND
-------------- --------------
INVESTMENT INCOME
Dividends $ 31,523 $ 14,037
Interest 604 116
Misc Income - -
-------------- --------------
Total Income 32,127 14,153
-------------- --------------
EXPENSES
Investment Management Fees 29,753 46,042
Transfer Agent Fees 18,667 38,333
Fund Accounting Fees 14,835 31,373
Legal Fees 6,843 14,119
Audit Fees 4,165 8,594
Registration Fees 2,897 13,870
Printing 2,206 17,517
Custody Fees 3,870 6,308
Director Fees/Meetings 504 1,143
Distribution Fees (Note 3) 23,503 21,647
Other Expenses 2,428 4,297
-------------- --------------
Total Expenses, before reimbursements 109,671 203,243
Less fees waived and expenses reimbursed (Note 3) 14,700 -
-------------- --------------
Net Expenses 94,971 203,243
-------------- --------------
NET INVESTMENT INCOME (LOSS) (62,844) (189,090)
============== ==============
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized gain (loss) on investments 146,493 177,362
Net Unrealized appreciation (depreciation) of investments (152,795) 2,080,181
-------------- --------------
(6,302) 2,257,543
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (69,146) $ 2,068,453
============== ==============
</Table>
39
<Page>
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<Table>
<Caption>
GOVERNMENT SECURITIES FUND
-----------------------------------
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 67,604 $ 387,356
Net realized gain (loss) on investments (83,669) (855,704)
Change in net unrealized appreciation (depreciation) of
investments (157,902) (63,143)
-----------------------------------
Increase (decrease) in net assets resulting from operations (173,967) (531,491)
-----------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income (19,598) (100,356)
Net capital gains - -
Class C:
Net investment income (32,589) (298,286)
Net capital gains - -
-----------------------------------
Decrease in net assets resulting from distributions (52,187) (398,642)
-----------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 291,867 4,113,910
Proceeds from shares purchased by reinvestment of dividends 45,808 366,393
Cost of shares repurchased (3,218,871) (4,085,472)
-----------------------------------
Increase (decrease) in net assets derived from capital share
transactions (2,881,196) 394,831
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS (3,107,350) (535,302)
NET ASSETS
Beginning of period 14,447,690 14,982,992
-----------------------------------
End of period $ 11,340,340 $ 14,447,690
===================================
Accumulated undistributed net investment income 18,759 3,342
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
40
<Page>
<Table>
<Caption>
INCOME AND EQUITY FUND
-----------------------------------
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 56,079 $ 137,423
Net realized gain (loss) on investments 37,329 114,704
Change in net unrealized appreciation (depreciation) of
investments (108,240) 108,554
-----------------------------------
Increase (decrease) in net assets resulting from operations (14,832) 360,681
-----------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income (20,301) (44,125)
Net capital gains - -
Class C:
Net investment income (26,187) (104,478)
Net capital gains - -
-----------------------------------
Decrease in net assets resulting from distributions (46,488) (148,603)
-----------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 3,426,726 2,266,334
Proceeds from shares purchased by reinvestment of dividends 43,376 138,180
Cost of shares repurchased (522,596) (765,792)
-----------------------------------
Increase (decrease) in net assets derived from capital share
transactions 2,947,506 1,638,722
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS 2,886,206 1,850,800
NET ASSETS
Beginning of period 7,251,431 5,400,631
-----------------------------------
End of period $ 10,137,637 $ 7,251,431
===================================
Accumulated undistributed net investment income 12,719 3,128
<Caption>
BALANCED FUND
-----------------------------------
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 118,369 $ 178,633
Net realized gain (loss) on investments 248,394 380,296
Change in net unrealized appreciation (depreciation) of
investments (687,060) 3,197,438
-----------------------------------
Increase (decrease) in net assets resulting from operations (320,297) 3,756,367
-----------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income - (51,441)
Net capital gains - (53,467)
Class C:
Net investment income - (119,471)
Net capital gains - (266,940)
-----------------------------------
Decrease in net assets resulting from distributions - (491,319)
-----------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 5,249,695 8,182,699
Proceeds from shares purchased by reinvestment of dividends - 474,828
Cost of shares repurchased (1,095,532) (1,842,436)
-----------------------------------
Increase (decrease) in net assets derived from capital share
transactions 4,154,163 6,815,091
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS 3,833,866 10,080,139
NET ASSETS
Beginning of period 28,092,170 18,012,031
-----------------------------------
End of period $ 31,926,036 $ 28,092,170
===================================
Accumulated undistributed net investment income 126,090 7,721
</Table>
41
<Page>
<Table>
<Caption>
GROWTH FUND
-----------------------------------
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (13,094) $ (14,272)
Net realized gain (loss) on investments 13,206 12,511
Change in net unrealized appreciation (depreciation) of
investments 46,787 205,022
-----------------------------------
Increase (decrease) in net assets resulting from operations 46,899 203,261
-----------------------------------
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 237,703 171,264
Proceeds from shares purchased by reinvestment of dividends - -
Cost of shares repurchased (48,966) (108,518)
-----------------------------------
Increase (decrease) in net assets derived from capital share
transactions 188,707 62,746
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS 235,606 266,007
NET ASSETS
Beginning of period 919,926 653,919
-----------------------------------
End of period $ 1,155,532 $ 919,926
===================================
Accumulated undistributed net investment income - -
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
42
<Page>
<Table>
<Caption>
MULTI-CAP VALUE FUND
-----------------------------------
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (62,844) $ (56,455)
Net realized gain (loss) on investments 146,493 104,871
Change in net unrealized appreciation (depreciation) of
investments (152,795) 929,030
-----------------------------------
Increase (decrease) in net assets resulting from operations (69,146) 977,446
-----------------------------------
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 2,302,891 2,206,742
Proceeds from shares purchased by reinvestment of dividends - -
Cost of shares repurchased (110,507) (216,637)
-----------------------------------
Increase (decrease) in net assets derived from capital share
transactions 2,192,384 1,990,105
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS 2,123,238 2,967,551
NET ASSETS
Beginning of period 4,717,243 1,749,692
-----------------------------------
End of period $ 6,840,481 $ 4,717,243
===================================
Accumulated undistributed net investment income - -
<Caption>
SMALL CAP FUND
-----------------------------------
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (189,090) $ (275,223)
Net realized gain (loss) on investments 177,362 218,847
Change in net unrealized appreciation (depreciation) of
investments 2,080,181 4,336,572
-----------------------------------
Increase (decrease) in net assets resulting from operations 2,068,453 4,280,196
-----------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income - -
Net capital gains - (63,642)
Class C:
Net investment income - -
Net capital gains - (9,702)
-----------------------------------
Decrease in net assets resulting from distributions - (73,344)
-----------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 4,635,073 1,940,306
Proceeds from shares purchased by reinvestment of dividends - 58,553
Cost of shares repurchased (1,342,018) (1,276,670)
-----------------------------------
Increase (decrease) in net assets derived from capital share
transactions 3,293,055 722,189
-----------------------------------
INCREASE (DECREASE) IN NET ASSETS 5,361,508 4,929,041
NET ASSETS
Beginning of period 10,235,655 5,306,614
-----------------------------------
End of period $ 15,597,163 $ 10,235,655
===================================
Accumulated undistributed net investment income - -
</Table>
43
<Page>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2004
NOTE 1. ORGANIZATION
Pacific Advisors Fund Inc. (the "Company") is an open-end diviersified
investment management company registered under the Investment Company Act of
1940, as amended. The Company currently offers six Fund: 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 differes 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.
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 amountsin
the financial statements and footnotes. Actual results could differ from those
estimates.
NOTE 3. INVESTMENT MANAGEMENT, DISTRIBUTOR AND OTHER RELATED PARTY TRANSACTIONS
The Company and the Funds have entered into investment management
agreements ("Management Agreements") with 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.
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>
BEFORE 02/15/04
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%
<Caption>
AFTER 02/15/04
CLASS A CLASS C
Government Securities Fund 1.75% 2.50%
Income and Equity Fund 1.95% 2.70%
Growth Fund 2.65% 3.40%
Multi-Cap Value Fund 2.65% 3.40%
</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
44
<Page>
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
period ended June 30, 2004.
<Table>
<Caption>
MANAGEMENT EXPENSE
FEES WAIVED REIMBURSEMENTS
Government Securities Fund $ 35,386 $ -
Income and Equity Fund 30,663 -
Growth Fund 3,906 743
Multi-Cap Value Fund 14,700 -
</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 fess 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.
For the period ended June 30, 2004, 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 $ 201 $ 1,121
Income and Equity Fund 1,435 7,254
Balanced Fund 3,017 14,464
Growth Fund 858 4,290
Multi-Cap Value Fund 1,974 9,697
Small Cap Fund 7,026 35,129
</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 $3.00 per year per closed account with minimum charges of $1,250 per
month for A and C share accounts. 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 June 30, 2004, total service fees were:
<Table>
<Caption>
CLASS A CLASS C
Government Securities Fund $ 3,582 $ 48,610
Income and Equity Fund 3,066 32,248
Balanced Fund 5,279 125,762
Growth Fund 974 1,310
Multi-Cap Value Fund 1,417 20,086
Small Cap Fund 12,580 9,067
</Table>
NOTE 4. PURCHASE AND SALES OF SECURITIES
The following summarizes purchases and sales of investment securities,
other than short-term investments, and aggregate gross unrealized appreciation
and depreciation and cost of securities by each Fund for the period ended and as
of June 30, 2004.
<Table>
<Caption>
AS OF JUNE 30, 2004
PERIOD ENDED JUNE 30, 2004 GROSS GROSS NET UNREALIZED
COST OF PROCEEDS UNREALIZED UNREALIZED APPRECIATION
PURCHASES FROM SALES APPRECIATION DEPRECIATION (DEPRECIATION)
Government Securities Fund $ 15,601,110 $ 18,480,404 $ 25,451 $ 46,129 $ (20,678)
Income and Equity Fund 4,574,728 1,161,759 226,788 211,073 15,715
Balanced Fund 10,973,787 6,197,682 4,248,434 216,113 4,032,321
Growth Fund 153,797 62,295 218,292 93,441 124,851
Multi-Cap Value Fund 3,302,679 831,257 806,900 168,232 638,668
Small Cap Fund 4,413,496 570,078 6,481,061 340,783 6,140,278
</Table>
45
<Page>
NOTE 5. 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 June 30, 2004, 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 Class A $ 3,544
</Table>
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
GOVERNMENT SECURITIES FUND
CLASS A
Shares Sold 4,683 $ 45,182 11,268 $ 116,219
Reinvestment of Distributions 1,429 13,674 7,106 70,704
---------------------------- ----------------------------
6,112 58,856 18,374 186,923
Shares Repurchased (40,621) (389,937) (110,329) (1,105,771)
---------------------------- ----------------------------
Net Increase (decrease) (34,509) $ (331,081) (91,955) $ (918,848)
============================ ============================
CLASS C
Shares Sold 26,398 $ 246,685 403,006 $ 3,997,691
Reinvestment of Distributions 3,461 32,134 30,489 295,689
---------------------------- ----------------------------
29,859 278,819 433,495 4,293,380
Shares Repurchased (300,523) (2,828,934) (314,266) (2,979,701)
---------------------------- ----------------------------
Net Increase (270,664) $ (2,550,115) 119,229 $ 1,313,679
============================ ============================
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
INCOME AND EQUITY FUND
CLASS A
Shares Sold 149,263 $ 1,559,003 13,196 $ 133,330
Reinvestment of Distributions 1,734 17,924 3,629 36,033
---------------------------- ----------------------------
150,997 1,576,927 16,825 169,363
Shares Repurchased (31,536) (326,617) (52,707) (528,613)
---------------------------- ----------------------------
Net Increase (decrease) 119,461 $ 1,250,310 (35,882) $ (359,250)
============================ ============================
CLASS C
Shares Sold 187,724 $ 1,867,723 218,819 $ 2,133,004
Reinvestment of Distributions 2,566 25,452 10,541 102,147
---------------------------- ----------------------------
190,290 1,893,175 229,360 2,235,151
Shares Repurchased (19,787) (195,979) (24,427) (237,179)
---------------------------- ----------------------------
Net Increase 170,503 $ 1,697,196 204,933 $ 1,997,972
============================ ============================
</Table>
46
<Page>
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
BALANCED FUND
CLASS A
Shares Sold 63,862 $ 1,011,508 56,665 $ 833,411
Reinvestment of Distributions - - 5,945 93,877
---------------------------- ----------------------------
63,862 1,011,508 62,610 927,288
Shares Repurchased (17,671) (280,398) (54,670) (795,169)
---------------------------- ----------------------------
Net Decrease 46,191 $ 731,110 7,940 $ 132,119
============================ ============================
CLASS C
Shares Sold 274,353 $ 4,238,187 509,081 $ 7,349,288
Reinvestment of Distributions - - 24,737 380,951
---------------------------- ----------------------------
274,353 4,238,187 533,818 7,730,239
Shares Repurchased (52,920) (815,134) (73,497) (1,047,267)
---------------------------- ----------------------------
Net Increase 221,433 $ 3,423,053 460,321 $ 6,682,972
============================ ============================
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
GROWTH FUND
CLASS A
Shares Sold 27,886 $ 212,390 21,675 $ 136,077
Reinvestment of Distributions - - - -
---------------------------- ----------------------------
27,886 212,390 21,675 136,077
Shares Repurchased (4,987) (38,121) (12,617) (82,009)
---------------------------- ----------------------------
Net Increase (decrease) 22,899 $ 174,269 9,058 $ 54,068
============================ ============================
CLASS C
Shares Sold 3,506 $ 25,313 5,680 $ 35,187
Reinvestment of Distributions - - - -
---------------------------- ----------------------------
3,506 25,313 5,680 35,187
Shares Repurchased (1,556) (10,875) (4,567) (26,509)
---------------------------- ----------------------------
Net Decrease 1,950 $ 14,438 1,113 $ 8,678
============================ ============================
</Table>
47
<Page>
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
MULTI-CAP VALUE FUND
CLASS A
Shares Sold 64,192 $ 743,563 56,817 $ 567,721
Reinvestment of Distributions - - - -
---------------------------- ----------------------------
64,192 743,563 56,817 567,721
Shares Repurchased (3,644) (42,784) (17,022) (162,229)
---------------------------- ----------------------------
Net Increase 60,548 $ 700,779 39,795 $ 405,492
============================ ============================
CLASS C
Shares Sold 135,896 $ 1,559,328 160,357 $ 1,639,021
Reinvestment of Distributions - - - -
---------------------------- ----------------------------
135,896 1,559,328 160,357 1,639,021
Shares Repurchased (5,809) (67,723) (5,757) (54,408)
---------------------------- ----------------------------
Net Increase 130,087 $ 1,491,605 154,600 $ 1,584,613
============================ ============================
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
SMALL CAP FUND
CLASS A
Shares Sold 177,841 $ 3,784,276 94,743 $ 1,483,067
Reinvestment of Distributions - - 2,703 49,619
---------------------------- ----------------------------
177,841 3,784,276 97,446 1,532,686
Shares Repurchased (55,979) (1,154,965) (81,663) (1,091,377)
---------------------------- ----------------------------
Net Increase (decrease) 121,862 $ 2,629,311 15,783 $ 441,309
============================ ============================
CLASS C
Shares Sold 45,279 $ 850,797 30,274 $ 457,239
Reinvestment of Distributions - - 524 8,934
---------------------------- ----------------------------
45,279 850,797 30,798 466,173
Shares Repurchased (10,022) (190,596) (13,899) (187,910)
---------------------------- ----------------------------
Net Increase (decrease) 35,257 $ 660,201 16,899 $ 278,263
============================ ============================
</Table>
48
<Page>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
(For a share outstanding throughout the period)
<Table>
<Caption>
GOVERNMENT SECURITIES FUND
-------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.68 $ 10.20 $ 10.15 $ 10.88 $ 9.74
------------------ --------- --------- --------- ---------
Income from investing operations
Net investment income 0.11 0.35 0.31 0.31 0.35
Net realized and unrealized gains
(losses) on securities (0.22) (0.57) (0.04) (0.37) 1.41
------------------ --------- --------- --------- ---------
Total from investment operations (0.11) (0.22) 0.27 (0.06) 1.76
------------------ --------- --------- --------- ---------
Less distributions
From net investment income (0.07) (0.30) (0.21) (0.29) (0.34)
From net capital gains - - (0.01) (0.38) (0.28)
------------------ --------- --------- --------- ---------
Total distributions (0.07) (0.30) (0.22) (0.67) (0.62)
------------------ --------- --------- --------- ---------
Net asset value, end of period $ 9.50 $ 9.68 $ 10.20 $ 10.15 $ 10.88
================== ========= ========= ========= =========
TOTAL INVESTMENT RETURN (a) (1.16)%(b) (2.20)% 2.78% (0.49)% 18.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 2,640 $ 3,025 $ 4,125 $ 6,487 $ 6,071
Ratio of net investment income to average
net assets
With expense reductions 1.68%(c) 2.88% 2.57% 3.01% 3.46%
Without expense reductions 1.11%(c) 2.33% 1.42% 2.22% 2.08%
Ratio of expenses to average net assets
With expense reductions 1.74%(c) 1.65% 1.65% 1.65% 1.65%
Without expense reductions 2.31%(c) 2.20% 2.80% 2.43% 3.03%
Fund portfolio turnover rate 368.32%(c) 206.55% 212.10% 75.81% 22.21%
<Caption>
CLASS C
-------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.43 $ 9.95 $ 9.96 $ 10.74 $ 9.63
------------------ --------- --------- --------- ---------
Income from investing operations
Net investment income 0.03 0.21 0.23 0.25 0.29
Net realized and unrealized gains
(losses) on securities (0.18) (0.50) (0.04) (0.38) 1.38
------------------ --------- --------- --------- ---------
Total from investment operations (0.15) (0.29) 0.19 (0.13) 1.67
------------------ --------- --------- --------- ---------
Less distributions
From net investment income (0.03) (0.23) (0.19) (0.27) (0.28)
From net capital gains - - (0.01) (0.38) (0.28)
------------------ --------- --------- --------- ---------
Total distributions (0.03) (0.23) (0.20) (0.65) (0.56)
------------------ --------- --------- --------- ---------
Net asset value, end of period $ 9.25 $ 9.43 $ 9.95 $ 9.96 $ 10.74
================== ========= ========= ========= =========
TOTAL INVESTMENT RETURN (1.55)%(b) (2.98)% 1.98% (1.21)% 17.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 8,700 $ 11,423 $ 10,858 $ 4,172 $ 2,682
Ratio of net investment income to average
net assets
With expense reductions 0.90%(c) 2.23% 1.90% 2.25% 2.79%
Without expense reductions 0.34%(c) 1.67% 0.81% 1.28% 1.23%
Ratio of expenses to average net assets
With expense reductions 2.49%(c) 2.39% 2.40% 2.40% 2.36%
Without expense reductions 3.05%(c) 2.95% 3.49% 3.37% 3.92%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
(b) Not Annualized
(c) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
49
<Page>
<Table>
<Caption>
INCOME AND EQUITY FUND
-------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.33 $ 9.91 $ 10.31 $ 10.43 $ 10.39
------------------ --------- --------- --------- ---------
Income from investing operations
Net investment Income (0.03) 0.33 0.39 0.42 0.52
Net realized and unrealized gains
(losses) on securities 0.07 0.31 (0.49) (0.14) 0.07
------------------ --------- --------- --------- ---------
Total from investment operations 0.04 0.64 (0.10) 0.28 0.59
------------------ --------- --------- --------- ---------
Less distributions
From net investment income (0.08) (0.22) (0.30) (0.40) (0.55)
From net capital gains - - - - -
------------------ --------- --------- --------- ---------
Total distributions (0.08) (0.22) (0.30) (0.40) (0.55)
------------------ --------- --------- --------- ---------
Net asset value, end of period $ 10.29 $ 10.33 $ 9.91 $ 10.31 $ 10.43
================== ========= ========= ========= =========
TOTAL INVESTMENT RETURN (a) 0.33%(b) 6.63% (0.92)% 2.63% 6.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 3,058 $ 1,835 $ 2,117 $ 2,708 $ 2,217
Ratio of net investment income to average
net assets
With expense reductions 1.84%(c) 2.92% 3.43% 4.28% 4.67%
Without expense reductions 1.14%(c) 1.84% 1.75% 2.66% 2.76%
Ratio of expenses to average net assets
With expense reductions 1.94%(c) 1.85% 1.85% 1.85% 1.83%
Without expense reductions 2.64%(c) 2.94% 3.53% 3.47% 3.75%
Fund portfolio turnover rate 30.68%(c) 71.02% 91.50% 43.38% 21.83%
<Caption>
CLASS C
-------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.90 $ 9.60 $ 10.03 $ 10.26 $ 10.15
------------------ --------- --------- --------- ---------
Income from investing operations
Net investment Income 0.07 0.24 0.34 0.42 0.35
Net realized and unrealized gains
(losses) on securities (0.06) 0.32 (0.51) (0.22) 0.10
------------------ --------- --------- --------- ---------
Total from investment operations 0.01 0.56 (0.17) 0.20 0.45
------------------ --------- --------- --------- ---------
Less distributions
From net investment income (0.04) (0.26) (0.26) (0.43) (0.34)
From net capital gains - - - - -
------------------ --------- --------- --------- ---------
Total distributions (0.04) (0.26) (0.26) (0.43) (0.34)
------------------ --------- --------- --------- ---------
Net asset value, end of period $ 9.87 $ 9.90 $ 9.60 $ 10.03 $ 10.26
================== ========= ========= ========= =========
TOTAL INVESTMENT RETURN 0.08%(b) 5.88% (1.60)% 1.81% 4.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 7,079 $ 5,416 $ 3,284 $ 1,365 $ 815
Ratio of net investment income to average
net assets
With expense reductions 1.04%(c) 2.10% 2.95% 3.58% 3.90%
Without expense reductions 0.35%(c) 1.03% 1.15% 1.65% 1.88%
Ratio of expenses to average net assets
With expense reductions 2.69%(c) 2.60% 2.60% 2.60% 2.55%
Without expense reductions 3.38%(c) 3.67% 4.39% 4.54% 4.57%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
(b) Not Annualized
(c) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
50
<Page>
<Table>
<Caption>
BALANCED FUND
-------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 15.88 $ 13.69 $ 14.42 $ 15.22 $ 14.04
------------------ --------- --------- --------- ---------
Income from investing operations
Net investment income 0.08 0.21 0.06 0.10 0.21
Net realized and unrealized gains
(losses) on securities (0.19) 2.34 (0.79) (0.81) 1.19
------------------ --------- --------- --------- ---------
Total from investment operations (0.11) 2.55 (0.73) (0.71) 1.40
------------------ --------- --------- --------- ---------
Less distributions
From net investment income - (0.18) - (0.09) (0.15)
From net capital gains - (0.18) - - (0.07)
------------------ --------- --------- --------- ---------
Total distributions - (0.36) - (0.09) (0.22)
------------------ --------- --------- --------- ---------
Net asset value, end of period $ 15.77 $ 15.88 $ 13.69 $ 14.42 $ 15.22
================== ========= ========= ========= =========
TOTAL INVESTMENT RETURN (a) (0.69)%(b) 18.63% (5.05)% (4.69)% 9.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 5,435 $ 4,739 $ 3,977 $ 5,013 $ 5,942
Ratio of net investment income to average
net assets
With expense reductions 1.45%(c) 1.44% 0.30% 0.55% 1.15%
Without expense reductions 1.45%(c) 1.44% 0.30% 0.55% 0.74%
Ratio of expenses to average net assets
With expense reductions 2.40%(c) 2.86% 3.47% 3.22% 2.88%
Without expense reductions 2.40%(c) 2.86% 3.47% 3.22% 3.28%
Fund portfolio turnover rate 46.10%(c) 58.73% 57.74% 42.20% 43.30%
<Caption>
CLASS C
-------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 15.49 $ 13.40 $ 14.18 $ 14.99 $ 13.91
------------------ --------- --------- --------- ---------
Income from investing operations
Net investment income 0.05 0.09 0.01 0.01 0.07
Net realized and unrealized gains
(losses) on securities (0.22) 2.26 (0.79) (0.80) 1.17
------------------ --------- --------- --------- ---------
Total from investment operations (0.17) 2.35 (0.78) (0.79) 1.24
------------------ --------- --------- --------- ---------
Less distributions
From net investment income - (0.08) - (0.02) (0.09)
From net capital gains - (0.18) - - (0.07)
------------------ --------- --------- --------- ---------
Total distributions - (0.26) - (0.02) (0.16)
------------------ --------- --------- --------- ---------
Net asset value, end of period $ 15.32 $ 15.49 $ 13.40 $ 14.18 $ 14.99
================== ========= ========= ========= =========
TOTAL INVESTMENT RETURN (1.10)%(b) 17.58% (5.49)% (5.25)% 8.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 26,492 $ 23,353 $ 14,035 $ 7,404 $ 4,559
Ratio of net investment income to average
net assets
With expense reductions 0.65%(c) 0.67% (0.16)% (0.08)% 0.39%
Without expense reductions 0.65%(c) 0.67% (0.16)% (0.08)% (0.01)%
Ratio of expenses to average net assets
With expense reductions 3.19%(c) 3.66% 4.15% 3.99% 3.63%
Without expense reductions 3.19%(c) 3.66% 4.15% 3.99% 4.03%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
(b) Not Annualized
(c) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
51
<Page>
<Table>
<Caption>
GROWTH FUND
-------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 7.14 $ 5.48 $ 7.04 $ 9.83 $ 11.67
------------------ --------- --------- --------- ---------
Income from investing operations
Net investment expense (0.01) (0.07) (0.12) (0.11) (0.01)
Net realized and unrealized gains
(losses) on securities 0.40 1.73 (1.44) (2.68) (1.83)
------------------ --------- --------- --------- ---------
Total from investment operations 0.39 1.66 (1.56) (2.79) (1.84)
------------------ --------- --------- --------- ---------
Less distributions
From net investment income - - - - -
From net capital gains - - - - -
------------------ --------- --------- --------- ---------
Total distributions - - - - -
------------------ --------- --------- --------- ---------
Net asset value, end of period $ 7.53 $ 7.14 $ 5.48 $ 7.04 $ 9.83
================== ========= ========= ========= =========
TOTAL INVESTMENT RETURN (a) 5.46%(b) 30.29% (22.16)% (28.38)% (15.77)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 878 $ 669 $ 464 $ 588 $ 825
Ratio of net investment income to average
net assets
With expense reductions (2.31)%(c) (1.69)% (1.97)% (1.26)% (0.24)%
Without expense reductions (6.36)%(c) (7.44)% (8.25)% (5.44)% (3.98)%
Ratio of expenses to average net assets
With expense reductions 2.95%(c) 2.48% 2.50% 2.44% 2.50%
Without expense reductions 7.00%(c) 8.23% 8.77% 6.62% 6.23%
Fund portfolio turnover rate 12.62%(c) 34.58% 78.06% 57.61% 16.00%
<Caption>
CLASS C
-------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 6.83 $ 5.33 $ 6.89 $ 9.70 $ 11.61
------------------ --------- --------- --------- ---------
Income from investing operations
Net investment expense (0.06) (0.16) (0.44) (0.22) (0.06)
Net realized and unrealized gains
(losses) on securities 0.40 1.66 (1.12) (2.59) (1.85)
------------------ --------- --------- --------- ---------
Total from investment operations 0.34 1.50 (1.56) (2.81) (1.91)
------------------ --------- --------- --------- ---------
Less distributions
From net investment income - - - - -
From net capital gains - - - - -
------------------ --------- --------- --------- ---------
Total distributions - - - - -
------------------ --------- --------- --------- ---------
Net asset value, end of period $ 7.17 $ 6.83 $ 5.33 $ 6.89 $ 9.70
================== ========= ========= ========= =========
TOTAL INVESTMENT RETURN 4.98%(b) 28.14% (22.64)% (28.97)% (16.45)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 277 $ 251 $ 190 $ 439 $ 728
Ratio of net investment income to average
net assets
With expense reductions (3.10)%(c) (2.47)% (2.75)% (2.04)% (0.97)%
Without expense reductions (7.18)%(c) (8.18)% (8.67)% (5.59)% (4.04)%
Ratio of expenses to average net assets
With expense reductions 3.74%(c) 3.25% 3.25% 3.23% 3.25%
Without expense reductions 7.82%(c) 8.96% 9.17% 6.77% 6.32%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
(b) Not Annualized
(c) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
52
<Page>
<Table>
<Caption>
MULTI-CAP VALUE FUND
-----------------------------------------------------------------
CLASS A
-----------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR APRIL 1, 2002(a)
ENDED ENDED TO
JUNE 30, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
-----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 11.46 $ 7.95 $ 10.00
------------------ ----------------- -----------------
Income from investing operations
Net investment expense (0.01) (0.09) (0.07)
Net realized and unrealized gains
(losses) on securities (0.04) 3.60 (1.98)
------------------ ----------------- -----------------
Total from investment operations (0.05) 3.51 (2.05)
------------------ ----------------- -----------------
Less distributions
From net investment income - - -
From net capital gains - - -
------------------ ----------------- -----------------
Total distributions - - -
------------------ ----------------- -----------------
Net asset value, end of period $ 11.41 $ 11.46 $ 7.95
================== ================= =================
TOTAL INVESTMENT RETURN (b) (0.44)%(c) 44.15% (20.50)%(c)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 1,866 $ 1,180 $ 503
Ratio of net investment income to average
net assets
With expense reductions (1.50)%(d) (1.67)% (1.44)%(d)
Without expense reductions (2.00)%(d) (3.14)% (5.65)%(d)
Ratio of expenses to average net assets
With expense reductions 2.59%(d) 2.49% 2.49%(d)
Without expense reductions 3.08%(d) 3.96% 6.69%(d)
Fund portfolio turnover rate 29.76%(d) 20.16% 8.23%(d)
<Caption>
CLASS C
-----------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR APRIL 1, 2002(a)
ENDED ENDED TO
JUNE 30, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
-----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 11.33 $ 7.91 $ 10.00
------------------ ----------------- -----------------
Income from investing operations
Net investment expense (0.06) 0.32 (0.52)
Net realized and unrealized gains
(losses) on securities (0.03) 3.10 (1.57)
------------------ ----------------- -----------------
Total from investment operations (0.09) 3.42 (2.09)
------------------ ----------------- -----------------
Less distributions
From net investment income - - -
From net capital gains - - -
------------------ ----------------- -----------------
Total distributions - - -
------------------ ----------------- -----------------
Net asset value, end of period $ 11.24 $ 11.33 $ 7.91
================== ================= =================
TOTAL INVESTMENT RETURN (b) (0.79)%(c) 43.24% (20.90)%(c)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 4,975 $ 3,537 $ 1,247
Ratio of net investment income to average
net assets
With expense reductions (2.32)%(d) (2.41)% (2.20)%(d)
Without expense reductions (2.81)%(d) (3.90)% (6.08)%(d)
Ratio of expenses to average net assets
With expense reductions 3.39%(d) 3.24% 3.23%(d)
Without expense reductions 3.89%(d) 4.74% 7.11%(d)
</Table>
(a) Commencement of operations
(b) The Fund's maximum sales charge is not included in the total return
computation
(c) Not Annualized
(d) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
53
<Page>
<Table>
<Caption>
SMALL CAP FUND
-------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 18.77 $ 10.32 $ 15.23 $ 13.42 $ 11.98
------------------ --------- --------- --------- ---------
Income from investing operations
Net investment expense 0.62 (0.37) (0.85) (0.42) (0.79)
Net realized and unrealized gains
(losses) on securities 2.90 8.95 (4.05) 3.11 2.32
------------------ --------- --------- --------- ---------
Total from investment operations 3.52 8.58 (4.90) 2.69 1.53
------------------ --------- --------- --------- ---------
Less distributions
From net investment income - - - - -
From net capital gains - (0.13) (0.01) (0.88) (0.09)
------------------ --------- --------- --------- ---------
Total distributions - (0.13) (0.01) (0.88) (0.09)
------------------ --------- --------- --------- ---------
Net asset value, end of period $ 22.29 $ 18.77 $ 10.32 $ 15.23 $ 13.42
================== ========= ========= ========= =========
TOTAL INVESTMENT RETURN (a) 18.75%(b) 83.21% (32.20)% 20.23% 12.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 13,363 $ 8,961 $ 4,763 $ 7,715 $ 6,541
Ratio of net investment income to average
net assets
With expense reductions (2.96)%(c) (4.06)% (4.01)% (3.44)% (3.20)%
Without expense reductions (2.96)%(c) (4.06)% (4.01)% (3.44)% (3.20)%
Ratio of expenses to average net assets
With expense reductions 3.19%(c) 4.44% 4.52% 3.74% 3.58%
Without expense reductions 3.19%(c) 4.44% 4.52% 3.74% 3.58%
Fund portfolio turnover rate 9.08%(c) 39.95% 23.39% 43.89% 44.82%
<Caption>
CLASS C
-------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 17.41 $ 9.65 $ 14.47 $ 13.04 $ 11.93
------------------ --------- --------- --------- ---------
Income from investing operations
Net investment expense 0.39 0.04 (0.88) (0.08) (0.78)
Net realized and unrealized gains
(losses) on securities 2.81 7.85 (3.93) 2.39 1.98
------------------ --------- --------- --------- ---------
Total from investment operations 3.20 7.89 (4.81) 2.31 1.20
------------------ --------- --------- --------- ---------
Less distributions
From net investment income - - - - -
From net capital gains - (0.13) (0.01) (0.88) (0.09)
------------------ --------- --------- --------- ---------
Total distributions - (0.13) (0.01) (0.88) (0.09)
------------------ --------- --------- --------- ---------
Net asset value, end of period $ 20.61 $ 17.41 $ 9.65 $ 14.47 $ 13.04
================== ========= ========= ========= =========
TOTAL INVESTMENT RETURN 18.38%(b) 81.83% -33.27% 17.91% 10.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 2,234 $ 1,274 $ 543 $ 886 $ 454
Ratio of net investment income to average
net assets
With expense reductions (3.72)%(c) (4.88)% (5.47)% (5.48)% (5.52)%
Without expense reductions (3.72)%(c) (4.88)% (5.47)% (5.48)% (5.52)%
Ratio of expenses to average net assets
With expense reductions 3.95%(c) 5.26% 5.97% 5.78% 5.90%
Without expense reductions 3.95%(c) 5.26% 5.97% 5.78% 5.90%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
(b) Not Annualized
(c) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
54
<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 2003 - Present: Retired 6 Pacific Advisors None
1 North Ormond Avenue Mutual Funds
Havertown, PA 19083 1970 - 2003: President
Fringe Benefits, Inc/
Financial Foresight, Ltd.,
d/b/a The Brinker
Organization (Financial
Services Companies)
Victoria Breen (53) Director and Since 1992 1992 - Present: Assistant 6 Pacific Advisors None
603 West Ojai Avenue Assistant Secretary and Director, Mutual Funds
Ojai, CA 93023 Secretary Pacific 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 (54) Vice President Since 1992 1992 - Present: Executive 6 Pacific Advisors None
206 North Jackson Street and Secretary Vice President and Mutual Funds
Suite 301 Director, Pacific Global
Glendale, CA 91206 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>
55
<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 2004 - Present: Secretary, 6 Pacific Advisors None
206 North Jackson Street Secretary Pacific Global Investment Mutual Funds
Suite 301 Management Company
Glendale, CA 91206
2002 - 2004: Assistant
Secretary, Pacific Global
Investment Management
Company
2002 - Present: Assistant
Secretary, Pacific Global
Pacific Global Fund
Distributors, Inc. and
Pacific Global Investor
Services, Inc.
1999 - Present: Marketing
Coordinator, Pacific Global
Investment Management
Company
George A. Henning (57) President and Since 1992 1991 - Present: Chairman, 6 Pacific Advisors None
206 North Jackson Street Chairman President, and Director, Mutual Funds
Suite 301 Pacific Global Investment
Glendale, CA 91206 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: Executive 6 Pacific Advisors None
206 North Jackson Street Vice President, Treasurer, Mutual Funds
Suite 301 Pacific Global Investment
Glendale, CA 91206 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>
56
<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 2004 - Present: Consultant 6 Pacific Advisors None
5924 Colodny Mutual Funds
Agoura, CA 91301 2002 - 2004: Executive Vice
President, Sammy 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 (79) Director Since 1995 1992 - Present: Director, 6 Pacific Advisors None
107 S. Barrington Place Medical Treatment Mutual Funds
Los Angeles, CA 90049 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 (74) Director Since 1992 1992 - Present: Retired 6 Pacific Advisors None
5262 Bridgetown Place Mutual Funds
Westlake Village, CA 91362
Louise K. Taylor, Ph.D (57) Director Since 1992 1991 - Present: 6 Pacific Advisors None
325 East Huntington Dr. Superintendent, Monrovia Mutual Funds
Monrovia, CA 91016 Unified 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.
57
<Page>
PACIFIC ADVISORS FUND INC.
NOTES
58
<Page>
NOTES
59
<Page>
NOTES
60
<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>
[GRAPHIC]
PACIFIC GLOBAL FUND DISTRIBUTORS, INC.
206 NORTH JACKSON STREET, SUITE 301
GLENDALE, CALIFORNIA 91206
pg101.898
<Page>
Item 2. Not required.
Item 3. Not required.
Item 4. Not required.
Item 5. Not applicable.
Item 6. (Reserved)
Item 7. Not applicable.
Item 8. Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
On February 21, 2004, the Registrant adopted a Nominating Committee
Charter that establishes procedures by which shareholders may
recommend nominees to the Registrant's Board of Directors.
Shareholders may submit recommendations for nominees to the Nominating
Committee, c/o Pacific Global Investors Services Inc., at North
Jackson Street, Suite 301, Glendale, CA 91206, which will forward any
recommendations received to the members of the Nominating Committee.
To be considered, shareholder recommendations must be received a
reasonable time before the Registrant begins to print and mail proxy
materials for the relevant shareholder meeting. Shareholder
recommendations will be evaluated in light of the Registrant's needs
and the criteria established in the Nominating Committee Charter.
Shareholders will be informed of the right to recommend nominees to
the Registrant's Board of Directors through the Registrant's [
prospectus.
Item 10. 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-CSRS, 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 over financial reporting (as defined in Rule
30a-3(d) under the Investment Company Act of 1940) or in other factors
that could significantly affect these controls, including no
significant deficiencies or material weaknesses that required
corrective action, during the last fiscal half-year that have
materially affected, or are reasonably likely to materially affect,
the Registrant's internal control over financial reporting.
<Page>
Item 11. Exhibits
(a)(1) Not applicable.
(a)(2) Certifications required by Item 11(a) of Form N-CSRS 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
-----------------------------------
George A. Henning
Chairman, Pacific Advisors Fund Inc.
Date: September 8, 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: /s/ George A. Henning
-----------------------------------
George A. Henning
Chief Executive Officer
Date: September 8, 2004
By: /s/ Barbara A. Kelley
-----------------------------------
Barbara A. Kelley
Chief Financial Officer
Date: September 8, 2004